James J Anton

Duke University

  Monday, July 18, 9:30

Protecting Intellectual Property: Intellectual Property Rights or Compensatory Liability Rules    [pdf]

(joint work with Tracy Lewis)


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.

Marcel Boyer

Universit?de Montréal

  Monday, July 18, 10:15

Sharing Liability between Banks and Firms: The Case of Industrial Safety Risk    [pdf]

(joint work with Donatella Porrini)


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.

Andrew Daughety

Vanderbilt University

  Monday, July 18, 2:00

Competition and Confidentiality    [pdf]

(joint work with Jennifer Reinganum)


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.

We focus mainly on a model in which the quality attribute is safety (so that the legal system is brought into play) and quality is unobservable due to the use of confidential settlements; a particular specification of parameters yields a common model from the industrial organization literature in which quality is interpreted as the probability that a consumer will find the good satisfactory. We show that the equilibrium prices, the difference between those prices, the associated outputs, and profits are all increasing functions of the ex ante probability of high safety. When quality is interpreted as consumer satisfaction, unobservable quality causes all prices to be distorted upward, and lowers average quality and ex ante expected social welfare, but increases ex ante expected firm profits (when either the probability of high quality or the extent of horizontal product differentiation is sufficiently high). When quality is interpreted as product safety, the foregoing results are modified in that for some parameter values ex ante expected social welfare is higher under confidentiality because such legal secrecy lowers expected litigation costs.

Claude Fluet

University of Quebec at Montreal

  Sunday, July 17, 1:45

Incentives: The Role of the Standard and Burden of Proof in Litigation    [pdf]

(joint work with Dominique Demougin)


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.

Nuno Garoupa

Universidade Nova de Lisboa

  Tuesday, July 19, 9:30

The Economics of Reverse Contingent Fees    [pdf]

(joint work with Albert Choi)


We provide a strategic explanation for the fact that defendants do not
use reverse contingent fees in litigation.

Morton Kamien

Northwestern University

  Sunday, July 17, 5:15

Trials and Tribulations    [pdf]

Tracy Lewis

Duke University

  Monday, July 18, 9:30

Protecting Inellectual Property: Intellectual Property Rights or Compensatory Liability Rules    [pdf]

(joint work with James Anton)


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.

W. Bentley MacLeod

Columbia University

  Tuesday, July 19, 10:15

Reputations, Relationships and the Enforcement of Incomplete Contracts    [pdf]

Niko Matouschek

Northwestern University

  Monday, July 18, 3:45

Optimal Delegation    [pdf]

(joint work with Ricardo Alonso)


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.

Sue Hwang Mialon

Emory University

  Sunday, July 17, 4:15

A Strategic Theory of Antitrust Enforcement    [pdf]

(joint work with Preston McAffe, Hugo Mialon)


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.

Hugo Marc Mialon

Emory University

  Monday, July 18, 4:30

The Effects of the Fourth Amendment: A Strategic Model of Crime and Search    [pdf]

(joint work with Sue Mialon)


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.

Evgenia Motchenkova

Tilburg University

  Sunday, July 17, 3:30

Effects of Leniency Programs on Cartel Stability    [pdf]

(joint work with -)


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.
The main finding of the paper is that the strength of preemption mechanism appears to be the driving force of successfulness of leniency programs. Further, we obtain that cartel occurrence is less likely if the rules of the leniency programs are more strict and the procedure of application for leniency is more confidential, i.e. when incentives to preempt by self-reporting are stronger. This corresponds to the design of leniency programs where only the first reporter can obtain complete immunity from fine. We also consider the setting, where first and second reporters are treated similarly, the procedure of application for leniency is not confidential, and penalties and rate of law enforcement are low. In this case leniency may even increase duration of cartel agreements. Another counterintuitive result is that under a fixed penalty scheme the introduction of a leniency program cannot improve the effectiveness of antitrust enforcement when the procedure of application for leniency is not confidential.

Ram Orzach

Tulane Universitry

  Tuesday, July 19, 4:30

Private Information and Nonbinding Arbitration    [pdf]

(joint work with Stephen J. Spurr)


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.

We consider two alternative procedures. In the first procedure a party
is liable for sanctions if, and only if, the trial verdict reveals that she knowingly provided false information to the mediator. This procedure may be costly to implement because of difficulties of proof. In the second alternative, a party is liable only (a) if she accepts the mediator's award and (b) the trial verdict is further from her claim than the other party's claim. This procedure is easier to implement than the first one, but has less expected benefit. In comparison to the existing practice, both our procedures have a lower frequency of trial, and provide an ex ante gain to both parties.

Jennifer Reinganum

Vanderbilt University

  Tuesday, July 19, 2:45

Survey of the Economics of Settlement Bargaining when there are Multiple Litigants    [pdf]

(joint work with Andrew Daughety)


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.

Urs Schweizer

University of Bonn

  Monday, July 18, 2:45

Tortious Acts Affecting Markets    [pdf]


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.

JEL classification: K13, K12, D62

Kathryn Spier

Northwestern University

  Tuesday, July 19, 2:00

Survey of Litigation    [pdf]


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.

The premise of this chapter is that the main purpose of the court system is to facilitate value-creating activities and deter value-destroying activities through the enforcement of contracts and laws. In an ideal world, the court system would be accurate, unbiased, and free. The enforcement of contracts and laws would take place immediately and no transactions costs would be incurred. But the world is far from ideal. Errors, biases, and expected litigation costs distort the economic activities that take place in the shadow of litigation.

The chapter begins by introducing the basic economic framework for studying litigation and out-of-court settlement. One set of issues addressed is positive (or descriptive) in nature. For instance, under what conditions will someone decide to file suit? What determines how much is spent on a lawsuit? When do cases settle out of court? Important normative issues are also addressed. Are the litigation decisions made by private parties are in the interest of society? Next, the chapter surveys some of the more active areas in the litigation literature. Topics include the rules of evidence, loser-pays rules, appeals, contingent fees, class actions, and plea bargaining.

Eric Talley

University of Southern California

  Monday, July 18, 11:15

Optimal Liability for Terrorism    [pdf]

(joint work with Darius Lakdawalla)

Joel Watson

University of California, San Diego

  Tuesday, July 19, 11:15

Contract and Mechanism Design in Settings with Durable Trading Opportunities    [pdf]