Kathryn E. Spier

Domenico De Sole Professor of Law

Hauser 302

617-496-0019

Assistant: Susan Norton / 617-496-2609

Biography

Kathryn E. Spier is the Domenico De Sole Professor of Law at the Harvard Law School and President Emeritus of the American Law and Economics Association.  She received her PhD from MIT in 1989, and her BA in mathematics and economics from Yale in 1985. Before joining the Harvard Law School in 2007, she was for 13 years a professor in the Management and Strategy department at the Kellogg Graduate School of Management at Northwestern University and served as the Richard M. Paget Distinguished Professor. Before that, she served as assistant and associate professor in the Harvard Economics Department. Professor Spier is currently serving as a co-editor of the RAND Journal of Economics and is a Research Associate in the Law and Economics Group of the National Bureau of Economic Research. She has published extensively in the areas of law and economics and industrial organization. Her areas of interest include the economics of litigation, contracts, tort law, antitrust, and business organization.  Professor Spier’s current research on contracts and bargaining is supported by a grant from the National Science Foundation.

Areas of Interest

Claudia M. Landeo & Katheryn E. Spier, Naked Exclusion: An Experimental Study of Contracts with Externalities, 99 Am. Econ. Rev. 1850 (2009).
Categories:
Corporate Law & Securities
,
Banking & Finance
,
Disciplinary Perspectives & Law
Sub-Categories:
Contracts
,
Business Organizations
,
Law & Economics
Type: Article
Abstract
This paper reports the results of all experiment on exclusive contracts. We replicate the strategic environment described by Rasmusen, Ramseyer, and Wiley (1991) and Segal and Whinston (2000). Our findings are as follows. First, when the buyers can communicate, discrimination raises the likelihood of exclusion. Second, when the incumbent seller is unable to discriminate and must make the same offers to the buyers, communication reduces the likelihood of exclusion. Communication also induces more generous offers when the seller cannot discriminate, and divide-and-conquer offers when the seller call discriminate. Third, when communication is allowed, payoff endogeneity increases the likelihood of exclusion. (JEL C72, C91, D62, D86, K12, K21, L12, L42)
Kathryn Spier, Litigation, in The Handbook of Law and Economics 249 (A. Mitchell Polinsky & Steven M. Shavell eds., 2007).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Law & Economics
Type: Book
Abstract
The purpose of this chapter is to survey the academic literature on the economics of litigation and to synthesize its main themes. The chapter begins by introducing the basic economic framework for studying litigation and out-of-court settlement. One set of issues addressed is positive (or descriptive) in nature. Under what conditions will someone decide to file suit? What determines how much is spent on a lawsuit? When do cases settle out of court? Important normative issues are also addressed. Are the litigation decisions made by private parties in the interest of society as a whole? Next, the chapter surveys some of the more active areas in the litigation literature. Topics include rules of evidence, loser-pays rules, appeals, contingent fees for attorneys, alternative dispute resolution, class actions, and plea bargaining.
Bruce L. Hay & Kathryn E. Spier, Manufacturer Liability for Harm Caused by Consumers to Others, 95 Am. Econ. Rev. 1700 (2005).
Categories:
Consumer Finance
,
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Consumer Protection Law
,
Torts - Product Liability
,
Remedies
,
Litigation & Settlement
,
Law & Economics
Type: Article
Abstract
Should the manufacturer of a product be held legally responsible when a consumer, while using the product, harms someone else? We show that if consumers have deep pockets then manufacturer liability is not economically efficient. It is more efficient for the consumers themselves to bear responsibility for the harms that they cause. If homogeneous consumers have limited assets, then the most efficient rule is "residual-manufacturer liability" where the manufacturer pays the shortfall in damages not paid by the consumer. Residual-manufacturer liability distorts the market quantity when consumers' willingness to pay is correlated with their propensity to cause harm. It distorts product safety when consumers differ in their wealth levels. In both cases, consumer-only liability may be more efficient.
Albert H. Choi & Kathryn E. Spier, Taking a Financial Position in Your Opponent in Litigation (Va. Law & Econ. Research Paper No. 3, Nov. 7, 2016).
Categories:
Civil Practice & Procedure
Sub-Categories:
