Volume 9, Issue 2 -

Recent theoretical work has investigated the exact mechanism(s) by which the holdout problem creates inefficiency and thereby justifies eminent domain. In parallel, recent empirical work has demonstrated that state courts and legislatures either grant discretion to, or prohibit, local authorities from using eminent domain for economic development. This article extends Miceli’s (2011) strategic holdout model to incorporate political inefficiencies that may emerge when granting discretionary powers. Using eminent domain for non-efficiency-enhancing purposes substitutes for voluntary exchange, which is optimal, and attracts rent seeking by developers. Therefore, the efficiency justification for eminent domain is conditional. It depends on the relative magnitudes of the market and political sources of inefficiency. This analysis informs the efficiency consequences of court rulings, most notably Kelo v. City of New London , and the various changes in states’ laws that followed.

We examine traditional criminal wiretaps to determine whether the 4th Amendment’s warrant requirement limits law enforcement. We develop a formal model relating law enforcement’s decision to pursue a wiretap to its exogenous cost, probability of yielding evidence, and the expected value of that evidence. We use the model to analyze success rates of all traditional federal wiretaps initiated 1997–2004. We find budget constraints cause law enforcement to pursue only taps that are particularly likely to succeed. Thus, eliminating the warrant requirement for traditional wiretaps would matter little, and the significance of a warrant requirement for new investigative programs, such as the Terrorist Surveillance Program, depends on budget.

I use data from the 1998 Youth Lifestyle Survey to assess empirically the link between perceived deterrence and criminal involvement. I concentrate on shop theft and two specific deterrents: the perceived probability of detection and the perceived consequences stemming from detection in terms of job loss. The estimation of the deterrence model reveals that perceived deterrents significantly influence criminal activity. I investigate whether perceptions are determined simultaneously with crime, through learning in the light of personal experience. To overcome this simultaneity problem, I use an instrumental variables strategy to estimate the deterrence model. Recent techniques of propensity score matching algorithms developed are also considered. The results are robust and consistent with the deterrence theory.

The key question in this article is to determine whether regulation and regulator information can help to solve causal uncertainty problems in liability. A widely held view among Law and Economics scholars is that civil liability alone is not well-suited to cope with environmental accidents, especially where causation is uncertain or costly to establish. Instead of a simple civil liability rule, it is therefore advocated that a regulatory system be implemented combined with a public insurance scheme, or, alternatively, to institute a mix of regulation and civil liability. Such a mix of regulation and civil liability prevails in French law, and this article presents an original analysis of French court decisions concerning cases of environmental accidents for which causation was uncertain and in which regulators were not able to control for levels of organizational and human care. The dataset covers more than 50 years of trial outcomes from the highest civil and criminal court in France – Cour de Cassation. Our results seem to provide evidence that regulation provides a new way to address causal uncertainty at the liability stage. This may be due to a transfer of information from regulators to judges and to the adoption by judges of a probabilistic approach to causation.

We study the problem of torts in a framework where a firm’s accident adversely impacts all firms in the industry because of the presence of industry reputation effects. Industry reputation effects lead to interdependence among firms and give rise to strategic firm behavior. We characterize the industry equilibrium and the socially optimal industry configuration in such a setting. We then elucidate how the presence of industry reputation effects and the introduction of a liability regime in the form of a strict liability rule determine whether industry equilibrium is aligned or misaligned with the socially optimal industry configuration. Our results show that both the impact of industry reputation effects and the impact of the strict liability rule are in general contingent on the specifics of the tort problem at hand. In particular, we find that the presence of industry reputation effects can substitute for a suboptimal liability regime and that, in the presence of industry reputation effects, the introduction of the strict liability rule may be detrimental by steering the industry equilibrium away from the socially optimal industry configuration.