Steven Shavell

Samuel R. Rosenthal Professor of Law and Economics

Director, John M. Olin Center for Law, Economics & Business

Biography

Steven Shavell graduated from the University of Michigan in 1968, was an officer in the U.S. Public Health Service at the Centers for Disease Control from 1968 to 1970, and obtained a Ph.D. in Economics from MIT in 1973.  He was on the faculty of the Department of Economics at Harvard University from 1974 to 1980 and moved to the faculty of Harvard Law School in 1980.  His focal interests are in the economic analysis of the basic subject areas of law—contracts, torts, property, and criminal law—and in the legal process.  Shavell is the founder and director of the School’s John M. Olin Center for Law, Economics, and Business, a past director of the Law and Economics Program of the National Bureau of Economic Research, and a co-founder and past president of the American Law and Economics Association. He was a Guggenheim Fellow, is an elected Fellow of the Econometric Society, an elected member of the American Academy of Arts and Sciences, and a recipient of the Ronald H. Coase Medal for research in law and economics.  He is the author of numerous articles and several books, including the treatise, Foundations of Economic Analysis of Law, Harvard University Press, 2004.

Areas of Interest

Steven M. Shavell, Foundations of Economic Analysis of Law (Belknap Press 2004).
Categories:
Disciplinary Perspectives & Law
,
Property Law
,
Civil Practice & Procedure
,
Banking & Finance
,
Criminal Law & Procedure
Sub-Categories:
Contracts
,
Criminal Justice & Law Enforcement
,
Sentencing & Punishment
,
Torts
,
Litigation & Settlement
,
Law & Economics
,
Property Rights
,
Eminent Domain
Type: Book
Abstract
What effects do laws have? Do individuals drive more cautiously, clear ice from sidewalks more diligently, and commit fewer crimes because of the threat of legal sanctions? Do corporations pollute less, market safer products, and obey contracts to avoid suit? And given the effects of laws, which are socially best? Such questions about the influence and desirability of laws have been investigated by legal scholars and economists in a new, rigorous, and systematic manner since the 1970s. Their approach, which is called economic, is widely considered to be intellectually compelling and to have revolutionized thinking about the law. In this book Steven Shavell provides an in-depth analysis and synthesis of the economic approach to the building blocks of our legal system, namely, property law, tort law, contract law, and criminal law. He also examines the litigation process as well as welfare economics and morality. Aimed at a broad audience, this book requires neither a legal background nor technical economics or mathematics to understand it. Because of its breadth, analytical clarity, and general accessibility, it is likely to serve as a definitive work in the economic analysis of law.
Louis Kaplow & Steven M. Shavell, Fairness versus Welfare, 114 Harv. L. Rev. 961 (2001).
Categories:
Legal Profession
,
Civil Practice & Procedure
,
Banking & Finance
,
Criminal Law & Procedure
,
Disciplinary Perspectives & Law
,
Discrimination & Civil Rights
Sub-Categories:
Contracts
,
Criminal Justice & Law Enforcement
,
Sentencing & Punishment
,
Torts
,
Litigation & Settlement
,
Law & Public Policy
,
Law & Economics
,
Legal & Political Theory
Type: Article
Abstract
The thesis of this Article is that the assessment of legal policies should depend exclusively on their effects on individuals'welfare. In particular, in the evaluation of legal policies, no independent weight should be accorded to conceptions of fairness, such as corrective justice and desert in punishment. (However, the logic leading to this conclusion does not apply to concern about equity in the distribution of income, which is often discussed under the rubric of fairness.) Our analysis begins with the argument that, when the choice of legal rules is based even in part on notions of fairness, individuals tend to be made worse off. Indeed, if any notion of fairness is ascribed evaluative weight, everyone will necessarily be made worse off in some situations. Moreover, when we examine principles of fairness and the literature that advances them, we find it difficult to identify reasons that, on reflection, justify granting importance to these principles at the expense of individuals' well-being. Nevertheless, policy analysts and the population at large obviously find notions of fairness appealing. We conjecture that the notions' attractiveness is rooted in several factors. Namely, individuals who believe in ideas of fairness tend to behave better toward others; the notions may serve as proxy goals for instrumental objectives; and individuals may have a taste for satisfaction of the notions. Furthermore, each of these factors is a reason that notions of fairness are relevant under a welfare-oriented normative approach to social decision making. As we explain, however, none of these factors warrants treating notions of fairness as independent evaluative principles. We develop our thesis through consideration of specific conceptions of fairness that are employed in major areas of the law: torts, contracts, legal procedure, and law enforcement. We also discuss the implications of our analysis for our primary audience, legal academics and other legal policy analysts, as well as for government officials, notably, legislators, regulators, and judges.
Steven M. Shavell, Economic Analysis of Accident Law (Harvard Univ. Press 1987).
Categories:
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
,
Corporate Law & Securities
,
Discrimination & Civil Rights
Sub-Categories:
Insurance Law
,
Torts
,
Torts - Negligence
,
Law & Public Policy
,
Law & Economics
Type: Book
Abstract
Accident law, if properly designed, is capable of reducing the incidence of mishaps by making people act more cautiously. Scholarly writing on this branch of law traditionally has been concerned with examining the law for consistency with felt notions of right and duty. Since the 1960s, however, a group of legal scholars and economists have focused on identifying the effects of accident law on people's behavior. Steven Shavell's book is the definitive synthesis of research to date in this new field.
Steven Shavell, On the Redesign of Accident Liability for the World of Autonomous Vehicles (Harv. L. Sch. John M. Olin Ctr. Discussion Paper No. 1014, NBER Working Paper No. w26220, Sept. 9, 2019).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Torts
,
Torts - Product Liability
,
Torts - Negligence
,
Remedies
,
Transportation Law
,
Law & Economics
Type: Other
Abstract
This article proposes a scheme of liability that would desirably control accident risks in the coming world in which motor vehicles will be autonomous. In that world, travelers will not be drivers, rendering liability premised on driver fault irrelevant as a means of reducing accident dangers. Moreover, no other conventional principle of individual or of manufacturer liability would serve well to do so. Indeed, strict manufacturer liability, recommended by many commentators, would actually tend to leave accident risks unchanged from their levels in the absence of liability. However, a new form of strict liability – the hallmark of which is that damages would be paid to the state – would be superior to conventional rules of liability in alleviating accident risks and would be easy to implement.
A. Mitchell Polinsky & Steven Shavell, Deterrence and the Adjustment of Sentences During Imprisonment (Stanford L. & Econ. Olin Working Paper No. 535, July 25, 2019).
Categories:
Criminal Law & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Prison Law & Prisoners' Rights
,
Sentencing & Punishment
,
Law & Economics
,
Law & Behavioral Sciences
Type: Other
Abstract
The prison time actually served by a convicted criminal depends to a significant degree on decisions made by the state during the course of imprisonment — on whether to grant parole or other forms of sentence reduction. In this article we study a model of the adjustment of sentences assuming that the state’s objective is the optimal deterrence of crime. In the model, the state can lower or raise the sentence based on deterrence-relevant information that it obtains about a criminal during imprisonment. Our focus on sentence adjustment as a means of promoting deterrence stands in contrast to the usual emphasis in sentence adjustment policy on reducing recidivism.
Steven Shavell, The Mistaken Restriction of Strict Liability to Uncommon Activities, J. Legal Analysis (Feb. 8, 2019).
Categories:
Civil Practice & Procedure
Sub-Categories:
Torts
,
Litigation & Settlement
Type: Article
Abstract
Courts generally insist that two criteria be met before imposing strict liability rather than basing liability on the negligence rule. The first--that the injurer’s activity must be dangerous--is sensible because strict liability possesses general advantages over the negligence rule in controlling risk. But the second--that the activity must be uncommon--is ill-advised because it exempts all common activities from strict liability no matter how dangerous they are. Thus, the harm generated by the large swath of common dangerous activities--from hunting, to construction, to the transmission of natural gas--is inadequately regulated by tort law. After developing this theme and criticizing ostensible justifications for the uncommon activity requirement, the article addresses the question of how it arose. The answer is that its legal pedigree is problematic: it appears to have been invented by the authors of the first Restatement of Torts. The conclusion is that the uncommon activity requirement for the imposition of strict liability should be eliminated.
Mitchell A. Polinsky & Steven Shavell, Subrogation and the Theory of Insurance When Suits Can Be Brought for Losses Suffered, 34 J.L. Econ. & Org. 619 (2018).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Remedies
,
Law & Economics
Type: Article
Abstract
The theory of insurance is considered here when an insured individual may be able to sue another party for the losses that the insured suffered—and thus when an insured has a potential source of compensation in addition to insurance coverage. Insurance policies reflect this possibility through so-called subrogation provisions that give insurers the right to step into the shoes of insureds and to bring suits against injurers. In a basic case, the optimal subrogation provisions involve full retention by the insurer of the proceeds from a successful suit and the pursuit of all positive expected value suits. This eliminates litigation risks for insureds and results in lower premiums—financed by the litigation income of insurers, including from suits that insureds would not otherwise have brought. Moreover, optimal subrogation provisions are characterized in the presence of moral hazard, administrative costs, and non-monetary losses, and it is demonstrated that optimal provisions entail sharing litigation proceeds with insureds in the first two cases but not when losses are non-monetary.
Steven Shavell, The Rationale for Motions in the Design of Adjudication 20 Am. L. & Econ. Rev. 245 (2018).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
,
Government & Politics
Sub-Categories:
Litigation & Settlement
,
Law & Economics
,
Judges & Jurisprudence
,
Courts
Type: Article
Abstract
The conduct of adjudication is often influenced by motions--requests made by litigants to modify the course of adjudication. The question studied in this article is why adjudication is designed so as to permit the use of motions. The answer developed is that litigants will naturally know a great deal about their specific matter, whereas a court will ordinarily know little except to the degree that the court has already invested effort to appreciate it. By giving litigants the right to bring motions, the judicial system leads litigants to efficiently provide information to courts that is relevant to the adjudicative process.
A. Mitchell Polinsky & Steven Shavell, Subrogation and the Theory of Insurance When Suits Can Be Brought for Losses Suffered (Stanford Law & Econ. Olin Working Paper No. 506, Harvard Pub. Law Working Paper No. 17-04, Mar. 9, 2017).
Categories:
Civil Practice & Procedure
,
Corporate Law & Securities
Sub-Categories:
Insurance Law
,
Torts
,
Litigation & Settlement
Type: Article
Abstract
The theory of insurance is considered here when an insured individual may be able to sue another party for the losses that the insured suffered—and thus when an insured has a potential source of compensation in addition to insurance coverage. Insurance policies reflect this possibility through so-called subrogation provisions that give insurers the right to step into the shoes of insureds and to bring suits against injurers. We show that subrogation provisions are a fundamental feature of optimal insurance contracts because they relieve litigation-related risks and result in lower premiums—financed by the litigation income of insurers. This income includes earnings from suits that insureds would not otherwise have brought. We also characterize optimal subrogation provisions in the presence of loading costs, moral hazard, and non-monetary losses.
Steven Shavell, Comparación Entre Impuestos Correctores y Responsabilidad Como Solución al Problema de las Externalidades Negativas, 151 Papeles de Economía Española 2 (2017).