Litigation & Settlement
Type: Article
Abstract
We explore a model of litigation where the plaintiff can acquire a financial position in the defendant firm. The plaintiff gains a strategic advantage by taking a short financial position in the defendant’s stock. First, the plaintiff can turn what would otherwise be a negative expected value claim (even a frivolous one) into a positive expected value claim. Second, the short financial position raises the minimum amount the plaintiff is willing to accept in settlement, thereby increasing the settlement amount. Conversely, taking a long position in the defendant’s stock puts the plaintiff at a strategic disadvantage. When the capital market is initially unaware of the lawsuit, the plaintiff can profit both directly and indirectly from its financial position. When the defendant is privately informed of the merit of the case, the plaintiff balances the strategic benefits of short position against the costs of bargaining failure and trial. When credibility is an issue, short selling by the plaintiff can actually benefit both the plaintiff and the defendant by lowering the settlement amount and also reducing the probability of proceeding to costly trial.
Claudia M. Landeo & Katheryn E. Spier, Stipulated Damages as a Rent-Extraction Mechanism: Experimental Evidence, 172 J. Inst. & Theoretical Econ. 235 (2016).
Categories:
Banking & Finance
Sub-Categories:
Contracts
Type: Article
Abstract
This paper experimentally studies stipulated damages as a rent-extraction mechanism. We demonstrate that contract renegotiation induces the sellers to propose the lowest stipulated damages and the entrants to offer the highest price more frequently. We show that complete information about the entrant's cost lowers exclusion of high-cost entrants. Unanticipated findings are observed. The majority of sellers make more generous offers than expected. Rent extraction also occurs in renegotiation environments. Our findings from the dictatorial-seller and buyer–entrant communication treatments suggest the presence of social preferences.
Kathryn E. Spier & J.J. Prescott, Contracting on Litigation (Univ. Mich. Law & Econ. Research Paper No. 16-009, Apr. 8, 2016).
Categories:
Civil Practice & Procedure
Sub-Categories:
Litigation & Settlement
Type: Article
Abstract
Two risk-averse parties with different subjective beliefs negotiate in the shadow of a pending trial. Through contingent contracts, the parties can mitigate risk and/or speculate on the outcome. These contracts mimic the services provided by third-party investors, including litigation funders and insurance companies. The two parties (weakly) prefer to contract with the external capital market when third-party investors are risk neutral, litigation costs are exogenous, and the market is transaction-cost free. However, contracting with third parties increases the volume of litigation, the level of litigation spending, and the aggregate cost of risk bearing. In this sense, third-party involvement in litigation reduces social welfare.
J.J. Prescott & Kathryn E. Spier, A Comprehensive Theory of Civil Settlement, 91 N.Y.U. L.Rev. 59 (2016).
Categories:
Civil Practice & Procedure
Sub-Categories:
Litigation & Settlement
Type: Article
Abstract
A settlement is an agreement between parties to a dispute. In everyday parlance and in academic scholarship, settlement is juxtaposed with trial or some other method of dispute resolution in which a third-party factfinder ultimately picks a winner and announces a score. The "trial versus settlement" trope, however, represents a false choice; viewing settlement solely as a dispute-ending alternative to a costly trial leads to a narrow understanding of how dispute resolution should and often does work. In this Article, we describe and defend a much richer concept of settlement, amounting in effect to a continuum of possible agreements between litigants along many dimensions. "Fully" settling a case, of course, appears to completely resolve a dispute, and if parties to a dispute rely entirely on background default rules, a "naked" trial occurs. But in reality virtually every dispute is "partially" settled. The same forces that often lead parties to fully settle joint value maximization, cost minimization, and risk reduction will under certain conditions lead them to enter into many other forms of Pareto-improving agreements while continuing to actively litigate against one another. We identify three primary categories of these partial settlements: award-modification agreements, issue-modification agreements, and procedure-modification agreements. We provide real-world examples of each and rigorously link them to the underlying incentives facing litigants. Along the way, we use our analysis