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, 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.
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.
John C. Coates, IV, Jesse M. Fried, & Kathryn E. Spier, What Courses Should Law Students Take? Lessons from Harvard’s Big Law Survey, 64 J. Legal Educ. 443 (2015).
Categories:
Corporate Law & Securities
,
Legal Profession
,
Banking & Finance
Sub-Categories:
Finance
,
Legal Education
,
Legal Services
Type: Article
Abstract
We report the results of an online survey, conducted on behalf of Harvard Law School, of 124 practicing attorneys at major law firms. The survey had two main objectives: (1) to assist students in selecting courses by providing them with data about the relative importance of courses; and (2) to provide faculty with information about how to improve the curriculum and best advise students. The most salient result is that students were strongly advised to study accounting and financial statement analysis, as well as corporate finance. These subject areas were viewed as particularly valuable, not only for corporate/transactional lawyers, but also for litigators. Intriguingly, non-traditional courses and skills, such as business strategy and teamwork, are seen as more important than many traditional courses and skills.
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.
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.
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
Sub-Categories:
Business Organizations
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)
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.
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 Pub. 2008).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Practice & Procedure
,
Law & Economics
Type: Book
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
Sub-Categories:
Consumer Protection Law
,
Torts - Product Liability
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.
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