Categories:
Disciplinary Perspectives & Law
,
Taxation
,
Criminal Law & Procedure
Sub-Categories:
Sentencing & Punishment
,
Law & Economics
Type: Article
Abstract
Although the corrective tax has long been viewed by economists as a desirable remedy for the problem of harmful externalities. Liability, in contrast, has great importance in controlling harmful externalities. I compare the tax and liability in theory and suggest that the conclusions help explain the observed predominance of liability over taxation, except in the area of pollution. The following factors are emphasized: inefficiency of incentives under taxes when the state cannot practically take into account all variables that significantly affect expected harm; efficiency of incentives under strict liability, which requires only that actual harms be measured; efficiency of incentives under the negligence rule; administrative cost advantages of liability deriving from its being applied only when harm occurs; and dilution of incentives under liability when suit is unlikely or injurers cannot pay fully for harm.
Howell Jackson, Louis Kaplow, Steven Shavell , W. Kip Viscusi & David Cope, Analytical Methods for Lawyers (Found. Press 3rd ed., 2017).
Categories:
Legal Profession
,
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Legal Education
Type: Book
Abstract
This law school casebook was developed by a team of professors at Harvard Law School to introduce students with little or no quantitative background to the basic analytical techniques that attorneys need to master to represent their clients effectively. This casebook presents clear explanations of decision analysis, games and information, contracting, accounting, finance, microeconomics, economic analysis of the law, fundamentals of statistics, and multiple regression analysis. References and examples have been thoroughly updated for this 3rd edition, and exposition of a number of key topics has been reworked to reflect insights gained from teaching these topics using the 1st edition to many hundreds of Harvard Law students over the past decade.
Steven Shavell, A Simple Model of Optimal Deterrence and Incapacitation, 42 Int'l Rev. L. & Econ. 13 (2015).
Categories:
Disciplinary Perspectives & Law
,
Criminal Law & Procedure
Sub-Categories:
Sentencing & Punishment
,
Criminal Justice & Law Enforcement
,
Law & Economics
Type: Article
Abstract
The deterrence of crime and its reduction through incapacitation are studied in a simple multiperiod model of crime and law enforcement. Optimal imprisonment sanctions and the optimal probability of sanctions are determined. A point of emphasis is that the incapacitation of individuals is often socially desirable even when they are potentially deterrable. The reason is that successful deterrence may require a relatively high probability of sanctions and thus a relatively high enforcement expense. In contrast, incapacitation may yield benefits no matter how low the probability of sanctions is—implying that incapacitation may be superior to deterrence.
Steven Shavell, Law and Economics, in International Encyclopedia of the Social & Behavioral Sciences 448 (James D. Wright ed., 2d ed. 2015).
Categories:
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
,
Property Law
,
Banking & Finance
,
Criminal Law & Procedure
Sub-Categories:
Contracts
,
Criminal Justice & Law Enforcement
,
Torts
,
Litigation & Settlement
,
Law & Economics
,
Property Rights
,
Eminent Domain
Type: Book
Abstract
Economic analysis of law is concerned with (a) determination of the effects of legal rules and (b) evaluation of the desirability of the effects of legal rules, with respect to well-specified definitions of social welfare. This article surveys the approach as it applies to basic areas of law – accident, property, contract, and criminal law – as well as to the litigation process. The economic approach is also contrasted with traditional analysis of law, under which the effects of legal rules are not usually systematically assessed.
Steven Shavell, A General Rationale for a Governmental Role in the Relief of Large Risks, 49 J. Risk & Uncertainty 213 (2014).
Categories:
Banking & Finance
,
Government & Politics
,
Disciplinary Perspectives & Law
,
Taxation
,
Corporate Law & Securities
Sub-Categories:
Risk Regulation
,
Insurance Law
,
Law & Economics
,
Government Benefits
,
Tax Policy
Type: Article
Abstract
The government often provides relief against large risks, such as disasters. A simple, general rationale for this role of government is considered here that applies even when private contracting to share risks is not subject to market imperfections. Specifically, the optimal private sharing of risks will not result in complete coverage against them when they are sufficiently large. Hence, when such risks eventuate, the marginal utility to individuals of governmental relief may exceed the marginal value of public goods. Consequently, social welfare may be raised if the government reduces public goods expenditures and directs these freed resources toward individuals who have suffered losses.
Steven Shavell, Risk Aversion and the Desirability of Attenuated Legal Change, 16 Am. L. & Econ. Rev. 366 (2014).
Categories:
Corporate Law & Securities
,
Banking & Finance
,
Disciplinary Perspectives & Law
Sub-Categories:
Risk Regulation
,
Insurance Law
,
Law & Economics
Type: Article
Abstract
This article develops two points. First, insurance against the risk of legal change is largely unavailable, primarily because of the correlated nature of the losses that legal change generates. Second, given the absence of insurance against legal change, it is generally desirable for legal change to be attenuated. Specifically, in a model of uncertainty about two different types of legal change—in regulatory standards and in payments for harm caused—it is demonstrated that the optimal new regulatory standard is less than the conventionally efficient standard and that the optimal new payment for harm is less than the harm.
A. Mitchell Polinsky & Steven Shavell, Costly Litigation and Optimal Damages, 37 Int’l Rev. L. & Econ. 86 (2014).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Law & Economics
Type: Article
Abstract
A basic principle of law is that damages paid by a liable party should equal the harm caused by that party. However, this principle is not correct when account is taken of litigation costs, because they too are part of the social costs associated with an injury. In this article we examine the influence of litigation costs on the optimal level of damages, assuming that litigation costs rise with the level of damages. Due to this consideration, we demonstrate that optimal damages can lie anywhere between zero and the harm plus the victim's litigation costs.
Steven Shavell, A Fundamental Enforcement Cost Advantage of the Negligence Rule over Regulation, 42 J. Legal Stud. 275 (2013).
Categories:
Disciplinary Perspectives & Law
,
Government & Politics
,
Civil Practice & Procedure
Sub-Categories:
Torts - Negligence
,
Law & Economics
,
Administrative Law & Agencies
Type: Article
Abstract
Regulation and the negligence rule are both designed to obtain compliance with desired standards of behavior, but they differ in a primary respect: compliance with regulation is ordinarily assessed independently of the occurrence of harm, whereas compliance with the negligence rule is evaluated only if harm occurs. It is shown in a stylized model that because the use of the negligence rule is triggered by harm, the rule enjoys an intrinsic enforcement cost advantage over regulation. Moreover, this cost advantage suggests that the examination of behavior under the negligence rule should often be more detailed than under regulation—as it frequently is in fact.
A. Mitchell Polinsky & Steven Shavell, Mandatory Versus Voluntary Disclosure of Product Risks, 28 J.L. Econ. & Org. 360 (2012).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
,
Government & Politics
,
Consumer Finance
Sub-Categories:
Consumer Protection Law
,
Torts - Product Liability
,
Torts
,
Law & Economics
,
Administrative Law & Agencies
Type: Article
Abstract
We analyze a model in which firms are able to acquire information about product risks and may or may not be required to disclose this information. We initially study the effect of disclosure rules assuming that firms are not liable for the harm caused by their products. Mandatory disclosure is obviously superior to voluntary disclosure given the information about product risks that firms possess, since such information has value to consumers. But firms acquire more information about product risks under voluntary disclosure because they can keep silent if the information is unfavorable. This effect could lead to higher social welfare under voluntary disclosure. The same result holds if firms are liable for harm under the negligence standard of liability. Under strict liability, however, mandatory and voluntary disclosure rules are equivalent because information concerning product risks is irrelevant to consumers.
Steven Shavell, When Is Compliance with the Law Socially Desirable?, 41 J. Legal Stud. 1 (2012).
Categories:
Disciplinary Perspectives & Law
,
Government & Politics
,
Discrimination & Civil Rights
Sub-Categories:
Social Welfare Law
,
Law & Economics
,
Public Law
,
Politics & Political Theory
Type: Article
Abstract
When would an individual expect adherence to the law to advance the social good? This time-honored question is of more than intellectual interest, for if individuals have some desire to foster social welfare, the answer to it may help to explain and guide actual compliance with the law. In the model that I study, an individual’s knowledge of factors relevant to social welfare is inferior to lawmakers’ in some respects and superior in others. Thus, in assessing whether obeying legal rules would promote social welfare, an individual must consider that rules will impound certain superior information of lawmakers but also that rules may fail to reflect his private information. A second issue that an individual must consider in deciding whether following the law would be desirable is a compliance externality: the effect of the witnessing of his compliance behavior on the compliance behavior of observers. The conclusions from the model are interpreted, including their implications for actual compliance and for the moral obligation to obey the law.
Steven Shavell, Corrective Taxation versus Liability as a Solution to the Problem of Harmful Externalities, 54 J.L. & Econ. S249 (2011).
Categories:
Taxation
,
Civil Practice & Procedure
,
Environmental Law
Sub-Categories:
Remedies
,
Torts - Negligence
,
Torts
,
Natural Resources Law
,
Tax Policy
Type: Article
Abstract
Although the corrective tax has long been viewed by economists as a theoretically desirable remedy for the problem of harmful externalities, its actual use has been limited, mainly to the domain of pollution. Liability, in contrast, has great importance in controlling harmful externalities. I compare the tax and liability here in theory and suggest that the conclusions help to explain the observed predominance of liability over taxation, except in the area of pollution. The following factors are emphasized in the analysis: inefficiency of incentives under taxes when, as would be typical, it would be impractical for the state to incorporate into taxes all of the variables that significantly affect expected harm; efficiency of incentives under strict liability, which requires only that actual harms be measured; efficiency of incentives to exercise precautions under the negligence rule; administrative cost advantages of liability deriving from its being applied only when harm occurs; and dilution of incentives under liability when suit would be unlikely or injurers would not be able to pay fully for harms caused.
Steven Shavell, Corrective Taxation versus Liability, Am. Econ. Rev., May 2011, at 273.
Categories:
Taxation
,
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Law & Economics
,
Tax Policy
Type: Article
Abstract
Taxation and liability are compared as means of controlling harmful externalities, with a view toward explaining why the use of liability predominates over taxation. Taxation suffers from a disadvantage in the analysis: because taxes do not reflect all the variables affecting expected harm, inefficiency results, whereas efficiency under liability requires only assessment of actual harm. However, liability also suffers from a disadvantage: incentives are diluted because injurers escape suit. Joint use of taxation and liability is examined, and it is shown that liability should be employed fully, with taxation taking up the slack due to escape from suit.
Steven M. Shavell, Should BP Be Held Liable for Economic Losses Due to the Moratorium on Oil Drilling Imposed after the Deepwater Horizon Accident?, 64 Vand. L. Rev. 1995 (2011).
Categories:
Disciplinary Perspectives & Law
,
Environmental Law
,
Civil Practice & Procedure
Sub-Categories:
Torts
,
Remedies
,
Law & Economics
,
Oil, Gas, & Mineral Law
Type: Article
Abstract
In the aftermath of the Deepwater Horizon accident and the BP oil spill, the government imposed a moratorium on deepwater oil drilling in the Gulf of Mexico. The question addressed here is whether on grounds of policy BP should be held responsible for moratorium-related economic losses caused by the spill. The answer that is developed is no. The reason, in essence, is that although the spill caused the moratorium, the moratorium might be viewed as a socially beneficial event on net because its purpose was to avert a significant danger.
Howell E. Jackson, Louis Kaplow, Steven M. Shavell, W. Kip Viscusi & David Cope, Analytical Methods for Lawyers (Found. Press 2nd ed. 2010).
