Volume 14, Issue 2 -

We develop and discuss a new institutional concept, “the tragedy of the uncommons,” to describe the inefficient use of resources that are both non-substitutable and transitory. This situation is not captured by the tragedy of the commons/anti-commons literature or other theories. We highlight the crucial and under-appreciated assumptions about value over time of the tragedy of the commons and anticommons. We also introduce the concepts of “under” and “over-ownership” to the bundle of rights theory of property clarifying weaknesses in the literature to help better understand how institutions can yield efficient resource preservation.

Acts that are merely in preparation for the commission of a crime are not punished in many jurisdictions. This article provides a wrongful-imprisonment-cost-minimization based justification for this practice. It highlights that conceiving of sufficient proximity based on the trade-off between error-costs and deterrence-benefits may be a more useful alternative to conceptions that rely on physical or temporal proximity to define merely preparatory acts.

The article investigates the equilibrium conditions in the choice between legally binding contracts, which are costly to verify and enforce, and non-binding contracts, which simply rely on trust as an enforcement mechanism, in both one-shot and repeated interactions. The returns to effort appear to have an important effect on reputational behavior. The theoretical investigation is accompanied by numerical simulations of the welfare impact of the introduction of a legal system that allows for binding contracts. We find that contract-enforcing institutions mainly produce benefits when effort is particularly valuable, but turn out to be less effective otherwise and even detrimental for a subset of parameters. Finally, reputation unleashes its welfare-enhancing properties especially if non-binding agreements take place when the counterparty’s reliability is very unpredictable.

Even in a world with zero transaction costs, status seeking can prevent efficient Coasean bargaining. Using simple illustrations and various examples, we show that ignoring this impediment can explain the failure of some negotiations where an efficient bargain seems a priori reachable and expected. Rather than just emphasizing this neglected issue, we discuss various institutional and behavioral strategies by which this impediment can be overcome and even strategically used in socially desirable directions, such as bargaining over status.

To what extent are professional decision-makers in the field of public procurement susceptible to cognitive biases? Recent research found a bias in favor of the lower bidder when ranking competing bids (Dekel and Schurr 2014, “Cognitive Biases in Government Procurement – an Experimental Study with Real Bid Evaluators,” 10(2) Review of Law and Economics 169–200). In the present research we examine this question regarding another stage of the public procurement process – the qualification stage. To this end, we conducted a series of experiments with the participation of procurement officials in situations that closely resemble their daily work. Our main finding is that even though procurement officials are susceptible to a cognitive bias when they have to score competing bids, they overcome that bias when asked to decide whether to qualify faulty or questionable bids. We cautiously ascribe this difference to the different types of decision-making involved, and suggest further explorations of these insights.

This paper challenges the commonly held belief that the appeals process reduces the occurrence of legal errors. We show that, although the right to file an appeal or request adjudication offers an opportunity to correct mistakes made at trial, the final impact of the appeals process on the accuracy of judicial decisions is not always desirable because of its effects on the trial court decision-maker’s effort and on deterrence. In particular, we find that if (i) the trial court decision-maker is more concerned with legal errors than with her reputation, (ii) few potential offenders attribute high benefits to committing harmful acts and (iii) the additional effort exerted by the decision-maker has a stronger impact on wrongful acquittals than on wrongful convictions, then the implementation of an appeals process may spur a decision-maker to reduce her effort and may thus be detrimental to the quality of judicial output.

Regulated firms sometimes have a choice about whether to discharge a general duty or to comply with specification standards. This paper formalizes rationales for giving firms such a choice, but also points out drawbacks. One rationale is that choice can make compliance less onerous and hence more attractive. A second rationale is that the more socially efficient form of compliance can vary among firms. Whether this approach actually would be conducive to social efficiency depends on a range of factors, including the proportion of firms that would otherwise comply, the inflexibility that specification standards impose on firms, and on how strictly general duties would be interpreted.