to characterize unknown or rarely observed partial settlement agreements that nevertheless seem theoretically attractive, and we allude to potential reasons for their scarcity within the context of our framework. Finally, we study partial settlements and how they interact with each other in real-world adjudication using new and unique data from New York's Summary Jury Trial Program. Patterns in the data are consistent with parties using partial settlement terms both as substitutes and as complements for other terms, depending on the context, and suggest that entering into a partial settlement can reduce the attractiveness of full settlement. We conclude by briefly discussing the distinctive welfare implications of partial settlements.
James D. Dana, Jr. & Kathryn E. Spier, Do Tying, Bundling, and Other Purchase Restraints Increase Product Quality?, 43 Int’l J. Indus. Org. 142 (2015).
Categories:
Consumer Finance
,
Corporate Law & Securities
Sub-Categories:
Consumer Protection Law
,
Antitrust & Competition Law
Type: Article
Abstract
Tying, bundling, minimum purchase requirements, loyalty discounts, exclusive dealing, and other purchase restraints can create stronger incentives for firms to invest in product quality. In our first example, the firm sells a durable experience good and a complementary non-durable good to a representative consumer. Tying shifts profits from the durable to the non-durable good, making profits more sensitive to the consumer's experience. In our second example, the firm sells a single experience good to consumers with heterogeneous demands. Minimum purchase requirements screen out the low-volume consumers who would otherwise free ride on the superior monitoring of the high-volume consumers. The examples illustrate that purchase restraints can increase both firm profits and consumer surplus by making firm profits more sensitive to consumer experience, either directly by giving the consumer more control over the stream of profits or indirectly by constraining consumers to monitor more intensively.
Claudia M. Landeo & Kathryn E. Spier, Incentive Contracts For Teams: Experimental Evidence, 119 J. Econ. Behav. & Org. 496 (2015).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Law & Behavioral Sciences
Type: Article
Abstract
This paper reports the results of an experiment on incentive contracts for teams. The agents, whose efforts are complementary, are rewarded according to a sharing rule chosen by the principal. Depending on the sharing rule, the agents confront endogenous prisoner's dilemma or stag-hunt environments. Our main findings are as follows. First, we demonstrate that ongoing interaction among team members positively affects the principal's payoff. Greater team cooperation is successfully induced with less generous sharing rules in infinitely repeated environments. Second, we provide evidence of the positive effects of communication on team cooperation in the absence of ongoing team interaction. Fostering communication among team members does not significantly affect the principal's payoff, suggesting that agents’ communication is an imperfect substitute for ongoing team interaction. Third, we show that offering low sharing rules can backfire. The agents are willing to engage in costly punishment (shirking) as retaliation for low offers from the principal. Our findings suggest that offering low sharing rules is perceived by the agents as unkind behavior and hence, triggers negative reciprocity.
James D. Dana & Kathryn E. Spier, Bundling and Quality Assurance (Northeastern Univ. D’Amore-McKim Sch. of Bus. Research Paper, Aug. 27, 2015).
Categories:
Consumer Finance
,
Disciplinary Perspectives & Law
,
Corporate Law & Securities
Sub-Categories:
Consumer Protection Law
,
Antitrust & Competition Law
,
Law & Economics
Type: Article
Abstract
We consider a repeated moral hazard model of product quality choice by a multiproduct firm selling experience goods with imperfect private monitoring. When consumers receive imperfect private signals of product quality, consuming two products from the same firm improves monitoring. Monitoring by consumers has a positive externality on other consumers, but consumers ignore this when making their purchase decisions. Product bundling improves product quality by constraining consumers to purchase both goods and monitor more effectively. The social and private value of bundling is even larger if (1) consumers can only attribute a negative signal to a pair of complementary products and not to a specific product, and (2) if one of the two goods is a durable and the other is a complementary nondurable.
J.J. Prescott, Kathryn E. Spier & Albert Yoon, 审判与和解:高低协议研究 [Trial and Settlement: A Study of High-Low Agreements], 80 比较: Comp. Stud. 154 (2015) (Yajie Xin, trans.).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Empirical Legal Studies