Categories:
Legal Profession
,
Disciplinary Perspectives & Law
Sub-Categories:
Legal Theory & Philosophy
,
Legal Education
Type: Book
Abstract
This law school casebook was developed by a team of professors at Harvard Law School to introduce students with little or no quantitative background to the basic analytical techniques that attorneys need to master to represent their clients effectively. This casebook presents clear explanations of decision analysis, games and information, contracting, accounting, finance, microeconomics, economic analysis of the law, fundamentals of statistics, and multiple regression analysis. References and examples have been thoroughly updated for this 2d edition, and exposition of a number of key topics has been reworked to reflect insights gained from teaching these topics using the 1st edition to many hundreds of Harvard Law students over the past decade.
A. Mitchell Polinksky & Steven Shavell, A Skeptical Attitude About Product Liability Is Justified: A Reply to Professors Goldberg and Zipursky, 123 Harv. L. Rev. 1949 (2010).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts - Product Liability
,
Empirical Legal Studies
Type: Article
Abstract
In The Uneasy Case for Product Liability, we maintained that the benefits of product liability are likely to be less than its costs for many products, especially widely sold ones. Our article was intended to alter the dominant view held by the judiciary and commentators that product liability has a clear justification on grounds of public policy. We argued instead that a skeptical attitude toward product liability should be adopted. Professors John Goldberg and Benjamin Zipursky strongly criticize our article in The Easy Case for Products Liability Law: A Response to Professors Polinsky and Shavell. To a significant extent, however, they attack a straw man, for they impute to us a radical thesis – that product liability should be eliminated for all widely sold products – that we manifestly did not advance. In fact, we argued that whether product liability is undesirable depends on the particular product. Goldberg and Zipursky also ascribe to us other opinions that exaggerate what we said in our article – notably, they state that we believe that product liability has no beneficial effect on product safety for widely sold products. It is not surprising, therefore, that they are unable to support these mischaracterizations with citations to statements in our article. The major claim that Goldberg and Zipursky develop is that our benefit-cost analysis fails to demonstrate that the case for product liability is uneasy. In our view, their critique is deficient on multiple accounts, including that it contains numerous distortions and errors, and hence does not alter our original conclusion.
A. Mitchell Polinsky & Steven Shavell, The Uneasy Case for Product Liability, 123 Harv. L. Rev. 1437 (2010).
Categories:
Civil Practice & Procedure
,
Government & Politics
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts - Product Liability
,
Law & Economics
,
Administrative Law & Agencies
Type: Article
Abstract
In this Article we compare the benefits of product liability to its costs and conclude that the case for product liability is weak for a wide range of products. One benefit of product liability is that it can induce firms to improve product safety. Even in the absence of product liability, however, firms would often be motivated by market forces to enhance product safety because their sales may fall if their products harm consumers. Moreover, products must frequently conform to safety regulations. Consequently, product liability might not exert a significant additional influence on product safety for many products – and empirical studies of several widely sold products lend support to this hypothesis. A second benefit of product liability is that it can improve consumer purchase decisions by causing product prices to increase to reflect product risks. But because of litigation costs and other factors, product liability may raise prices excessively and undesirably chill purchases. A third benefit of product liability is that it compensates victims of product-related accidents for their losses. Yet this benefit is only partial, for accident victims are frequently compensated by insurers for some or all of their losses. Furthermore, the award of damages for pain and suffering tends to reduce the welfare of individuals because it effectively forces them to purchase insurance for a type of loss for which they ordinarily do not wish to be covered. Opposing the benefits of product liability are its costs, which are great. Notably, the transfer of a dollar to a victim of a product accident through the liability system requires more than a dollar on average in legal expenses. Given the limited nature of the benefits and the high costs of product liability, we come to the judgment that its use is often unwarranted. This is especially likely for products for which market forces and regulation are relatively strong, which includes many widely sold products. Our generally skeptical assessment of product liability for such products is in tension with the broad social endorsement of this form of liability.
Steven Shavell, Eminent Domain versus Government Purchase of Land Given Imperfect Information about Owners' Valuations, 53 J.L. & Econ. 1 (2010).
Categories:
Property Law
,
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Eminent Domain
,
Real Estate
Type: Article
Abstract
Governments employ two basic policies for acquiring land: taking it through the exercise of their power of eminent domain, and purchasing it. The social desirability of these policies is compared in a model in which the government’s information about landowners’ valuations is imperfect. Under this assumption, the policy of purchase possesses the market test advantage that the government obtains land from an owner only if its offer exceeds the owner’s valuation. However, the policy suffers from a drawback when the land that the government needs is owned by many parties. In that case, the government’s acquisition will fail if any of the owners refuses to sell. Hence, eminent domain becomes appealing if the number of landowners is large. This conclusion holds regardless of whether the land that the government seeks is a parcel at a fixed location or instead is a contiguous parcel that may be located anywhere in a region.
Steven Shavell, Eminent Domain versus Government Purchase of Land Given Imperfect Information about Owners’ Valuations, 53 J.L & Econ. 1 (2010).
Categories:
Property Law
,
Government & Politics
,
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Eminent Domain
,
Property Rights
Type: Article
Abstract
Governments employ two basic policies for acquiring land: taking it through the exercise of their power of eminent domain, and purchasing it. The social desirability of these policies is compared in a model in which the government’s information about landowners’ valuations is imperfect. Under this assumption, the policy of purchase possesses the market test advantage that the government obtains land from an owner only if its offer exceeds the owner’s valuation. However, the policy suffers from a drawback when the land that the government needs is owned by many parties. In that case, the government’s acquisition will fail if any of the owners refuses to sell. Hence, eminent domain becomes appealing if the number of landowners is large. This conclusion holds regardless of whether the land that the government seeks is a parcel at a fixed location or instead is a contiguous parcel that may be located anywhere in a region.
Steven M. Shavell, On the Design of the Appeals Process: The Optimal Use of Discretionary Review versus Direct Appeal, 39 J. Legal Stud. 63 (2010).
Categories:
Civil Practice & Procedure
,
Government & Politics
,
Legal Profession
Sub-Categories:
Litigation & Settlement
,
Practice & Procedure
,
Courts
,
Judges & Jurisprudence
,
Legal Reform
Type: Article
Abstract
The socially desirable design of the appeals process is analyzed assuming that it may involve either an initial discretionary review proceeding—under which the appeals court would decide whether to hear an appeal—or else a direct appeal. Using a stylized model, I explain that the appeals process should not be employed when the appellant’s initial likelihood of success falls below a threshold, that discretionary review should be used when the likelihood of success lies in a midrange, and that direct appeal should be sought when this likelihood is higher. Further, I emphasize that appellants should often be able to choose between discretionary review and direct appeal, notably because appellants may elect discretionary review to save themselves (and thus the judicial system) expense. This suggests the desirability of a major reform of our appeals process: appellants should be granted the right of discretionary review along with the right that they now possess of direct appeal at the first level of appeals.
Steven M. Shavell, Should Copyright of Academic Works be Abolished?, 2 J. Legal Analysis 301 (2010).
Categories:
Legal Profession
,
Property Law
,
Technology & Law
,
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Legal Scholarship
,
Intellectual Property - Copyright
,
Cooperation, Peer-Production & Sharing
,
Information Commons
,
Intellectual Property Law
Type: Article
Abstract
The conventional rationale for copyright of written works, that copyright is needed to foster their creation, is seemingly of limited applicability to the academic domain. For in a world without copyright of academic writing, academics would still benefit from publishing in the major way that they do now, namely, from gaining scholarly esteem. Yet publishers would presumably have to impose fees on authors, because publishers would no longer be able to profit from reader charges. If these author publication fees would actually be borne by academics, their incentives to publish would be reduced. But if the publication fees would usually be paid by universities or grantors, the motive of academics to publish would be unlikely to decrease (and could actually increase) – suggesting that ending academic copyright would be socially desirable in view of the broad benefits of a copyright-free world. If so, the demise of academic copyright should probably be achieved by a change in law, for the “open access” movement that effectively seeks this objective without modification of the law faces fundamental difficulties.
Steven Shavell, ¿Es inmoral el incumplimiento contractual?, Ius et Veritas Diciembre 2009, at 16.
Categories:
Banking & Finance
,
Disciplinary Perspectives & Law
Sub-Categories:
Contracts
,
Legal Theory & Philosophy
Type: Article
Steven Shavell, Why Breach of Contract May Not be Immoral Given the Incompleteness of Contracts, 107 Mich. L. Rev. 1569 (2009).
Categories:
Banking & Finance
Sub-Categories:
Contracts
Type: Article
Abstract
There is a widely held view that breach of contract is immoral. I suggest here that breach may often be seen as moral, once one appreciates that contracts are incompletely detailed agreements and that breach may be committed in problematic contingencies that were not explicitly addressed by the governing contracts. In other words, it is a mistake generally to treat a breach as a violation of a promise that was intended to cover the particular contingency that eventuated.
Steven M. Shavell, Liability for Accidents, in The New Palgrave Dictionary of Economics (Steven N. Durlauf & Lawrence E. Blume eds., 2nd ed. 2008).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Remedies
,
Torts - Negligence
,
Torts - Product Liability
,
Litigation & Settlement
,
Law & Economics
Type: Book
Abstract
Legal liability for accidents determines the circumstances under which injurers must compensate victims for harm. The effects of liability on incentives to reduce risk, on risk-bearing and insurance (both direct coverage for victims and liability coverage for injurers), and on administrative expenses are considered. Liability is also compared with other methods of controlling harmful activities, notably, with regulation and corrective taxation.
A. Mitchell Polinsky & Steven M. Shavell, Public Enforcement of Law, in The New Palgrave Dictionary of Economics (Steven N. Durlauf & Lawrence E. Blume eds., 2nd ed. 2008).
Categories:
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
,
Criminal Law & Procedure
Sub-Categories:
Sentencing & Punishment
,
Torts
,
Remedies
,
Litigation & Settlement
,
Law & Economics
,
Law & Behavioral Sciences
Type: Book
Abstract
This article surveys the economic analysis of public enforcement of law – the use of public agents (inspectors, tax auditors, police, prosecutors) to detect and to sanction violators of legal rules. We first discuss the basic elements of the theory: the probability of imposition of sanctions, the magnitude and form of sanctions (fines, imprisonment), and the rule of liability. We then examine a variety of extensions, including the costs of imposing fines, mistakes, marginal deterrence, settlement, self-reporting, repeat offences, and incapacitation.
A. Mitchell Polinsky & Steven M. Shavell, Economic Analysis of Law, in The New Palgrave Dictionary of Economics (Steven N. Durlauf & Lawrence E. Blume eds., 2nd ed. 2008).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
Type: Article
Abstract
This article surveys the economic analysis of five primary fields of law: property law; liability for accidents; contract law; litigation; and public enforcement and criminal law. It also briefly considers some criticisms of the economic analysis of law.
Steven Shavell, Liability for Accidents, in 5 The New Palgrave Dictionary of Economics 3690 (Steven N. Durlauf & Lawrence E. Blume eds., 2nd ed. 2008).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Torts - Negligence
,
Remedies
,
Law & Economics
,
Legal Theory & Philosophy
Type: Book
Abstract
Legal liability for accidents governs the circumstances under which parties who cause harm to others must compensate them. There are two basic rules of liability. Under strict liability, an injurer must always pay a victim for harm due to an accident that he causes. Under the negligence rule, an injurer must pay for harm caused only when he is found negligent, that is, only when his level of care was less than a standard of care chosen by the courts, often referred to as due care. (There are various versions of these rules that depend on victims’ care, as will be discussed.) In fact, the negligence rule is the dominant form of liability; strict liability is reserved mainly for certain especially dangerous activities (such as the use of explosives). The amount that a liable injurer must pay a victim is known as damages.
