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Duke University Protecting Intellectual Property: Intellectual Property Rights or Compensatory Liability Rules [pdf] (joint work with Tracy Lewis) Abstract We study the assignment of property rights and compensation rules to facilitate the exchange of valuable assets when investors are differentially informed about their value. We find that when assets are divisible and investors' values are interdependent it is optimal to endow each party with some initial rights over the assets. This has important implications for the design of optimal dissolution of partnerships, the sale of real property, the protection of intellectual property and avoiding conflicting uses of common property. |
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Universit?de Montréal Sharing Liability between Banks and Firms: The Case of Industrial Safety Risk [pdf] (joint work with Donatella Porrini) Abstract We characterize the distortions in environmental liability sharing between firms and banks that the imperfect implementation of government policies implies. These distortions stem from three factors: the presence of moral hazard, the use of objective functions by firms and banks that differs from the social welfare function, and the difficulty for the court to assess the safety care level exerted by the firms. We characterize cases where the liability sharing factor is above or below its full information perfect implementation level. We derive comparative statics results indicating the sensitivity of the liability sharing factor to changes in some parameters relevant for characterizing the optimal policy toward environmental protection or the prevention of industrial accidents. |
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Vanderbilt University Competition and Confidentiality [pdf] (joint work with Jennifer Reinganum) Abstract
How does the need to signal quality through price affect equilibrium pricing and profits, when a firm faces a similarly-situated rival? In this paper, we provide a model of non-cooperative signaling by two firms that compete over a continuum of consumers. We assume “universal incomplete information;?that is, each market participant has some private information: each consumer has private information about the intensity of her preferences for the firms?respective products and each firm has private information about its own product’s quality. We characterize a symmetric separating equilibrium in which each firm’s price reveals its respective product quality. |
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University of Quebec at Montreal Incentives: The Role of the Standard and Burden of Proof in Litigation [pdf] (joint work with Dominique Demougin) Abstract We analyze the design of rules of proof in civil litigation for the purpose of providing potential tort-feasors with ex ante incentives to exert care. Ex post, once harm has occurred, evidence is imperfectly informative and may be distorted by the parties. We show that efficient rules are consistent with courts operating on the basis of the preponderance of evidence standard of proof, together with common law exclusionary rules. Inefficient equilibria may nevertheless also arise under the same set of rules. Directing courts as to the allocation of the burden of proof is then useful in selecting the better equilibrium. |
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Universidade Nova de Lisboa The Economics of Reverse Contingent Fees [pdf] (joint work with Albert Choi) Abstract
We provide a strategic explanation for the fact that defendants do not |
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Northwestern University Trials and Tribulations [pdf]
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Duke University Protecting Inellectual Property: Intellectual Property Rights or Compensatory Liability Rules [pdf] (joint work with James Anton) Abstract
We study the assignment of property rights and compensation rules to facilitate the exchange of valuable assets when investors are differentially informed about their value. We find that when assets are divisible and investors' values are interdependent it is optimal to endow each party with some initial rights over the assets. This has important implications for the design of optimal dissolution of partnerships, the sale of real property, the protection of intellectual property and avoiding conflicting uses of common property. |
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Columbia University Reputations, Relationships and the Enforcement of Incomplete Contracts [pdf]
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Northwestern University Optimal Delegation [pdf] (joint work with Ricardo Alonso) Abstract We analyze the optimal delegation of decision rights by an uninformed principal to an informed but biased agent. When the principal cannot use message-contingent transfers, she offers the agent a set of decisions from which he can choose his preferred one. We fully characterize the optimal delegation set for general distributions of the state space and preferences with arbitrary continuous state-dependent biases. We also provide necessary and sufficient conditions for particular delegation sets to be optimal. Finally, we show that the optimal delegation set takes the form of a single interval if the agent's preferences are sufficiently similar to the principal's. |