Type: Article
David Rosenberg & Kathryn E. Spier, Incentives to Invest in Litigation and the Superiority of the Class Action, 6 J. Legal Analysis 305 (2014).
Categories:
Civil Practice & Procedure
Sub-Categories:
Class Action Litigation
,
Litigation & Settlement
Type: Article
Abstract
We formally demonstrate the general case for class action in a rent-seeking contest model, explaining why separate action adjudication is biased in the defendant's favor and collective adjudication is bias free. Separate action bias arises from the defendant's investment advantage in capitalizing on centralized control over the aggregate (classwide) stake in the common question defense, while the plaintiff, with only an individual recovery at stake, spends much less. Class action eliminates bias by enabling both parties to make their best case through centralized optimal classwide investments. Our social benefit-cost analysis shows that class action surpasses alternative methods for achieving bias-free adjudication.
Claudia M. Landeo & Kathryn E. Spier, Irreconcilable Differences: Judicial Resolution of Business Deadlock, 81 U. Chi. L. Rev. 203 (2014).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
Type: Article
Albert H. Choi & Kathryn E. Spier, Should Consumers be Permitted to Waive Products Liability? Product Safety, Private Contracts, and Adverse Selection, 30 J. Law Econ. & Org. 734 (2014).
Categories:
Civil Practice & Procedure
,
Consumer Finance
Sub-Categories:
Consumer Contracts
,
Torts - Product Liability
Type: Article
Abstract
A potentially dangerous product is supplied by a competitive market. The likelihood of a product-related accident depends on the unobservable precautions taken by the manufacturer and on the risk type of the consumer. Contracts include the price to be paid by the consumer ex ante and stipulated damages to be paid by the firm ex post in the event of an accident. Although the stipulated damage payments are a potential solution to the moral hazard problem, firms have a private incentive to reduce the stipulated damages (and simultaneously lower the up front price) in order to attract the safer consumers who are less costly to serve. The competitive equilibrium-if an equilibrium exists at all-features suboptimally low stipulated damages and correspondingly suboptimal levels of product safety. Imposing some degree of tort liability on firms for uncovered accident losses-and prohibiting private parties from waiving that liability-can improve social welfare.
J.J. Prescott, Kathryn E. Spier & Albert Yoon, Trial and Settlement: A Study of High-Low Agreements, 57 J. L. & Econ. 699 (2014).
Categories:
Civil Practice & Procedure
Sub-Categories:
Litigation & Settlement
Type: Article
Abstract
This article presents the first systematic theoretical and empirical study of high-low agreements in civil litigation. A high-low agreement is a private contract that, if signed by litigants before trial, constrains any plaintiff's recovery to a specified range. In our theoretical model, trial is both costly and risky. When litigants have divergent subjective beliefs and are mutually optimistic about their trial prospects, cases may fail to settle. In these cases, high-low agreements can be in litigants' mutual interest because they limit the risk of outlier awards while still allowing mutually beneficial speculation. Using claims data from a national insurance company, we describe the features of these agreements and empirically investigate the factors that may influence whether litigants discuss or enter into them. Our empirical findings are consistent with the predictions of the theoretical model. Other applications include the use of collars in mergers and acquisitions.
Kathryn E. Spier, Product Safety, Buybacks and the Post-Sale Duty to Warn, in Economic Models of Law (Thomas J. Miceli & Mathew J. Baker eds., 2014).
Categories:
Civil Practice & Procedure
Sub-Categories:
Torts - Product Liability
,
Torts - Negligence
Type: Book
Abstract
A manufacturer learns a product's risks after it has been sold and distributed to consumers. When held strictly liable for product-related injuries, the manufacturer offers to repurchase the product when the risk exceeds a threshold. Consumers accept the offer when their private valuations of consumption are smaller than the buyback price. The manufacturer's private incentives to stage a buyback are insufficient, the buyback price offered is too low, and the continued product usage by consumers is excessive. The ability of the manufacturer to repurchase the product ex post reduces the incentive to design safer products ex ante. A negligence rule, the "post-sale duty to warn," implements the social welfare benchmark.