Steven M. Shavell, Law and Economics, in 4 International Encyclopedia of the Social Sciences 367 (William A. Darity ed., 2nd ed. 2008).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
Type: Book
Steven M. Shavell, On Optimal Legal Change, Past Behavior, and Grandfathering, 37 J. Legal Stud. 37 (2008).
Categories:
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
,
Environmental Law
Sub-Categories:
Torts
,
Torts - Negligence
,
Law & Behavioral Sciences
,
Law & Economics
Type: Article
Abstract
When is it socially advantageous for legal rules to be changed in the light of altered circumstances? In answering this basic question here, a simple point is developed-that past compliance with rules tends to reduce the social advantages of change. The reasons are twofold: adjusting to a new legal rule involves costs, and the social benefits of change are only in addition to those of past compliance. The general implications are that legal rules should be more stable than would be appropriate were the relevance of past behavior not recognized and that grandfathering, namely, permitting noncompliance, is sometimes desirable. These points have broad relevance, often explaining what we observe but also indicating possibilities for reform, such as in the regulation of pollution. The analysis is related to the conventional reliance-based justification for the stability of the law, the literature on legal transitions, and economic writing on optimal legal standards.
William J. Baumol, Colin Blaydon, Charles J. Cicchetti, René M. Stulz, Jeffrey A. Dubin, Franklin M. Fisher, Robert W. Hahn, Jerry A. Hausman, William W. Hogan, Joseph P. Kalt, Paul R. Kleindorfer, Robert J. Michaels, Bruce M. Owen, Craig Pirrong, Michael A. Salinger, Steven Shavell, Vernon L. Smith, James L. Sweeney, Robert Willig & Catherine D. Wolfram, Supreme Court Amicus Brief Regarding Morgan Stanley Capital Group Inc. v. Public Utility District No. 1 of Snohomish County, Washington (AEI-Brookings Joint Center Brief No. 07-02, Nov. 2007).
Categories:
Banking & Finance
,
Environmental Law
Sub-Categories:
Contracts
,
Economics
,
Energy & Utilities Law
Type: Other
Abstract
Economists have long recognized that certainty of contract is essential to a healthy economy. Long-term forward contracts, in particular, help reduce financial risk. Those contracts can only accomplish that goal, however, if parties know the contracts will be enforced. From an economic and policy standpoint, long-term energy contracts should be abrogated only in truly exceptional circumstances. The mere fact that a price seems too high in retrospect does not justify abrogating contracts voluntarily agreed to by sophisticated buyers and sellers. Nor do generalized claims of - market dysfunction - at the time the contract was formed.
Steven M. Shavell, Contractual Holdup and Legal Intervention, 36 J. Legal Stud. 325 (2007).
Categories:
Banking & Finance
,
Disciplinary Perspectives & Law
Sub-Categories:
Contracts
,
Law & Economics
Type: Article
Abstract
This article develops the point that incentive and risk‐bearing problems associated with contractual holdup may justify legal intervention. Contractual holdup is considered both for fresh contracts and for modifications of contracts. One type of legal intervention is flat voiding of contracts. Such intervention tends to be advantageous when holdup situations are engineered. Another type of intervention is price‐conditioned voiding of contracts—voiding only if the price is excessive. This policy tends to be advantageous when contracts are socially desirable (bad weather puts a ship in jeopardy and it needs rescue). Price‐conditioned voiding prevents the imposition of holdup prices but still allows contracts (to tow ships in distress) to be made. Both types of legal intervention in contracts and their modifications are employed by courts to counter problems of pronounced holdup. In addition, various price control regulations appear partly to serve the same objective.
Steven M. Shavell, Do Excessive Legal Standards Discourage Desirable Activity?, 95 Econ. Letters 394 (2007).
Categories:
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
Sub-Categories:
Torts - Negligence
,
Torts
,
Law & Economics
Type: Article
Abstract
Overly strict legal standards are commonly thought to discourage parties from engaging in socially desirable activities. It is explained here, however, that excessive legal standards cannot lead to undesirable curtailment of activities when legal standards are enforced by liability for negligence, essentially because parties can choose to be negligent rather than comply. But excessive legal standards can lead to undesirable reduction of activities when adherence to the standards is required by the regulatory system.
Louis Kaplow & Steven Shavell, Moral Rules, the Moral Sentiments, and Behavior: Toward a Theory of an Optimal Moral System, 115 J. Pol. Econ. 494 (2007).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Behavioral Sciences
,
Law & Economics
Type: Article
Abstract
How should moral sanctions and moral rewards - the moral sentiments involving feelings of guilt and of virtue - be employed to govern individuals' behavior if the objective is to maximize social welfare? In the model that we examine, guilt is a disincentive to act and virtue is an incentive because we assume that they are negative and positive sources of utility. We also suppose that guilt and virtue are costly to inculcate and are subject to certain constraints on their use. We show that the moral sentiments should be used chiefly to control externalities and further that guilt is best to employ when most harmful acts can successfully be deterred whereas virtue is best when only a few individuals can be induced to behave well. We also contrast the optimal use of guilt and virtue to optimal Pigouvian taxation and discuss extensions of our analysis.
Steven M. Shavell, On the Proper Magnitude of Punitive Damages: Mathias v. Accor Economy Lodging, Inc., 120 Harv. L. Rev. 1223 (2007).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Remedies
,
Torts
,
Law & Economics
Type: Article
1, 2 Handbook of Law and Economics (A. Mitchell Polinsky & Steven Shavell eds., Elsevier 2007).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
Type: Book
Steven M. Shavell, Liability for Accidents, in 1 Handbook of Law and Economics 139 (A. Mitchell Polinsky & Steven Shavell eds., Elsevier 2007).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Torts - Negligence
,
Torts - Product Liability
,
Law & Economics
Type: Article
Steven M. Shavell, Optimal Discretion in the Application of Rules, 9 Am. L. & Econ. Rev. 175 (2007).
Categories:
Civil Practice & Procedure
,
Government & Politics
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Dispute Resolution
,
Law & Economics
,
Judges & Jurisprudence
,
Courts
Type: Article
Abstract
Discretion is examined as a feature of the design of rule-guided systems. That is, given that rules have to be administered by some group of persons, called adjudicators, and given that their goals may be different from society's (or a relevant organization's), when is it socially desirable to allocate discretionary authority to the adjudicators and, if so, to what extent? The answer reflects a trade-off between the informational advantage of discretion - that adjudicators can act on information not included in rules - and the disadvantage of discretion - that decisions may deviate from the desirable because adjudicators' objectives are different from society's. The control of discretion through limitation of its scope, through decision-based payments to adjudicators, and through the appeals process, is also considered.
A. Mitchell Polinsky & Steven M. Shavell, Public Enforcement of Law, in 1 Handbook of Law and Economics 403 (A. Mitchell Polinsky & Steven M. Shavell eds., Elsevier 2007).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
,
Criminal Law & Procedure
Sub-Categories:
Sentencing & Punishment
,
Remedies
,
Torts
,
Litigation & Settlement
,
Law & Economics
,
Law & Behavioral Sciences
Type: Book
A. Mitchell Polinsky & Steven Shavell, The Theory of Public Enforcement of Law, in 1 Handbook of Law and Economics 403 (A. Mitchell Polinsky & Steven Shavell eds., 2007).
Categories:
Criminal Law & Procedure
,
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
Sub-Categories:
Criminal Justice & Law Enforcement
,
Sentencing & Punishment
,
Remedies
,
Litigation & Settlement
,
Law & Economics
Type: Book
Abstract
This chapter surveys the theory of the public enforcement of law—the use of governmental agents (regulators, inspectors, tax auditors, police, prosecutors) to detect and to sanction violators of legal rules. The theoretical core of the analysis addresses the following basic questions: Should the form of the sanction imposed on a liable party be a fine, an imprisonment term, or a combination of the two? Should the rule of liability be strict or fault-based? If violators are caught only with a probability, how should the level of the sanction be adjusted? How much of society's resources should be devoted to apprehending violators? A variety of extensions of the central theory are then examined, including: activity level; errors; the costs of imposing fines; general enforcement; marginal deterrence; the principal-agent relationship; settlements; self-reporting; repeat offenders; imperfect knowledge about the probability and magnitude of sanctions; corruption; incapacitation; costly observation of wealth; social norms; and the fairness of sanctions.
Steven M. Shavell, On the Writing and the Interpretation of Contracts, 22 J.L. Econ. & Org. 289 (2006).
Categories:
Banking & Finance
,
Disciplinary Perspectives & Law
Sub-Categories:
Contracts
,
Law & Economics
Type: Article
Abstract
The major theme of this article is that the interpretation of contracts is in the interests of contracting parties. The general reasons are (a) that interpretation may improve on otherwise imperfect contracts; and (b) that the prospect of interpretation allows parties to write simpler contracts and thus to conserve on contracting effort. A method of interpretation is defined as a function whose argument is the written contract and whose value is another contract, the interpreted contract, which is what actually governs the parties' joint enterprise. It is shown that interpretation is superior to enforcement of contracts as written, and the optimal method of interpretation is analyzed.
Steven M. Shavell, Specific Performance Versus Damages for Breach of Contract: An Economic Analysis, 84 Tex. L. Rev. 831 (2006).
Categories:
Civil Practice & Procedure
,
Banking & Finance
,
Disciplinary Perspectives & Law
Sub-Categories:
Contracts
,
Remedies
,
Law & Economics
Type: Article
Abstract
When would parties entering into a contract want performance to be specifically required, and when would they prefer payment of money damages to be the remedy for breach? This fundamental question is studied here and a novel answer is provided, based on a simple distinction between contracts to produce goods and contracts to convey property. Setting aside qualifications, the conclusion for breach of contracts to produce goods is that parties would tend to prefer the remedy of damages, essentially because of the problems that would be created under specific performance if production costs were high. In contrast, parties would often favor the remedy of specific performance for breach of contracts to convey property, in part because there can be no problems with production cost when property already exists. The conclusions reached shed light on the choices made between damages and specific performance under Anglo-American and civil law systems, and they also suggest the desirability of certain changes in our legal doctrine.
David Rosenberg & Steven Shavell, A Solution to the Problem of Nuisance Suits: The Option to Have the Court Bar Settlement, 26 Int'l Rev. L. & Econ. 42 (2006).
Categories:
Civil Practice & Procedure
,
Government & Politics
,
Legal Profession
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Remedies
,
Private Law
,
Practice & Procedure
,
Litigation & Settlement
,
Law & Economics
,
Courts
,
Judges & Jurisprudence
Type: Article
Abstract
A solution to a broad category of nuisance suits is examined in this paper. The solution is to give defendants the option to have courts prevent settlements (by refusing to enforce them). Then, if a defendant knows he is facing a plaintiff who would not be willing to go to trial, the defendant would exercise his option to bar settlement, forcing the plaintiff to withdraw. And because the plaintiff would anticipate this, he would not bring his nuisance suit in the first place.
Steven M. Shavell, Is Breach of Contract Immoral?, 56 Emory L.J. 439 (2006).
