Published by De Gruyter

Volume 8 Issue 3

December 2013

Issue of Review of Law & Economics

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Contents
Journal Overview

Article

December 31, 2012

Are Academics Messy? Testing the Broken Windows Theory with a Field Experiment in the Work Environment

Joao Ramos, Benno Torgler

Page range: 563-577

Abstract

We test the broken windows theory using a field experiment in a shared area of an academic workplace (the department common room). More specifically, we explore academics’ and postgraduate students’ behavior under an order condition (a clean environment) and a disorder condition (a messy environment). We find strong evidence that signs of disorderly behavior trigger littering: In 59% of the cases, subjects litter in the disorder treatment as compared to 18% in the order condition. These results remain robust in a multivariate analysis even when controlling for a large set of factors not directly examined by previous studies. Overall, when academic staff and postgraduate students observe that others have violated the social norm of keeping the common room clean, all else being equal, the probability of littering increases by around 40%.

December 31, 2012

The Role of Prosecutor's Incentives in Creating Congestion in Criminal Courts

Noam Shamir, Julia Shamir

Page range: 579-618

Abstract

While much legal research has examined the problem of court delays and backlogs, the link between the prosecutor’s incentives to press charges and the subsequent effect on congestion in the criminal justice system has remained largely overlooked. To understand the implications of such decisions for court congestion, we model prosecutor incentives using queuing theory. We demonstrate that a benevolent decision-maker weighs the trade-off between the desire to increase the volume of cases reaching the court in order to convict the guilty and the delay costs that are due to the length of court proceedings. Using two prosecutorial incentive schemes that have previously been identified in the literature—the conviction rate and the total number of convictions—we find that a prosecutor who is acting to increase his own utility would deviate from charging the socially-desired number of cases. Following these negative results, we design a mechanism that induces the prosecutor to press charges in the socially-optimal number of cases. Also new in this paper is the methodology of using queuing theory in conjunction with issues of court delay and prosecution incentives. While thus far this tool has been widely applied in other disciplines of economics research, to the best of our knowledge, this is the first attempt to utilize this method in issues related to court congestion.

December 31, 2012

Political Beliefs and Tort Awards: Evidence of Rationally Political Jurors from Two Data Sets

Scott Wentland

Page range: 619-656

Abstract

To better understand jury decision-making, this paper explores the extent to which jurors’ political beliefs impact real world trial outcomes. The key finding of this study is a strong empirical link between a jury pool’s political leanings and tort awards, robust across two distinct data sets, namely pooled panels from the Civil Justice Survey of State Courts and Jury Verdict Research data. I find that a one standard deviation (12%) increase in a jury pool’s Democratic vote (in presidential elections) increases tort awards by approximately $157,600 (or 30%) on average. This general relationship remains consistent through county and time fixed effects estimations, and controlling for a number of socioeconomic demographics. While the empirics presented here do not establish a definitive causal link, the data lends evidence to the case for what I call a “rationally political juror,” suggesting further examination into juror incentives and decision-making.

December 31, 2012

Mitigating Judgment Proofness: Information Acquisition vs. Extended Liability

Joshua Anyangah

Page range: 657-696

Abstract

We present a simple lending model of judgment proof borrowers with private information and heterogeneous wealth, where large and small lenders coexist. Lenders subject would-be borrowers to pre-lending screening, which is not observable and cannot therefore be committed to ex ante. We document market segmentation and credit rationing: borrowers with limited wealth, who face a less severe moral hazard, are funded by large lenders; wealthy borrowers turn to small lenders who face a higher cost of capital; borrowers with abundant wealth do not get any financing. With advances in the screening technology, large lenders (small lenders) contract (expand) their loan portfolio. In contrast, as a result of an increase in the liability of lenders, large lenders (small lenders) increase (decrease) the number of loans that they make. The qualitative impact on social welfare of an increase in lender liability or advances in information technology is ambiguously tied to the quality of the borrower pool.

December 31, 2012

Decoupled Liability and Efficiency: An Impossibility Theorem

Satish K. Jain

Page range: 697-718

Abstract

A basic feature of tort law is that of coupled liability: the damages awarded to the victim equal the liability imposed on the injurer. This feature of tort law is incorporated in the very definition of a liability rule by postulating that the shares of loss borne by the two parties sum to one. In this paper the relationship between this feature of tort law and efficiency is investigated. It is shown that coupled liability is necessary for efficiency, i.e., if a rule is such that it invariably gives rise to efficient outcomes then it must be the case that under it the liability is coupled. In other words, no rule with decoupled liability can be such that it always yields efficient outcomes.