Kathryn E. Spier & Claudia Landeo, Shotguns and Deadlocks, 31 Yale J. on Reg. (2014).
Categories:
Corporate Law & Securities
,
Civil Practice & Procedure
Sub-Categories:
Business Organizations
,
Litigation & Settlement
,
Remedies
Type: Article
Abstract
This Article studies business deadlocks and their resolution. We advance a proposal to reform the way that courts resolve business deadlocks and value business assets. Specifically, we argue that Shotgun mechanisms, where the court mandates one owner to name a single buy-sell price and compels the other owner to either buy or sell shares at the named price, should play a larger role in the judicial management of business divorce. Since the party proposing the offer may end up either buying or selling shares, the party has an incentive to identify and name a fair price. In addition, Shotgun mechanisms will avoid inefficient delays and administrative costs associated with external appraisers and auctions. Our proposal works within the framework of current statutory rules and case law. General partnerships and limited liability companies (LLCs), the most commonly chosen legal entities, are the focus of this study.
Claudia M. Landeo & Kathryn E. Spier, Shotgun Mechanisms for Common-Value Partnerships: The Unassigned-Offeror Problem, 121 Econ. Letters 390 (2013).
Categories:
Corporate Law & Securities
Sub-Categories:
Business Organizations
Type: Article
Abstract
Shotgun clauses are commonly included in the business agreements of partnerships and limited liability companies (LLCs), but the role of offeror typically remains unassigned. In a common-value, one-sided asymmetric information setting, unequal and inefficient outcomes occur with an unassigned offeror. Experimental results are aligned with our theory.
Claudia M. Landeo & Kathryn E. Spier, Exclusive Dealing and Market Foreclosure: Further Experimental Results, 168 J. Inst. & Theoretical Econ. 150 (2012).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Contracts
,
Corporate Law
Type: Article
Abstract
This paper reports further experimental results on exclusive dealing contracts. We extend Landeo and Spier's (2009) work by studying Naked Exclusion in a strategic environment that involves a four-player, two-stage game. In addition to the roles of seller and buyers, our experimental environment includes the role of a potential entrant (a fourth passive player). Our findings are as follows. First, payoff endogeneity increases the likelihood of exclusion. Second, communication between the potential entrant and the buyers increases buyers' coordination on their preferred equilibrium (equilibrium with entry) and hence, reduces the likelihood of exclusion. Entrant buyers communication also induces more generous offers.
Kathryn E. Spier, Product Safety, Buybacks, and the Post-Sale Duty to Warn, 27 J.L. Econ. & Org. 515 (2011).
Categories:
Civil Practice & Procedure
Sub-Categories:
Torts - Product Liability
,
Torts - Negligence
Type: Article
Abstract
A manufacturer learns a product's risks after it has been sold and distributed to consumers. When held strictly liable for product-related injuries, the manufacturer offers to repurchase the product when the risk exceeds a threshold. Consumers accept the offer when their private valuations of consumption are smaller than the buyback price. The manufacturer's private incentives to stage a buyback are insufficient, the buyback price offered is too low, and the continued product usage by consumers is excessive. The ability of the manufacturer to repurchase the product ex post reduces the incentive to design safer products ex ante. A negligence rule, the "post-sale duty to warn," implements the social welfare benchmark.
Richard R.W. Brooks, Claudia M. Landeo & Kathryn E. Spier, Trigger Happy or Gun Shy? Dissolving common-value partnerships with Texas shootouts, 41 RAND J. Econ. 649 (2010).
Categories:
Corporate Law & Securities
Sub-Categories:
Business Organizations
Type: Article
Abstract
The operating agreements of many business ventures include clauses to facilitate the exit of joint owners. In so-called Texas Shootouts, one owner names a single buy-sell price and the other owner is compelled to either buy or sell shares at that named price. Despite their prevalence in real-world contracts, Texas Shootouts are rarely triggered. In our theoretical framework, sole ownership is more efficient than joint ownership. Negotiations are frustrated, however, by the presence of asymmetric information. In equilibrium, owners eschew buy-sell offers in favor of simple offers to buy or to sell shares and bargaining failures arise. Experimental data support these findings.