Categories:
Banking & Finance
,
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
,
Legal Profession
Sub-Categories:
Contracts
,
Remedies
,
Law & Economics
,
Legal Theory & Philosophy
,
Legal Ethics
Type: Article
Abstract
When, and why, might it be thought immoral to commit a breach of contract? The answer to this fundamental question is not obvious, because, as is stressed, and as has been overlooked in addressing the question, contracts do not usually provide explicitly for the particular events that are observed to occur. When a contract does not expressly address a contingency that occurs, the morality of breach is assumed here to depend on what the contract would have said had it addressed the contingency. This assumption is explained to imply that breach is not immoral if expectation damages would have to be paid for breach, but that breach might be immoral if damages are less than the true expectation, as is probable. This conclusion is related to the results of a survey that was conducted of individuals' attitudes toward the morality of breach. The conclusion is also related to the views of commentators on the morality of breach and of those on the "efficiency" of breach.
Steven M. Shavell, The Appeals Process and Adjudicator Incentives, 35 J. Legal Stud. 1 (2006).
Categories:
Civil Practice & Procedure
,
Government & Politics
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Dispute Resolution
,
Law & Economics
,
Courts
,
Judges & Jurisprudence
Type: Article
Abstract
The appeals process—whereby litigants can have decisions of adjudicators reviewed by a higher authority—is a general feature of formal legal systems (and of many private decision-making procedures). The appeals process leads to the making of better decisions because it constitutes a threat to adjudicators whose decisions would deviate too much from socially desirable ones. Further, it yields this benefit without absorbing resources to the extent that adjudicators can anticipate when appeals would occur and would want to make decisions to forestall the actual occurrence of appeals.
David Rosenberg & Steven M. Shavell, A Simple Proposal to Halve Litigation Costs, 91 Va. L. Rev. 1721 (2005).
Categories:
Civil Practice & Procedure
,
Government & Politics
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Remedies
,
Private Law
,
Litigation & Settlement
,
Law & Economics
,
Courts
Type: Article
Abstract
This Essay advances a simple proposal that could reduce civil litigation costs in the country by about half, yet without compromising the functioning of our liability system in a significant way. The proposal has two parts. First, courts would select randomly for litigation only half the cases brought before them; courts would not allow the other half to proceed. Second, in cases accepted for litigation and in which judgments for damages issue, courts would double the level of damages. Thus, the proposal might be described as one of random adjudication with dobule damages.
Steven Shavell, Minimum Asset Requirements and Compulsory Liability Insurance as Solution to the Judgment-Proof Problem, 36 Rand J. Econ. 63 (2005).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Disciplinary Perspectives & Law
Sub-Categories:
Risk Regulation
,
Insurance Law
,
Law & Economics
Type: Article
Abstract
Minimum asset and liability insurance requirements must often be met in order for parties to participate in potentially harmful activities. Such financial responsibility requirements may improve parties' decisions whether to engage in harmful activities and, if so, their efforts to reduce risk. However, the requirements may undesirably prevent some parties with low assets from engaging in activities. Liability insurance requirements tend to improve parties' incentives to reduce risk when insurers can observe levels of care, but dilute incentives to reduce risk when insurers cannot observe levels of care. In the latter case, compulsory liability insurance may be inferior to minimum asset requirements.
Henrik Lando & Steven Shavell, The Advantage of Focusing Law Enforcement Effort, 24 Int’l Rev. L. & Econ. 209 (2004).
Categories:
Criminal Law & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Criminal Justice & Law Enforcement
,
Law & Economics
Type: Article
Abstract
It is shown in this paper that there may exist an intrinsic advantage in focusing law enforcement effort on a subgroup of possible violators of law, rather than applying law enforcement effort uniformly over the relevant population of potential violators. For example, it may be desirable for the tax audit rate to be higher in one region of the country than another. This may be desirable even though, as is assumed, the frequency of violations does not differ among regions.
Louis Kaplow & Steven Shavell, Reply to Ripstein: Notes on Welfarist Versus Deontological Principles, 20 Econ. & Phil. 209 (2004).
Categories:
Disciplinary Perspectives & Law
,
Legal Profession
Sub-Categories:
Legal Theory & Philosophy
,
Law & Economics
,
Legal Ethics
Type: Article
Abstract
In Fairness versus Welfare (FVW), we advance the thesis that social policies should be assessed entirely with regard to their effects on individuals' well-being. That is, no independent weight should be accorded to notions of fairness such as corrective or retributive justice or other deontological principles. Our claim is based on the demonstration that pursuit of notions of fairness has perverse effects on welfare, on other problematic aspects of the notions, and on a reconciliation of our thesis with the evident appeal of moral intuitions. Here we summarize our three arguments and explain that Professor Ripstein's commentary largely fails to respond to them. (We will pass over some of what he says because it has little to do with our book, and we will not address his rather surprising attacks on our scholarship because the reader can readily verify their inaccuracy.)
Louis Kaplow & Steven Shavell, Any Non‐welfarist Method of Policy Assessment Violates the Pareto Principle: Reply, 112 J. Pol. Econ. 249 (2004).
Categories:
Disciplinary Perspectives & Law
,
Discrimination & Civil Rights
Sub-Categories:
Law & Public Policy
,
Social Welfare Law
,
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
In our 2001 article in the Journal of Political Economy, we show that any non-welfarist method of policy assessment violates the Pareto principle. In their Comment, Fleurbaey, Tungodden, and Chang question whether our result is fully general without imposing what they regard to be strong assumptions (transitivity and independence). However, as we explain in this Reply, their argument is irrelevant to the thrust of our article. Specifically, their argument concedes that if any particular society uses any non-welfarist principle, there may be a conflict with the Pareto principle. This result means that the vast multitude of principles proposed by policy-makers, philosophers, and others indeed fall within our demonstration.
Steven Shavell, Welfare Economics, Morality, and the Law, in Foundations of Economic Analysis of Law 593 (2004).
Categories:
Disciplinary Perspectives & Law
,
Taxation
,
Discrimination & Civil Rights
Sub-Categories:
Social Welfare Law
,
Law & Economics
,
Legal Theory & Philosophy
,
Taxation - Personal Income
Type: Book
Abstract
This paper contains the chapters on welfare economics, morality, and the law from a general, forthcoming book, Foundations of Economic Analysis of Law (Harvard University Press, 2003). I begin in chapter 26 with a discussion of the normative foundations of economic analysis, namely, the subject of welfare economics. I also describe notions of morality and fairness, which play an important, if dominant, role in much normative discourse about law, and I discuss the connections between welfare economics and morality. A theme of this discussion is that notions of morality have functional aspects, and that, for a complex of reasons, they also take on importance in their own right to individuals. Then in chapter 27, I consider the observed relationship between law and morality, and comment on what might be thought to be the optimal relationship between law and morality. In chapter 28, I discuss issues concerning income distributional equity and the law, including the question of whether the distributional effects of legal rules should influence their selection. The answer to this question will be a qualified no, given that society has an income tax system that can serve to redistribute income or to correct problems with distribution that arise due to the effects of legal rules.
Steven Shavell, Economic Analysis of Litigation and the Legal Process (Harv. L. Sch. L. & Econ. Res. Paper Series, Discussion Paper No. 404, Nat'l Bureau Econ. Res., Working Paper No. w9697, May 2003).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
,
Legal Profession
Sub-Categories:
Litigation & Settlement
,
Practice & Procedure
,
Arbitration
,
Law & Economics
,
Legal Services
Type: Article
Abstract
This paper contains the chapters on litigation and the legal process from a general, forthcoming book, Foundations of Economic Analysis of Law (Harvard University Press, 2003). In chapter 17, I consider the basic theory of litigation. Here I describe the three phases of litigation: its initiation through suit, the determination of whether the parties will settle their case or proceed to trial, and, if trial results, the trial expenditures. I also analyze the social desirability of their decisions, a major theme being that the private incentives to litigate may diverge from what is socially desirable. In chapter 18, I extend the basic theory of litigation, examining among other issues the bringing of negative value suits, shifting of legal fees to losers at trial, lawyer-client fee arrangements, and the influence of insurers on litigation. Then, in chapter 19, I discuss several general aspects of the legal process not considered in the basic theory and its extensions, including private systems of adjudication, the value of accuracy in adjudication, the appeals process, and the function of legal advice.
Steven Shavell, Economic Analysis of Property Law (Nat'l Bureau Econ. Res., Working Paper No. w9695, Harv. L. Sch. L. & Econ. Res. Paper Series, Discussion Paper No. 399, 2003).
Categories:
Disciplinary Perspectives & Law
,
Property Law
Sub-Categories:
Law & Economics
,
Eminent Domain
,
Intellectual Property - Copyright
,
Intellectual Property - Patent & Trademark
,
Property Rights
,
Real Estate
,
Personal Property
Type: Article
Abstract
This part deals with the basic elements of property law. I begin in chapter 7 by examining the fundamental question of what justifies the social institution of property, that is, the rationale for the rights that constitute what we commonly call ownership. I also discuss examples of the emergence of property rights. Then I consider a number of important issues about property rights. In chapter 8, I inquire about the division of property rights (property rights may be divided contemporaneously, over time, and according to contingency). In chapter 9, I study a variety of issues about the acquisition and transfer of property, including the discovery of unowned or lost property, registration systems for transfer of property, and the transfer of property at death. In chapter 10, I investigate externalities' and property -- problems concerning cooperation and conflict in the use of property, together with the resolution of such problems through bargaining and legal rules. In chapter 11, I discuss public property; here I address the question of why the state should own property, and also the manner of state acquisition of property through purchase or by the exercise of powers of eminent domain. Finally, in chapter 12, I analyze the special topic of intellectual property.
Steven Shavell, Economic Analysis of Public Law Enforcement and Criminal Law (NBER Working Paper No. 9698, May 2003).
Categories:
Criminal Law & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Criminal Justice & Law Enforcement
,
Sentencing & Punishment
,
Law & Economics
Type: Other
Abstract
This paper contains the chapters on public enforcement of law and on criminal law from a general, forthcoming book, Foundations of Economic Analysis of Law (Harvard University Press, 2003). By public law enforcement is meant the use of public law enforcement agents -- such as police, tax inspectors, regulatory personnel -- to enforce legal rules. A number of important dimensions of public law enforcement may be distinguished. One is the choice of the basic rule of liability: whether liability is strict or fault-based, and whether liability is imposed only if harm is done or may be imposed on the basis of acts alone (independently of the occurrence of harm). A second dimension of enforcement is the type of sanction, whether monetary or nonmonetary, notably, imprisonment. A third aspect of enforcement is the magnitude of sanctions. And a fourth dimension of enforcement is the degree of enforcement effort, which determines the probability of imposition of sanctions. These dimensions of enforcement are discussed in the chapters that follow. In chapter 20, the basic theory of public enforcement employing monetary sanctions is discussed; in chapter 21, the basic theory of enforcement using nonmonetary sanctions is examined; and in chapter 22, extensions to the basic theory are considered. Then, in chapter 23, functions of sanctions apart from deterrence, namely, incapacitation, rehabilitation, and retribution, are discussed. Finally, in chapter 24, the subject of criminal law is addressed against the background of the theory of public enforcement of law.
Steven Shavell, Economic Analysis of Welfare Economics, Morality and the Law (Nat'l Bureau Econ. Res., Working Paper No. w9700, May 2003).
Categories:
Disciplinary Perspectives & Law
,
Discrimination & Civil Rights
,
Taxation
Sub-Categories:
Social Welfare Law
,
Law & Economics
,
Legal Theory & Philosophy
,
Taxation - Personal Income
Type: Article
Abstract
This paper contains the chapters on welfare economics, morality, and the law from a general, forthcoming book, Foundations of Economic Analysis of Law (Harvard University Press, 2003). I begin in chapter 26 with a discussion of the normative foundations of economic analysis, namely, the subject of welfare economics. I also describe notions of morality and fairness, which play an important, if dominant, role in much normative discourse about law, and I discuss the connections between welfare economics and morality. A theme of this discussion is that notions of morality have functional aspects, and that, for a complex of reasons, they also take on importance in their own right to individuals. Then in chapter 27, I consider the observed relationship between law and morality, and comment on what might be thought to be the optimal relationship between law and morality. In chapter 28, I discuss issues concerning income distributional equity and the law, including the question of whether the distributional effects of legal rules should influence their selection. The answer to this question will be a qualified no, given that society has an income tax system that can serve to redistribute income or to correct problems with distribution that arise due to the effects of legal rules.
