The Role of Bias in Economic Models of Law

Thomas J. Miceli; Kathleen Segerson

doi:10.1515/rle-2021-0043

Published by De Gruyter November 8, 2021

The Role of Bias in Economic Models of Law

Thomas J. Miceli and Kathleen Segerson

From the journal Review of Law & Economics

https://doi.org/10.1515/rle-2021-0043

Showing a limited preview of this publication:

Abstract

Behavioral economics has highlighted the impact of various biases on economic outcomes. This essay reviews how biases have been incorporated into economic models of the law and the resulting implications for the assessment of different legal rules and policies. It focuses on two contexts. The first concerns biases that affect consumer purchases of risky products. Using a standard accident model that incorporates various forms of consumer bias, we discuss how bias can affect the efficient assignment of liability for product-related accidents. The second context concerns biases that affect the administration of law, particularly regarding the adjudication of guilt, the lawmaking function of trials, and criminal sentencing. We examine procedural rules like precedent and sentencing guidelines, both of which are aimed at curtailing judicial bias.

Keywords: behavioral economics; bias; risk perceptions; legal error; judicial bias

JEL Classification: D9; D91; K13; K15; K41; K42

Corresponding author: Thomas J. Miceli, Department of Economics, University of Connecticut, Storrs 06269, CT, USA, E-mail: Thomas.Miceli@UConn.edu

Acknowledgments

We acknowledge the comments of Francesco Parisi.

Appendix A

This appendix proves that s ^* < 1 in the present-bias model when β < 1. Equilibrium consumption in this case, q ̂ ( s ) , is defined by (23), and equilibrium safety, π ̂ ( s ) , is defined by (25). Following Friehe et al. (2020), we treat welfare as being independent of consumer bias and therefore write it as

(A1) W s = ∫ 0 q ̂ ( s ) b z d z − c π ̂ s q ̂ s − π ̂ s D q ̂ s

The derivative of this expression with respect to s gives

(A2) ∂ W ∂ s = b q ̂ − c π ̂ − π ̂ D ∂ q ̂ ∂ s − c ′ π ̂ + D ∂ π ̂ ∂ s

After substituting from (23) and (25), this becomes

(A3) ∂ W ∂ s = b q ̂ ( 1 − β ) − 1 − ( s + β 1 − s ) π ̂ D ∂ q ̂ ∂ s − 1 − s + β 1 − s D q ̂ ∂ π ̂ ∂ s

Evaluating this expression at s = 1 gives

(A4) ∂ W ∂ s | s = 1 = b q ̂ 1 − β ∂ q ̂ ∂ s

Finally, from (23) we have

(A5) ∂ q ̂ ∂ s = ( 1 − β ) π ̂ D β b ′ < 0

from which it follows that (A4) is negative, thus proving that s ^* < 1.

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Published Online: 2021-11-08

The Role of Bias in Economic Models of Law

Abstract

Acknowledgments

References

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