Yeon-Koo Che & Kathryn E. Spier, Strategic Judgment Proofing 39 Rand J. Econ. 926 (2008).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Corporate Bankruptcy & Reorganization
Type: Article
Abstract
A liquidity-constrained entrepreneur raises capital to finance a business activity that may harm bystanders. The entrepreneur raises senior (secured) debt to shield assets from the tort victims in bankruptcy. For a fixed level of borrowing, senior debt creates better incentives for precaution taking than either junior debt or outside equity. The entrepreneur's level of borrowing is, however, socially excessive. Giving tort victims priority over senior debtholders in bankruptcy prevents overleveraging but leads to suboptimal incentives. Lender liability exacerbates the incentive problem even further. A limited seniority rule dominates these alternatives. Shareholder liability, mandatory liability insurance, and punitive damages are also discussed.
Kathryn E. Spier, Economics of Litigation, in The New Palgrave Dictionary of Economics (Steven N. Durlauf & Lawrence E. Blume eds., 2d ed. 2008).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Law & Economics
Type: Book
Abstract
This article begins by introducing the basic economic framework for studying litigation and out-of-court settlement. One set of issues addressed is positive (or descriptive) in nature. Under what conditions will someone decide to file suit? When do cases settle out of court? Normative issues are also addressed. Are these private litigation decisions in the interest of society more broadly? Next, the article surveys some of the more active areas in the litigation literature including rules of evidence, loser-pays rules, appeals, contingent fees for attorneys, alternative dispute resolution, class actions, and plea bargaining.
Yeon-Koo Che & Kathryn E. Spier, Exploiting Plaintiffs Through Settlement: Divide and Conquer, 164 J. Inst. & Theoretical Econ. 4 (2008).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Class Action Litigation
,
Law & Economics
Type: Presentation
Abstract
This paper considers settlement negotiations between a single defendant and N plaintiffs when there are Fixed costs of litigation. When making simultaneous take-it-or-leave-it offers to the plaintiffs, the defendant adopts a divide and conquer strategy. Plaintiffs settle their claims for less than they are jointly worth. The problem is worse when N is larger, the offers are sequential, and the plaintiffs make offers instead. Although divide and conquer strategies dilute the defendant's incentives, they increase the settlement rate and reduce litigation spending. Plaintiffs can raise their joint payoff through transfer payments, voting rules, and covenants not to accept discriminatory offers.
James D. Dana & Kathryn E. Spier, Entry Deterrence in a Duopoly Market, 7 B. E. J. of Econ. Analysis & Pol'y. 1 (2007).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Economics
,
Business Organizations
Type: Article
Abstract
In a homogeneous good, Cournot duopoly model, entry may occur even when the potential entrant has no cost advantage and no independent access to distribution. By sinking its costs of production before negotiating with the incumbents, the entrant creates an externality that induces the incumbents to bid more aggressively for the distribution rights to its output. Each incumbent is willing to pay up to the incremental profit earned from the additional output plus the incremental loss avoided by keeping the output away from its rival. This implies that the incumbents are willing to pay up to the market price for each unit of available output. A sequential game in which the incumbents produce first is analyzed, and the conditions under which entry is deterred by incumbents' preemptive capacity expansions are derived.
Bruce L. Hay & Kathryn E. Spier, Burdens of Proof in Civil Litigation: An Economic Analysis, in The Economics of Evidence, Procedure, and Litigation ch. 16 (Chris W. Sanchirico ed., Edward Elgar Publ'g 2007).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Practice & Procedure
,
Law & Economics
Type: Book
Xinyu Hua & Kathryn E. Spier, Information and Externalities in Sequential Litigation, 161 J. Inst. & Theoretical Econ. 215 (2005).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Law & Economics
Type: Article
Abstract
The information created and disseminated through the litigation process can have social value. Suppose a long-lived plaintiff is suing a defendant for damages sustained in an accident. The plaintiff may suffer similar damages in future accidents involving different defendants. Potential injurers update their beliefs after observing the first case and subsequently fine-tune their precautions to avoid accidents. The joint incentive of the plaintiff and the first defendant to create public information through litigation is too small. The optimal liability rule trades off providing future injurers with incentives to take precautions and providing the plaintiff with incentives to create information.