Steven Shavell, Economic Analysis of Accident Law (Harv. L. Sch. L. & Econ. Res. Paper Series, Discussion Paper No. 396, Nat'l Bureau Econ. Res., Working Paper No. w9483, Feb. 2003).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Remedies
,
Litigation & Settlement
,
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
Accident law is the body of legal rules governing the ability of victims of harm to sue and to collect payments from those who injured them. This paper contains the chapters on accident law from a general, forthcoming book, Foundations of Economic Analysis of Law (Harvard University Press, 2003). The analysis is first concerned (chapters 2-4) with the influence of liability rules on incentives to reduce accident risks. Then consideration of accident law is broadened (chapter 5) to reflect the effect of liability rules on compensation of victims and the allocation of risk. In this regard a central issue is the roles of victims' insurance and of liability insurance, and how they alter the incentives inherent in liability rules. Finally, the administrative costs of the liability system, namely, the private and public legal costs of litigation, are examined (chapter 6). These costs are significant and thus bear importantly on whether use of accident law is socially desirable. It is emphasized that social intervention - either to curtail use of the legal system or to encourage it - may well be needed because the private incentives to use the system are generally different from the socially desirable incentives to do so.
Steven Shavell, Economic Analysis of Contract Law (Harv. L. Sch. L. & Econ. Res. Paper Series, Discussion Paper No. 403, Nat'l Bureau Econ. Res., Working Paper No. w9696, Feb. 2003).
Categories:
Banking & Finance
,
Consumer Finance
,
Disciplinary Perspectives & Law
Sub-Categories:
Contracts
,
Consumer Contracts
,
Law & Economics
Type: Article
Abstract
Contract law governs agreements between parties. This paper contains the chapters on contract law from a general, forthcoming book, Foundations of Economic Analysis of Law (Harvard University Press, 2003). Chapter 13 presents an overview of the subject. Chapter 14 is concerned with contract formation, that is, with the process through which parties find contracting partners, with aspects of contract negotiation, and with the rules governing when an arrangement between parties becomes legally recognized as a contract. Chapter 15 considers at length an important type of contract: the contract to produce something. Chapter 16 is concerned with two other types of contract: the contract for transfer of possession of something that already exists (such as land or a painting), and donative contracts.
Steven Shavell, Economic Analysis of the General Structure of the Law (Nat'l Bureau Econ. Res. Working Paper No. w9699, Harv. L. & Econ. Discussion Paper No. 408, Feb. 2003).
Categories:
Civil Practice & Procedure
,
Criminal Law & Procedure
,
Banking & Finance
,
Disciplinary Perspectives & Law
,
Government & Politics
Sub-Categories:
Contracts
,
Sentencing & Punishment
,
Criminal Justice & Law Enforcement
,
Torts
,
Remedies
,
Law & Behavioral Sciences
,
Law & Economics
,
Legal Theory & Philosophy
,
Public Law
Type: Article
Abstract
This paper contains a chapter on the general structure of the law from a forthcoming book, Foundations of Economic Analysis of Law (Harvard University Press, 2003). In this chapter, I consider basic features of the legal system, including whether the law directly constrains behavior or channels it by the threat of sanctions, and whether the law is brought into play by private legal action or involves public enforcement. I investigate the conditions under which one or another structure of law will be socially desirable, and I then discuss tort, contract, criminal law, and several other areas of law in the light of the analysis of the optimal structure of the law.
Howell Jackson, Louis Kaplow, Steven Shavell, W. Kip Viscusi & David Cope, Analytical Methods for Lawyers (Found. Press 2003).
Categories:
Disciplinary Perspectives & Law
,
Legal Profession
Sub-Categories:
Legal Theory & Philosophy
,
Legal Education
Type: Book
Louis Kaplow & Steven M. Shavell, Fairness versus Welfare: Notes on the Pareto principle, preferences, and distributive justice, 32 J. Legal Stud. 331 (2003).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Law & Social Change
Type: Article
Abstract
In Fairness versus Welfare, we advance the thesis that social policies should be assessed entirely on the basis of their effects on individuals’ well‐being. This thesis implies that no independent weight should be accorded to notions of fairness (other than many purely distributive notions). We support our thesis in three ways: by demonstrating how notions of fairness perversely reduce welfare, indeed, sometimes everyone’s well‐being; by revealing numerous other deficiencies in the notions, including their lack of sound rationales; and by providing an account of notions of fairness that explains their intuitive appeal in a manner that reinforces the conclusion that they should not be treated as independent principles in policy assessment. In this essay, we discuss these three themes and comment on issues raised by Richard Craswell, Lewis Kornhauser, and Jeremy Waldron.
Steven Shavell, Minimum Asset Requirements (Harv. L. Sch. L. & Econ. Res. Paper Series, Working Paper No. 389, Nov. 2002).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Law & Economics
,
Law & Behavioral Sciences
,
Legal Theory & Philosophy
Type: Article
Abstract
Requirements that parties have assets of at least a minimum level in order to participate in an activity are frequently imposed. A principal rationale for minimum asset requirements is considered in this article - potential injurers have stronger incentives to prevent harm, or not to engage in harmful activities, provided that they have at least the required level of assets at stake if they are sued for causing harm. The optimal minimum asset requirement generally reflects a tradeoff between this advantage and the disadvantage that some parties with assets below a required level ought to engage in the activity (because the benefits they would obtain exceed the expected harm they would cause). Additionally, it is emphasized that minimum asset requirements are socially desirable only when the victims of harm are not customers of firms. When victims of harm are customers of firms, minimum asset requirements are socially undesirable.
Louis Kaplow & Steven Shavell, Human Nature and the Best Consequentialist Moral System (Harv. L. & Econ. Discussion Paper No. 349, Mar. 18, 2002).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Behavioral Sciences
,
Legal Theory & Philosophy
Type: Other
Abstract
In this article, we ask what system of moral rules would be best from a consequentialist perspective, given certain aspects of human nature. This question is of inherent conceptual interest and is important to explore in order better to understand the moral systems that we observe and to illuminate longstanding debates in moral theory. We make what seem to be plausible assumptions about aspects of human nature and the moral sentiments and then derive conclusions about the optimal consequentialist moral system - concerning which acts should be deemed right and wrong, and to what degree. We suggest that our results have some correspondence with observed moral systems and also help to clarify certain points of disagreement among moral theorists.
Louis Kaplow & Steven Shavell, All Individuals May Be Made Worse Off Under Any Nonwelfarist Principle (Harv. L. & Econ. Discussion Paper No. 350, Feb. 2002).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
Nonwelfarist principles - notably, deontological principles - are often advanced to guide moral decisions. The types of choices addressed by such principles typically seem, on their face, to involve conflicts of interests among individuals. Nevertheless, it can be demonstrated that any nonwelfarist principle will, in some circumstances, favor choices that make all individuals worse off. For a variety of reasons, this conclusion has important implications for moral theories that are understood to support nonwelfarist principles.
Louis Kaplow & Steven Shavell, Fairness Versus Welfare (Harvard Univ. Press 2002).
Categories:
Disciplinary Perspectives & Law
,
Discrimination & Civil Rights
Sub-Categories:
Law & Public Policy
,
Social Welfare Law
,
Legal Theory & Philosophy
Type: Book
Abstract
By what criteria should public policy be evaluated? Fairness and justice? Or the welfare of individuals? Debate over this fundamental question has spanned the ages. Fairness versus Welfare poses a bold challenge to contemporary moral philosophy by showing that most moral principles conflict more sharply with welfare than is generally recognized. In particular, the authors demonstrate that all principles that are not based exclusively on welfare will sometimes favor policies under which literally everyone would be worse off. The book draws on the work of moral philosophers, economists, evolutionary and cognitive psychologists, and legal academics to scrutinize a number of particular subjects that have engaged legal scholars and moral philosophers. How can the deeply problematic nature of all nonwelfarist principles be reconciled with our moral instincts and intuitions that support them? The authors offer a fascinating explanation of the origins of our moral instincts and intuitions, developing ideas originally advanced by Hume and Sidgwick and more recently explored by psychologists and evolutionary theorists. Their analysis indicates that most moral principles that seem appealing, upon examination, have a functional explanation, one that does not justify their being accorded independent weight in the assessment of public policy. Fairness versus Welfare has profound implications for the theory and practice of policy analysis and has already generated considerable debate in academia.
Steven M. Shavell, Law Versus Morality as Regulators of Conduct, 4 Am. L. & Econ. Rev. 227 (2002).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Law & Behavioral Sciences
Type: Article
Abstract
It is evident that both law and morality serve to channel our behavior. Law accomplishes this primarily through the threat of sanctions if we disobey legal rules. Morality too involves incentives: bad acts may result in guilt and disapprobation, and good acts may result in virtuous feelings and praise. These two very different avenues of effect on our actions are examined in this article from an instrumental perspective. The analysis focuses on various social costs associated with law and morality, and on their effectiveness, as determined by the magnitude and likelihood of sanctions and by certain informational factors. After the relative character of law and of morality as means of control of conduct is assessed, consideration is given to their theoretically optimal domains - to where morality alone would appear to be best to control behavior, to where morality and the law would likely be advantageous to employ jointly, and to where solely the law would seem desirable to utilize. The observed pattern of use of morality and of law is discussed, and it is tentatively suggested that the observed and the optimal patterns are in rough alignment with one another.
Louis Kaplow & Steven M. Shavell, On the Superiority of Corrective Taxes to Quantity Regulation, 4 Am. L. & Econ. Rev. 1 (2002).
Categories:
Disciplinary Perspectives & Law
,
Taxation
Sub-Categories:
Law & Economics
,
Tax Policy
Type: Article
Abstract
The traditional view of economists has been that corrective taxes are superior to direct" regulation of harmful externalities when the state's information about control costs is incomplete. " In recent years, however, many economists seem to have adopted the view that either corrective" taxes or quantity regulation could be superior to the other. One argument for this view with Weitzman (1974), holds only if the state is constrained to use a fixed tax rate (a linear tax" schedule) even when harm is nonlinear. Corrective taxes are indeed superior to quantity" regulation if -- as seems more plausible -- the state can impose a nonlinear tax equal to the" schedule of harm or can adjust the tax rate upon learning that it diverges from marginal harm. " Another argument, associated with Baumol and Oates (1988), is that quantity regulation gains" appeal when the state is uncertain about the harm caused by an externality. In this case however, a corrective tax schedule (equal to the expected harm schedule) is superior to quantity" regulation.
Steven Shavell & Kathryn E. Spier, Threats Without Binding Commitment, 2 Topics in Econ. Analysis & Pol'y (2002).
Categories:
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
Type: Article
Abstract
This paper explores the power of threats in the absence of binding commitment. The threatener cannot commit to carry out the threat if the victim refuses payment, and cannot commit not to carry out the threat if payment is made. An important assumption of the model is that once the threat is carried out it cannot be repeated. If exercising the threat is costly to the threatener, then the threat cannot succeed in extracting money from the victim. If exercising the threat would benefit the threatener, however, then the threat's success depends upon whether the threat may be repeated after a payment is made. In the equilibrium of a finite-period game, the threat is carried out and the victim makes no payments. In an infinite-horizon game, however, it is an equilibrium for the victim to make a stream of payments over time. The expectation of future payments keeps the threatener from exercising the threat.
