Volume 1, Issue 2

This paper presents a model of penalties that reconciles the conflicting accounts of optimal punishment by Becker, who argued penalties should internalize social costs, and Posner, who suggested penalties should completely deter offenses. The model delivers specific recommendations as to when penalties should be set to internalize social costs and when they should be set to completely deter offensive conduct. One basic recommendation is that whenever the cost of transacting with respect to some entitlement is less than the cost of enforcing the right to that entitlement, penalties should be set to completely deter. I use the model to generate a positive account of the function and scope of criminal law doctrines, such as intent, necessity, and rules governing the distinction between torts and crimes. The model is also consistent with the history of criminal penalties set out by Adam Smith.

Many legal rules can be interpreted as creating options. Option pricing is thus important for understanding the ex ante effects of these rules. And, recognizing that individuals, whose behavior the law aims to influence, are imperfectly rational, a behavioral option pricing model is a potentially helpful tool for legal policy. This paper develops such a model and applies it to a series of legal problems in tort law, contract law, corporate law and criminal law.

This paper examines a particular type of contracts that is, sadly, increasingly frequent: the agreements produced by divorcing couples. They are unhappy contracts, agreements produced as a necessary part of exit from what is now suboptimal marriage. They are virtually required by many states and are, in theory at least, closely monitored by courts since, when children are involved, they will be incorporated into court orders.What parties to unhappy contracts do is attempt to minimize losses, rather than maximize gain. How are contracts structured that will do this, and how does a difference in the size or power of the bargaining entities change the final settlement or contracting result? Because they are for more than one year, they also must be analyzed as relational contracts.This empirical study not only considers how the contractual terms come to be, but also what effect they have over a five year period, with an eye to seeing which contracts produce (or are at least consistent with) further litigation and which correspond with adjustment over time. The role of lawyers in the entire process is also a focus of the inquiry. Special attention is also paid to the role of fault, with surprising results in a no-fault system. All the divorce stipulations for parents of minor children that were filed in Johnson County, Iowa, during 1998 provide the beginning data, which is supplemented by other court records in each case.

The paper argues that society should vary the sanction applied to a criminal defendant with the weight of the evidence against him or her. This is optimal when it is costly for society to apply sanctions, since it can yield the same degree of deterrence while requiring fewer resources to be spent on sanctioning. Furthermore, when the unfairness of convicting an innocent defendant increases with the size of the sanction, this provides a further rationale for graduating sanctions with the probability of guilt. Some objections are briefly discussed, mainly that it is inherently unfair to apply different sanctions on people, who have committed the same offense, and that the legal system will lose legitimacy if it allows sanctions to vary in the way suggested.

All politicians, regardless of the nominal form of government within which they operate, face the trade-off between current period gains and tenure extension. That is, rulers can exploit their power for personal gain, but they risk being removed from their positions of power, either through a popular vote or a coup or revolution. If they temper their exploitation to remain in power, they sacrifice some of their current personal gain. Essentially all politicians are limited autocrats, where the limitations imposed on them differ according to the institutional structure under which they rule. This paper presents a formal model of this trade off in the Mancur Olson stationary bandit framework, where tenure length is explicitly endogenized in the politician’s maximization problem.