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Emory University A Strategic Theory of Antitrust Enforcement [pdf] (joint work with Preston McAffe, Hugo Mialon) Abstract We develop a strategic model of private and public enforcement of the antitrust laws. The model highlights the tradeoff that private firms are more likely than the government to be informed about actual antitrust violations, but are also more likely to use the antitrust laws strategically, to the disadvantage of consumers. With coupled damages (plaintiff receives what defendant pays), if the court is sufficiently accurate, then adding private enforcement to public enforcement always increases social welfare, while if the court is less accurate, then it increases welfare only if the government is sufficiently inefficient in litigation. Moreover, pure private enforcement always yields weakly lower welfare than private enforcement combined with public enforcement. However, in general, achieving the welfare-maximizing outcome requires private enforcement with damages that are both multiplied and decoupled. |
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Emory University The Effects of the Fourth Amendment: A Strategic Model of Crime and Search [pdf] (joint work with Sue Mialon) Abstract The Fourth Amendment requires police to have probable cause before searching people or their property in criminal investigations. In practice, it is enforced through the exclusionary rule: if police search without probable cause, any evidence found in the search may be excluded from court. We analyze the effects of this rule on equilibrium elements of social welfare in a strategic model of crime and search. The rule always increases crime. But it has two opposing effects on police searches. It directly reduces them by reducing the chances that they lead to successful conviction, but it also indirectly increases them by increasing crime. If the indirect effect dominates, the rule actually increases searches, and has an ambiguous effect on wrongful searches. If the direct effect dominates, it reduces searches and wrongful searches. In contrast, direct police accountability for wrongful searches unambiguously reduces searches and wrongful searches. JEL K42 H10. |
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Tilburg University Effects of Leniency Programs on Cartel Stability [pdf] (joint work with -) Abstract
This paper studies the effect of leniency programs on the stability of cartels under two different regimes of fines, fixed and proportional. We analyze the design of self-reporting incentives, having a group of defendants. Moreover, we consider a dynamic setup, where accumulated (not instantaneous) benefits and losses from crime are taken into account. |
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Tulane Universitry Private Information and Nonbinding Arbitration [pdf] (joint work with Stephen J. Spurr) Abstract
This paper analyzes a procedure called mediation, that is really a form of nonbinding arbitration, and is widely employed in cases filed in State and federal courts in the U.S. Under the existing rules, a party who rejects an award proposed by the mediator is liable for sanctions unless the rejection turns out to be justified, i.e., unless the trial verdict is more favorable to the rejecting party than the mediation award. This penalty is designed to minimize the frequency of trial, by inducing both parties to accept the mediation award. |
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Vanderbilt University Survey of the Economics of Settlement Bargaining when there are Multiple Litigants [pdf] (joint work with Andrew Daughety) Abstract We briefly review two basic models of settlement bargaining based on concepts from information economics and game theory. We then discuss how these models have been generalized to address issues that arise when there are more than two litigants with related cases. Linkages between cases can arise due to exogenous factors such as correlated culpability or damages, or they can be generated by discretionary choices on the part of the litigants themselves or by legal doctrine and rules of procedure. |
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University of Bonn Tortious Acts Affecting Markets [pdf] Abstract
The present paper examines an injurer causing a temporary blackout to a firm as the primary victim but also affecting customers and competitors of the firm. Reflecting existing legal practice, the paper investigates efficiency properties of the negligence rule granting recovery of private losses but to the primary victim only. The regime is shown to provide efficient incentives for precaution provided that the primary loss exceeds the social loss from accidents. The main contribution of the paper consists of an explicit analysis of markets affected by a temporary blackout of one firm. The analysis reveals that the private loss exceeds the social loss indeed if the market is less than fully competitive. Moreover, the net social loss remains positive, no matter which market structure prevails. |
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Northwestern University Survey of Litigation [pdf] Abstract
The topic of this chapter ?Litigation ?is one of the liveliest research areas in the field of Law and Economics. Why do some lawsuits go to trial while many others are resolved out of court? Is out-of-court settlement in the interest of society? How confident should a judge or jury be before finding for one party or the other? Should the losing party be required to reimburse the winning party’s legal expenses? The economic issues surrounding these and other important questions are surprisingly subtle and the techniques used to examine them have grown increasingly refined over the years. The purpose of this chapter is to survey the academic literature on the economics of litigation and to synthesize its main themes. |
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University of Southern California Optimal Liability for Terrorism [pdf] (joint work with Darius Lakdawalla)
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University of California, San Diego Contract and Mechanism Design in Settings with Durable Trading Opportunities [pdf]
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