Steven M. Shavell & Tanguy van Ypersele, Rewards Versus Intellectual Property Rights, 44 J.L. & Econ. 525 (2001).
Categories:
Property Law
,
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Intellectual Property - Copyright
,
Intellectual Property - Patent & Trademark
Type: Article
A. Mitchell Polinsky & Steven Shavell, Corruption and Optimal Law Enforcement, 81 J. Pub. Econ. 1 (2001).
Categories:
Criminal Law & Procedure
,
Government & Politics
,
Disciplinary Perspectives & Law
Sub-Categories:
Criminal Justice & Law Enforcement
,
Law & Economics
,
Corruption
Type: Article
Abstract
We analyze corruption in law enforcement: the payment of bribes to enforcement agents, threats to frame innocent individuals in order to extort money from them, and the actual framing of innocent individuals. Bribery, extortion, and framing reduce deterrence and are thus worth discouraging. Optimal penalties for bribery and framing are maximal, but, surprisingly, extortion should not be sanctioned. The state may also combat corruption by paying rewards to enforcement agents for reporting violations. Such rewards can partially or completely mitigate the problem of bribery, but they encourage framing. The optimal reward may be relatively low to discourage extortion and framing, or relatively high to discourage bribery.
Louis Kaplow & Steven Shavell, Any Non‐welfarist Method of Policy Assessment Violates the Pareto Principle, 109 J. Pol. Econ. 281 (2001).
Categories:
Disciplinary Perspectives & Law
,
Discrimination & Civil Rights
Sub-Categories:
Social Welfare Law
,
Law & Public Policy
,
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
The public at large, many policymakers, and a number of economists hold views of social welfare that are non‐welfarist. That is, they attach some importance to factors other than the effects of policies on individuals’ utilities. We show, however, that any non‐welfarist method of policy assessment violates the Pareto principle.
Louis Kaplow & Steven Shavell, Notions of Fairness versus the Pareto Principle: On the Role of Logical Consistency, 110 Yale L.J. 237 (2000).
Categories:
Disciplinary Perspectives & Law
,
Legal Profession
,
Discrimination & Civil Rights
Sub-Categories:
Social Welfare Law
,
Law & Economics
,
Legal Theory & Philosophy
,
Legal Ethics
Type: Article
Abstract
Most legal academics and policymakers believe that weight should be accorded to conceptions of fairness in evaluating legal policies. In other writings, we have demonstrated that adherence to any notion of fairness will sometimes lead to a conflict with the Pareto principle. That is, to endorse a notion of fairness is to endorse the view that it can be desirable to adopt a legal rule that will reduce the well-being of every person in society. In this comment, we will be arguing that Howard Chang's position in his reply to one of our articles, in which he suggests that it is possible to imagine some notions of fairness under which this conflict does not exist, is tantamount to an abandonment of logical consistency in normative assessment of policy.
A. Mitchell Polinsky & Steven Shavell, The Fairness of Sanctions: Some Implications for Optimal Enforcement Policy, 2 Am. L. & Econ. Rev. 223 (2000).
Categories:
Disciplinary Perspectives & Law
,
Criminal Law & Procedure
Sub-Categories:
Sentencing & Punishment
,
Law & Behavioral Sciences
,
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
In this article we incorporate notions of the fairness of sanctions into the standard model of public enforcement. When both the probability and magnitude of sanctions may be varied, the usual solution involves a very high sanction and a relatively low probability of enforcement if individuals are risk neutral. When the issue of fairness is added to the analysis, the optimal sanction generally is not extremely high because such a sanction would be seen as unfair. The optimal probability of imposing sanctions may be higher than in the usual case (to offset the lower sanction) or lower than in the usual case (because the lower sanction reduces the effectiveness of enforcement).
Louis Kaplow & Steven Shavell, Should Legal Rules Favor the Poor? Clarifying the Role of Legal Rules and the Income Tax in Redistributing Income, 29 J. Legal Stud. 821 (2000).
Categories:
Taxation
,
Disciplinary Perspectives & Law
Sub-Categories:
Law & Economics
,
Taxation - Personal Income
Type: Article
Abstract
In our 1994 article in this Journal, we demonstrated that legal rules should not be adjusted to disfavor the rich and favor the poor in order to redistribute income, because the income tax and transfer system is a more efficient means of redistribution. In this article, we revisit our argument and others that favor relying on the income tax system to redistribute income, and we then focus on qualifications to our argument that we previously offered. In particular, we elaborate on a qualification that is the subject of Chris Sanchirico's article in this issue of the Journal and explain why it has only a tangential bearing on the question whether legal rules should favor the poor and why it is of doubtful practical importance.
Steven Shavell, On the Social Function and the Regulation of Liability Insurance, 25 Geneva Papers on Risk & Ins. 166 (2000).
Categories:
Civil Practice & Procedure
,
Corporate Law & Securities
,
Disciplinary Perspectives & Law
,
Banking & Finance
Sub-Categories:
Risk Regulation
,
Insurance Law
,
Torts
,
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
The sale of liability insurance presents us with a basic question. On one hand, individuals want to purchase liability insurance coverage, suggesting that its ownership is socially good. On the other, the risk against which liability coverage protects its holders is having to pay legally-mandated sanctions. And because the purpose of legal sanctions is in significant part to discourage and to punish unwanted behavior, the fundamental issue arises whether liability insurance might undermine the effect of the law and thus be socially undesirable. This concern led to early resistance against the sale of liability insurance, and reservations about the wisdom of liability insurance are reflected today by certain limitations on the sale of coverage. However, liability insurance is widely held, and without apparently untoward consequences for the functioning of the legal system. My purpose in this paper is to discuss what the economic theory of insurance and of liability law imply about the social desirability, or lack thereof, of liability insurance. I first consider the standard model of accidents and determine there that liability insurance is socially desirable. I then turn to the chief circumstance under which regulation of liability insurance coverage may be justified -- when incentives to reduce risk are inadequate. Inadequate incentives may arise because of judgment-proof problems or the possibility of escape from liability. Regulation of liability coverage may then help to augment diluted incentives to reduce risk. Notably, requirements to purchase coverage may improve incentives when insurers can monitor insured behavior; and the opposite form of regulation, forbidding coverage, may increase incentives when insurers are not able to monitor insured behavior.
Steven Shavell & Louis Kaplow, Principles of Fairness Versus Human Welfare: On the Evaluation of Legal Policy (Harv. L. Sch. L. & Econ. Res. Paper Series, Discussion Paper No. 277, Mar. 2000).
Categories:
Civil Practice & Procedure
,
Criminal Law & Procedure
,
Disciplinary Perspectives & Law
,
Discrimination & Civil Rights
Sub-Categories:
Sentencing & Punishment
,
Criminal Justice & Law Enforcement
,
Torts
,
Practice & Procedure
,
Social Welfare Law
,
Law & Public Policy
,
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
Our thesis is that the assessment of a legal policy should depend exclusively on its effects on human welfare, that is, on the well-being of individuals. In particular, no independent evaluative weight should be accorded to notions of fairness, such as corrective justice in tort and desert in punishment. (Concerns about the distribution of income are not, however, subject to our critique.) When the choice of legal rules is influenced by notions of fairness, individuals are often made worse off. Indeed, if the prescriptions of any notion of fairness are followed, it is always possible that everyone will be made worse off. Moreover, when we examine notions of fairness and the literature that advances them, we are unable to identify reasons that, on reflection, justify giving weight to these notions at the expense of individuals' well-being. Nevertheless, notions of fairness are widely felt to be appealing. We suggest that this appeal can largely be explained by three factors: notions of fairness often correspond to social norms that usefully regulate everyday life; notions of fairness may serve as proxy devices for achieving instrumental objectives; and individuals may have a taste for satisfaction of the notions. However, we explain that none of these factors warrants employing notions of fairness as independent evaluative principles in the assessment of legal policy. We develop these arguments through consideration of specific conceptions of fairness that are employed in major areas of law: tort, contract, legal procedure, and law enforcement. We also discuss the implications of our analysis for our primary audience, legal academics and other legal policy analysts, and also for government officials, notably legislators, regulators, and judges.
A. Mitchell Polinsky & Steven Shavell, The Economic Theory of Public Enforcement of Law, 38 J. Econ. Lit. 45 (2000).
Categories:
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
,
Criminal Law & Procedure
Sub-Categories:
Criminal Prosecution
,
Sentencing & Punishment
,
Remedies
,
Law & Economics
,
Law & Behavioral Sciences
Type: Article
Abstract
This article surveys the theory of the public enforcement of law--the use of public agents (inspectors, tax auditors, police, prosecutors) to detect and to sanction violators of legal rules. We first present the basic elements of the theory, focusing on the probability of imposition of sanctions, the magnitude and form of sanctions, and the rule of liability. We then examine a variety of extensions of the central theory, concerning accidental harms, costs of imposing fines, errors, general enforcement, marginal deterrence, the principal-agent relationship, settlements, self-reporting, repeat offenders, imperfect knowledge about the probability and magnitude of fines, and incapacitation.
Louis Kaplow & Steven Shavell, The Conflict Between Notions of Fairness and the Pareto Principle, 1 Am. L. & Econ. Rev. 63 (1999).
Categories:
Disciplinary Perspectives & Law
,
Discrimination & Civil Rights
,
Taxation
Sub-Categories:
Law & Public Policy
,
Social Welfare Law
,
Law & Economics
,
Legal Theory & Philosophy
,
Taxation - Personal Income
Type: Article
Abstract
Most legal academics and policy makers believe that notions of fairness should be accorded positive weight in evaluating legal policies. We explain, however, that ascribing importance to any notion of fairness (other than one concerned solely with the distribution of income) will sometimes lead to a conflict with the Pareto principle. That is, to endorse a notion of fairness is to endorse the view that it can be desirable to adopt a legal rule that will reduce the well-being of every person in society.
Lucian A. Bebchuk & Steven M. Shavell, Reconsidering Contractual Liability and the Incentive to Reveal Information, 51 Stan. L. Rev. 1615 (1999).
Categories:
Banking & Finance
Sub-Categories:
Contracts
Type: Article
Louis Kaplow & Steven Shavell, Any Non-Individualistic Social Welfare Function Violates the Pareto Principle (Nat'l Bureau Econ. Res., Working Paper No. w7051, Mar. 1999).
Categories:
Disciplinary Perspectives & Law
,
Discrimination & Civil Rights
Sub-Categories:
Social Welfare Law
,
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
The public at large, many policymakers, and some economists hold views of social welfare that attach some importance to factors other than individuals' utilities. This note shows that any such non-individualistic notion of social welfare conflicts with the Pareto principle.
Steven Shavell, The Level of Litigation: Private Versus Social Optimality of Suit and of Settlement, 19 Int'l Rev. L. & Econ. 99 (1999).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Torts
,
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
What is the socially optimal level of litigation given its expense, and how does it compare to the privately determined level of litigation? The former and the latter levels of legal activity generally differ, and the reasons involve 2 fundamental types of externality. The first is a negative externality: When a party spends on litigation, he does not take into account the litigation costs that he induces others to incur. The 2nd is a positive externality: When a party engages in litigation, he does not take into account the effect that this has on incentives to reduce harm. This paper investigates the standard model of potentially harmful behavior and the liability system, but it allows for the costliness of litigation.
