Law and Economics Exam 2

Exam 2 likely topics

Goals of tort law

Primary economic goal of tort law is optimal deterrence, with victim compensation a secondary goal.

Causation

The breach of duty must have caused plaintiff’s injury

Negligence

I am liable if I failed to take the required standard of care – but
not if I was careful and the accident happened anyway

Strict liability

is the imposition of liability on a party without a finding of fault

Intentional torts

A type of tort that can only result from an intentional act of the defendant.

Efficient level of precaution v. activity level

Simple negligence - 1. Too much injurer activity and efficient injurer precaution, and 2. Efficient victim activity level, and efficient victim precaution
Strict liability -1. Efficient injurer activity level, and efficient injurer precaution, and 2. Too much victim activity and too little victim precaution.

Why have courts shifted to strict liability?

Increase in product liability cases and liability in the 1970s and 1980s. The manufacturer is usually the low‐cost avoider, lower administrative (decision‐making) costs, incentivizes manufacturers to take a high level of precaution, manufacturer may be better positioned to treat liability as cost of business.

Medical malpractice information issues

Malpractice liability may not optimally deter medical error

Duty to rescue

describes a concept holding someone liable for failing to come to the rescue of another party who would otherwise face potential injury or death.

Intentional torts v. crime

Intentional torts depend strictly on whether someone had intent to harm, crimes are more severe infractions in which someone/multiple people broke the law, generally followed up by proceedings brought by the state government, but many intentional torts are crimes.

Value of a statistical life concept

how much individuals are willing to pay to reduce the risk of
death

Punitive damages purposes

Deterrence, punishment, relieves pressure on the overloaded criminal system, compensates the victim for litigation expenses

Posner theories from bedbug case

Punitive damages should be proportional to the wrongfulness of the defendant's actions, there have to be reasonably clear standards for determining the amount of punitive damages, and the defendant should be punished for the action taken not the status of the defendant

Class experiment takeaways

When juries meet, the group judgment moves to more extreme positions (typically higher) than the median of pre-deliberation judgment

Defamation law – costs/benefits

Find the balance between “encouraging robust discussion & providing a meaningful remedy for reputational harm”

Section 230 – costs/benefits

Provides a shield for websites against liability for defamation torts committed by users. Websites face uncertain liability & would have incentive to censor protected speech to avoid lawsuits without it

Goals of criminal law

Retribution, Deterrence, Incapacitation, Rehabilitation, Restoration

Minimizing total social cost of crime

Social costs can be divided into Net harm caused by crime, Resources spent on preventing crime.

Effects of probability of being caught, severity of punishment, risk aversion/preference

That an increase in either probability of punishment, or severity of punishment would reduce the utility the criminal expects from the offense and thus the number of offenses. It is believed that criminals are risk preferring meaning they prefer a major punishment given out rarely to a small one given out regularly, so deterrence strategy is to do the opposite of what criminals prefer

Disutility of longer prison sentences

because the three strikes law imposed much longer prison sentences on those who were not deterred, they also found that the cost of deterrence under the law was much higher than achieving the same deterrence simply hiring additional police

Economics of hiring additional police

Effect of more police on social cost of crimes:
(number of crimes before*cost to the rest of society)-(number of crimes after*cost to the rest of society)=reduction/increase in social cost of crime
Cost of trying & punishing offenders:
Effect on cost of trying and punishing offenders:
(number of crimes before*fraction of offenders caught before)-(number of crimes after*fraction of offenders caught after)=reduction/increase in the cost of trying & punishing offenders
New police officers:
(reduction/increase in social cost of crime)+(reduction/increase in the cost of trying & punishing offenders)= is it economically efficient?

Incapacity – when is it likely to be effective?

When there isn’t someone else waiting to take criminal’s place; when incapacitation changes the number of crimes a person will commit, rather than just delaying them; when a small number of criminals commit many crimes

Cash bail

Wealthy can afford to pay bail while poor cannot
Has presumption of innocence but considers flight

Prosecutors’ role in the criminal justice system

Primary duty of prosecutor is to seek justice with bound of the law, not merely convict. Should serve public interest & act with integrity

Drug demand elasticity

Casual users have elastic demand, addicts have very inelastic demand

Crime reduction factors

Increases in the number of police, the rising prison population, receding crack epidemic, the legalization of abortion

Settlements

(Probability of success)*(the expected trial award if successful) + (defendant's cost of litigating the case) >= (Probability of success)*(the expected trial award if successful) + (plaintiff's cost of litigating the case)

Mediation

May increase the probability of settlement by providing 3‐P information about strength of your case, helping determine whether the parties have an overlapping range of
valuations, committing the parties to divide the gains from settlement roughly equally, and conveying “noisy translations” of information disclosed during private caucuses

Arbitration

For civil cases, Private, No appeal, Limited use of attorneys, Short waiting time, Limited evidence, Fees for arbitrator, & attorneys

Contingent fees

Paid a fraction of the plaintiff settlement or trial award rather than hourly wage
Arguments against: promotes excessive litigation, creates conflict of interest between client & attorney
Benefits: if risk averse, can increase net utility by allowing risk sharing; client may be unable to finance litigation, so contingency fees let plaintiff borrow money from a lender to is better to assess value of case; hard to difficult to see how hard a lawyer is working – contingent fees motivate; litigation finance is a field that is grown a lot over the past years

American v. English rule on legal fees

American rule: requires parties litigating to compensate their own attorneys regardless of outcome

English rule: losing party must pay winner’s reasonable fees
Discourages pointless suits

Type I and Type 2 error costs

Type 1: false positive, a finding of guilt that is wrong
Type 2: false negative, finding not guilty that is wrong
Criminal cases, we think type 1 error costs are much higher than type 2

Prosecutor’s fallacy

Bayes’ theorem used for calculating conditional probabilities shows that the probability that A will occur if B occurs will generally differ from the probability that B will occur if A occurs

Risk aversion

the tendency of people to prefer outcomes with low uncertainty to outcomes with high uncertainty when the average outcome of the two are the same.

Two big assumptions of economics

People are rational & People are selfish

Criticism of behavioral economics

No unified theory, just long list of anomalies; anomalies arise in lab settings where incentives are weak; can sometimes be explained using rational choice theory

Endowment effect

we place greater value on objects we own over objects we do not

Loss aversion

Loss are felt more than gains

Bounded rationality

we make mistakes, & use heuristics (rules of thumb)

Bounded willpower

even thought we know what we should do, we don’t always

Bounded self-interest

we aren’t totally selfish