David Dranove & Kathryn E. Spier, A Theory of Utilization Review, 2 Contributions to Econ. Analysis & Pol'y (2003).
Categories:
Disciplinary Perspectives & Law
,
Health Care
Sub-Categories:
Law & Economics
,
Health Law & Policy
Type: Article
Abstract
Through utilization review (UR), managed care organizations (MCOs) monitor and alter physician treatment decisions. We show that the value of UR depends on physician incentives. Not surprisingly, when physicians have incentives to significantly overtreat patients, UR can improve social welfare by eliminating unnecessary utilization. More surprisingly, UR can also improve welfare when physicians have incentives to significantly undertreat patients. In this case, UR filters out the least valuable cases, encouraging physicians to recommend more treatments. We also show that the effectiveness of UR depends on MCO precommitment to a treatment approval threshold. Ex ante optimal precommitment can make it appear that the MCO is inappropriately withholding care ex post.
Kathryn E. Spier, The Use of 'Most-Favored-Nation' Clauses in Settlement of Litigation, 34 RAND J. Econ. 78 (2003).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Negotiation & Alternative Dispute Resolution
,
Law & Economics
Type: Article
Abstract
Many settlement agreements in lawsuits involving either multiple plaintiffs or multiple defendants include so-called "most-favored-nation" clauses. If a defendant facing multiple claims, for example, settles with some plaintiffs early and settles with additional plaintiffs later for a greater amount, then the early settlers will receive the more favorable terms as well. These MFN provisions have been prominent in the recent MP3.com case, as well as tobacco litigation, class actions, and many antitrust lawsuits. This paper considers a defendant who is facing a large group of heterogeneous plaintiffs. Each plaintiff has private information about the (expected) award that he or she will receive should the case go to trial. MFN clauses are valuable because they commit the defendant not to raise his offer over time. This has two important effects. First, holding overall settlement rate fixed, MFNs encourage earlier settlement. Second, depending upon the distribution of plaintiff types, MFNs can either increase or decrease the overall settlement rate. Social welfare implications are discussed, and alternative theories, including the strategic use of MFNs to extract value from future plaintiffs, are explored.
Kathryn E. Spier, 'Tied to the Mast': Most-Favored-Nation Clauses in Settlement Contracts, 32 J. Legal Stud. 91 (2003).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Law & Economics
Type: Article
Kathryn E. Spier, Settlement with Multiple Plaintiffs: The Role of Insolvency, 18 J.L. Econ. & Org. 293 (2002).
Categories:
Civil Practice & Procedure
,
Corporate Law & Securities
,
Disciplinary Perspectives & Law
Sub-Categories:
Corporate Bankruptcy & Reorganization
,
Litigation & Settlement
,
Law & Economics
Type: Article
Abstract
This article considers settlement negotiations between one defendant and two plaintiffs when the defendant's assets are limited. Bargaining externalities exist: the acceptance of a settlement offer by one plaintiff may either increase or decrease the other plaintiff's expected payoff at trial. Negotiations fail when the two plaintiffs bargain independently of one another and their payoffs at trial are sufficiently correlated. Collective bargaining, where the plaintiffs accept offers that are in their mutual interest, leads to higher private and social welfare. For intermediate degrees of correlation, collective bargaining shifts bargaining surplus from the plaintiffs to the defendant. For low degrees of correlation, collective bargaining shifts surplus from the defendant to the plaintiffs. (Risk dominance is used to refine the set of equilibria in this last case.) The desirability of plaintiff opt‐outs, limited‐fund class actions under Rule 23(b)(1)(B), and Chapter 11 bankruptcy law are discussed.
Bruce L. Hay & Kathryn E. Spier, Burdens of Proof in Civil Litigation: An Economic Perspective, 26 J. Legal Stud. 413 (1997).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Practice & Procedure
,
Law & Economics
Type: Article

Academic Appointment and Employment History

Board Memberships

Education History

Honors and Awards

Current Courses

Course Catalog View

Hauser 302

617-496-0019

Assistant: Susan Norton / 617-496-2609