Louis Kaplow & Steven Shavell, Economic Analysis of Law (John M. Olin Ctr. L. Econ. & Bus. Discussion Paper No. 251, Nat'l Bureau Econ. Res., Working Paper No. w6960, Feb. 1999).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
,
Criminal Law & Procedure
,
Property Law
Sub-Categories:
Criminal Justice & Law Enforcement
,
Torts
,
Litigation & Settlement
,
Law & Economics
,
Property Rights
Type: Article
Abstract
This is a survey of the field of economic analysis of law, focusing on the work of economists. The survey covers the three central areas of civil law liability for accidents (tort law), property law, and contracts as well as the litigation process and public enforcement of law.
A. Mitchell Polinsky & Steven Shavell, On the Disutility and Discounting of Imprisonment and the Theory of Deterrence, 28 J. Legal Stud. 1 (1999).
Categories:
Criminal Law & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Sentencing & Punishment
,
Law & Behavioral Sciences
,
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
This article studies the implications for the theory of deterrence of (a) the manner in" which individuals' disutility from imprisonment varies with the length of the imprisonment" term; and (b) discounting of the future disutility and future public costs of imprisonment. Two" questions are addressed: Is deterrence enhanced more by increasing the length of imprisonment" terms or instead by raising the likelihood of imposing imprisonment? What is the optimal" combination of the severity and probability of imprisonment sanctions?"
A. Mitchell Polinsky & Steven Shavell, On Offense History and the Theory of Deterrence, 18 Int'l Rev. L. & Econ. 305 (1998).
Categories:
Disciplinary Perspectives & Law
,
Criminal Law & Procedure
Sub-Categories:
Sentencing & Punishment
,
Law & Behavioral Sciences
,
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
This article uses a two-period version of the standard economic model of deterrence to study whether sanctions should depend on an individual’s record of prior convictions—his offense history. The principal contribution of the article is to demonstrate that it may be optimal to treat repeat offenders disadvantageously because such a policy serves to enhance deterrence: When an individual contemplates committing an offense in the first period, he will realize that if he is caught, not only will he bear an immediate sanction, but also—because he will have a record—any sanction that he bears in the second period will be higher than it would be otherwise.
Steven Shavell, Legal Advice, in The New Palgrave Dictionary of Economics and the Law (Peter Newman ed., 1998).
Categories:
Legal Profession
,
Civil Practice & Procedure
Sub-Categories:
Litigation & Settlement
,
Practice & Procedure
,
Legal Services
Type: Book
Abstract
Legal advice is the information that lawyers provide to clients about the nature of legal rules, about the probability and magnitude of sanctions for their violation, and about litigation and legal procedure. The chief questions addressed here are how legal advice helps clients and how, or whether, it advances social welfare. The analysis distinguishes between two major types of legal advice: ex ante advice, obtained when a party is contemplating an action with possible legal consequences; and ex post advice, secured after a party has acted or someone has been harmed, which is to say, at the stage of possible or actual litigation.
A. Mitchell Polinsky & Steven Shavell, Punitive Damages: An Economic Analysis, 111 Harv. L. Rev. 869 (1998).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Remedies
,
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
The imposition of punitive damages is one of the more controversial features of the American legal system. Trial and appellate courts have struggled for many years to develop coherent principles for addressing the questions of when punitive damages should be awarded, and at what level. In this Article, Professors Polinsky and Shavell use economic reasoning to provide a relatively simple set of principles for answering these questions, given the goals of deterrence and punishment. With respect to the deterrence objective, on which their Article focuses, they argue that punitive damages ordinarily should be awarded if, and only if, an injurer has a significant chance of escaping liability for the harm he caused. When this condition holds, punitive damages are needed to offset the deterrence-diluting effect of the chance of escaping liability. (They mention as well a deterrence rationale for punitive damages that does not rest on the possibility of escape from liability - that punitive damages may be needed to deprive individuals of the socially illicit gains that they obtain from malicious acts.) Professors Polinsky and Shavell also discuss the tension between the implications of the deterrence objective and present punitive damages law, including the law's emphasis on the reprehensibility of a defendant's conduct and on a defendant's wealth. With respect to the punishment objective, Professors Polinsky and Shavell stress that the imposition of punitive damages on corporations may fail to serve its intended purpose (although the imposition of punitive damages on individual defendants accomplishes punishment in a straightforward manner). Punitive damages against corporations may be ineffective primarily because the payment of punitive damages awards by corporations often does not lead to greater punishment of culpable employees, but instead punishes the corporation's shareholders and customers.
Steven Shavell, The Fundamental Divergence Between the Private and the Social Motive to Use the Legal System, 26 J. Legal Stud. 575 (1997).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Torts
,
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
The legal system is an expensive social institution, raising the question of whether the amount of litigation is socially appropriate. The thesis developed here is that it is notbecause of fundamental differences between private and social incentives to use the legal system. These differences permeate litigation, affecting decisions about the bringing of suits, settlement versus trial, and trial expenditures. The privatesocial divergence is attributable to two externalities: when a party makes a litigation decision, he does not take into account the legal costs that he induces others to incur (a negative externality), nor does he recognize associated effects on deterrence and certain other social benefits (a positive externality). Consequently, the privately determined level of litigation can either be socially excessive or inadequate and may call for corrective social policies. A variety of policies are discussed, including taxation versus subsidy of suit, feeshifting, and promotion versus discouragement of settlement.
Steven Shavell, The Optimal Level of Corporate Liability Given the Limited Ability of Corporations to Penalize Their Employees, 17 Int'l Rev. L. & Econ. 203 (1997).
Categories:
Corporate Law & Securities
,
Labor & Employment
,
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
Sub-Categories:
Corporate Law
,
Torts
,
Torts - Business
,
Law & Behavioral Sciences
,
Law & Economics
,
Legal Theory & Philosophy
,
Employment Practice
,
Employee Benefits
,
Labor Law
,
Unemployment Law
,
Executive Compensation
Type: Article
Abstract
A central conclusion of the economic analysis of corporate liability is that the level of liability should generally equal harm. However, this result does not necessarily hold when the ability of corporations to impose penalties on employees for causing harm is limited (usually at most dismissal from their jobs), implying that employees' motives to prevent harm may be inadequate. Firms can partially remedy this problem by paying employees an above-market wage, because that will raise employees' desire to keep their jobs. But a firm's incentive to pay such a supernormal wage deviates from the socially desirable incentive to pay supernormal wages. This leads to the result that optimal level of liability can be either above or below harm.
Steven Shavell, Causation and Tort Liability (John M. Olin Ctr. L., Econ. & Bus., Discussion Paper No. 193, Aug. 1996).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Torts
,
Torts - Negligence
,
Remedies
,
Legal Theory & Philosophy
Type: Article
Abstract
We say that a person's act caused harm if the harm would not have occurred had the person not committed the act. This meaning of causation (sometimes called causation in fact or "but for" causation) along with notions of "proximate causation" are considered in this encyclopedia entry. It is a basic characteristic of tort law that liability is not imposed unless the defendant caused harm in a relevant sense. The chief question addressed here is how this feature of tort law advances the social, instrumental ends of the legal system.
Steven Shavell & A. Mitchell Polinsky, Repeat Offenders and the Theory of Deterrence (John M. Olin Ctr. L. Econ. & Bus. Discussion Paper No. 188, July 1996).
Categories:
Criminal Law & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Sentencing & Punishment
,
Law & Economics
,
Law & Behavioral Sciences
,
Legal Theory & Philosophy
Type: Article
Abstract
This article uses a two-period version of the standard economic model of deterrence to study whether sanctions should depend on an individual's record of prior convictions -- his offense history. The principal contribution of the article is to demonstrate that it may be optimal to treat repeat offenders disadvantageously because such a policy serves to enhance deterrence: When an individual contemplates committing an offense in the first period, he will realize that if he is caught, not only will he bear an immediate sanction, but also -- because he will have a record -- any sanction that he bears in the second period will be higher than it would be otherwise.
Steven Shavell, Any Frequency of Plaintiff Victory at Trial Is Possible, 25 J. Legal Stud. 493 (1996).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Legal Theory & Philosophy
,
Law & Economics
Type: Article
Abstract
A basic question about litigation concerns the frequency of plaintiff victory at trial and how cases that go to trial relate to settled cases. In a stimulating paper, Priest and Klein advanced a model in which there is a tendency for plaintiffs to prevail at trial with probability 50 percent. However, this note demonstrates that, in a simple, frequently employed model of litigation, it is possible for the cases that go to trial to result in plaintiff victory with any probability. Moreover, given any probability of plaintiff victory at trial, the probability of plaintiff victory among settled cases (had they been tried) may be any other probability. Further, data on the frequency of plaintiff victory does not clearly support the 50 percent tendency. In consequence, this note concludes that it does not seem appropriate to regard 50 percent plaintiff victories as a central tendency, either in theory or in fact.
Louis Kaplow & Steven Shavell, Accuracy in the Assessment of Damages, 39 J.L. & Econ. 191 (1996).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
Sub-Categories:
Litigation & Settlement
,
Torts
,
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
Assessment of damages is a principal issue in litigation and, in light of this, we consider the social justification for, and the private benefits of, accurate measurement of harm. Greater accuracy induces injurers to exercise levels of precaution that better reflect the magnitude of the harm they are likely to generate, and, relatedly, it stimulates uninformed injurers to learn about risks before acting. However, accuracy in assessment of harm cannot influence the behavior of injurers--and is therefore of no social value--to the degree that they lack knowledge of the harm they might cause when deciding on their precautions. Regardless of the social value of accuracy, litigants generally gain by devoting resources toward proof of damages, leading often to socially excessive private incentives to establish damages.
Louis Kaplow & Steven Shavell, Property Rules Versus Liability Rules: An Economic Analysis, 109 Harv. L. Rev. 713 (1996).
Categories:
Property Law
,
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
Sub-Categories:
Litigation & Settlement
,
Remedies
,
Law & Economics
,
Property Rights
Type: Article
Abstract
Should property rights be protected absolutely -- by property rules -- or instead by the requirement that infringing parties pay for harm done--that is, by liability rules? In this article, we present a systematic economic analysis of this fundamental question. Our primary object is to explain why liability rules are often employed to protect individuals against harmful externalities (such as pollution and automobile accidents), whereas property rules are generally relied upon to protect individuals from having their possessions taken from them, thereby ensuring a basic incident of ownership. In the course of our analysis, we suggest that a variety of commonly held beliefs about property and liability rules are in error, and we also derive results bearing on legal policy. Notably, we show that, for controlling some important externalities, liability rules (and pollution taxes) are superior to property rules (including many forms of regulation) even when damages must be set using only limited information about harm.
Louis Kaplow & Steven Shavell, Comment, Do Liability Rules Facilitate Bargaining? A Reply to Ayres and Talley, 105 Yale L.J. 221 (1995).
Categories:
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
,
Property Law
Sub-Categories:
Litigation & Settlement
,
Torts
,
Law & Economics
,
Legal Theory & Philosophy
Type: Article
Abstract
Arguments that liability rules are preferable to property rules when bargaining is imperfect are flawed because of the uncertain influence of information-forcing on the bargaining process. Examples advanced in support of the preferability of liability rules are based on examples that appear to support the opposite conclusion that property rules will result in better outcomes. Imperfect bargaining is likely to do better under a liability scheme because bargaining may fail and if it fails liability rules are preferable.

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