December 31, 2012

Natural Resource Production under Divided Ownership: Evidence from Coalbed Methane

Timothy Fitzgerald

Page range: 719-757

Abstract

Divided ownership has been shown to dilute economic incentives in a variety of contexts. Split estate, or severed mineral rights, is a widely-held form of divided ownership and has been a topic of recent policy interest. A natural experiment created by federal mineral ownership established due to forces unrelated to the natural resource being exploited is studied to avoid the endogeneity problems found on private minerals. Using well-level production data from coalbed methane (CBM) wells in Wyoming during the years 1987-2006, wells on federal minerals with private surface are compared to those on federal minerals with federal surface. Delays in development on split estate are found; maximum production is somewhat lower but cumulative production is higher. Some support is found for strategic incentives firms face regarding property rights. The role of the accommodation doctrine in preventing holdup is discussed.

December 31, 2012

The Hyperbolic Punishment Function

Ali M. al-Nowaihi, Sanjit Dhami

Page range: 759-787

Abstract

All models in Law and Economics use punishment functions (hereafter, PF) that incorporate a trade-off between probability of detection, p, and punishment, F. Suppose society wishes to minimize the total costs of enforcement and damages from crime, T( p,F). For a given p, an optimal punishment function (OPF) determines an F that minimizes T( p,F). A popular and tractable PF is the hyperbolic punishment function (HPF). We show that the HPF is an OPF for a large class of total cost functions. Furthermore, the HPF is an upper (lower ) bound for an even larger class of punishment functions. If the HPF cannot (can) deter crime, then none (all ) of the PF’s for which the HPF is an upper (lower ) bound can deter crime. Thus, if one can demonstrate that a particular policy is ineffective (effective) under the HPF, there is no need to even compute the OPF. Our results should underpin an even greater use of the HPF. We give illustrations from mainstream and behavioral economics.

December 31, 2012

Patent Litigation and the Role of Enforcement Insurance

Gerard Llobet, Javier Suarez

Page range: 789-821

Abstract

We study the effects of patent enforcement insurance when used by an incumbent patent holder in order to increase its incentives to oppose alleged infringers (entrants). By covering some of the legal costs ex-ante, the incumbent can increase its commitment to litigate and, as a result, deter some potential entrants and, in case of entry, induce a more profitable settlement deal. We identify the circumstances in which it is optimal for the incumbent to undertake patent enforcement insurance, typically with a deductible that either prevents litigation from occurring in equilibrium or trades off the ex-post costs of excessive litigation with the aforementioned strategic gains. We assess the impact of patent enforcement insurance on equilibrium outcomes across different legal-cost allocation rules and parameterizations of the model.

December 31, 2012

Contractual Democracy

Hans Gersbach

Page range: 823-851

Abstract

Recent contributions suggest that introducing political contracts could make liberal democracy more efficient without altering its fundamental values. Such contracts might foster the public ’s trust in politics. In this article, we review and structure the current state of affairs on Contractual Democracy. We discuss four archetypes of political contracts and ways of implementing them. We outline the certification and control procedures for political contracts, and address the major concerns arising with regard to Contractual Democracy.

About this journal

Objective
The Review of Law & Economics (RLE) is published in cooperation with the European Association of Law and Economics (EALE) and De Gruyter. The Review publishes theoretical and empirical interdisciplinary research in law and economics-related subjects. The Journal explores the various understandings that economic approaches shed on legal institutions. It specializes in the application to legal issues of insights developed in economic disciplines.

Unlike traditional journals in law and economics, The Review of Law & Economics is published online, avoiding much of the delays and hassle of print publication. The electronic content in the journal appears continuously, as articles are accepted for publication.

Topics

Law
Economics
Microeconomics
Game theory
Finance
Econometrics
Decision theory
Political economy
Public choice
Behavioral economics
Social psychology
Evolutionary biology

Article formats

Theoretical and empirical interdisciplinary research articles

Announcements:

Professor Francesco Parisi (Univ. of Minnesota and Univ. of Bologna) has been awarded the 2018 EALE Award during the latest annual conference of the European Association of Law & Economics in Milan. The prize is awarded every two years for lifetime achievements and significant contributions to the field of Law and Economics, in particular to the development of this scientific movement in Europe. The winner is also given lifetime honorary membership in the Association. Professor Parisi will deliver the EALE Award Lecture at the next EALE conference (in Tel Aviv in september 2019). The lecture will then be published in the EALE official journal, the Review of Law and Economics. The prize is awarded by the Management Board of the Association following the advise of a committee composed by former EALE Award Winners and EALE Presidents.