Volume 16, Issue 3

When parties are risk-averse and therefore take out insurance, the efficiency of a tort rule depends on how well the insurance contracts govern incentives, risk allocation and transaction costs under the rule. This article presents two overlooked or discarded advantages of the rule of negligence over strict liability, which appear when insurance contracts are incomplete due to ex-ante transaction or ex-post verification costs. One advantage arises because of a legal impediment under strict liability: insurers cannot exempt coverage for all acts of simple negligence. Instead, the insurer must, at a cost, precisely specify each act for which coverage is excluded. Such specification can be prohibitively costly when there are many acts and many contingencies. These transaction costs, or the inefficient risk allocation associated with a deductible, are avoided under the negligence rule, where under idealized conditions the injurer can simply take due care and need not take out insurance. The other advantage of the negligence rule is that it provides incentives for the victim to bring forward information about the injurer’s acts. The victim has little incentive to convey such information under strict liability, whereas the victim’s insurer may elicit it, e. g. by not covering the victim’s loss fully.

Previous literature found empirical evidence to the scope-severity paradox (SSP), corresponding to situations where the perceived harm of a wrongdoing or crime decreases with the number of victims. We examine this phenomenon for the perpetrators’ side. Using a survey experiment, we examine whether increasing the number of perpetrators of a crime, namely a fraud, decreases its perceived severity (and subsequent punishment) at the individual level. Two scenarios are examined corresponding to two kinds of fraud: a fraud committed by a financial adviser against his/her own employer (scenario 1) and a tax evasion by an executive (scenario 2). Overall, our results do not offer a clear-cut support for the scope-severity paradox for the perpetrators’ side, even if some secondary results can be indicative of a possible SSP in some circumstances. More precisely, in the case of a financial fraud, the stated severity increases when the number of perpetrators is low. We discuss the implications of our results and raise important issues for future research.

When multi-product firms make simultaneous price-fixing agreements in different markets, they may compartmentalize these agreements by having different individuals manage them so as to avoid the contagion of antitrust authority investigations. Leniency programs can overcome this strategy but may also lead to procollusive effects for centralized firms. The introduction of US amnesty plus programs can have different competitive effects, and leniency programs may modify firms’ choice of internal structure.

Bankruptcy problems are commonly associated with economic disasters, but can also emerge due to extraordinary economic performance The choice of a sharing rule has a significant potential effect on the economy’s general equilibrium. The economic literature hitherto neglected the search for an economically optimal bankruptcy solution and concentrated mainly on normative axiomatizations of sharing rules. However, its findings did not attract much attention of legal scholars. The purpose of this article is to create a symposium between the economic and legal literature on bankruptcy based on our interdisciplinary analysis of a fascinating polemic conducted by Jewish Law scholars over the course of fifteenth centuries about the appropriate bankruptcy solution.

This paper analyzes the social effectiveness of fines (sanctions) and awards (liability) where accident risks are influenced by decisions made by both the enterprise and the employees of the enterprise (individuals). The regulator observes a proportion of accidents and the safety decision of the individual can be contractible or non-contractible for the enterprise. All sanction regimes yield the first best, given contractible individual care. The liability regimes, however, produce sub-optimal solutions. Given non-contractible individual care, the combined use of an individual sanction and an enterprise sanction (joint use) produces the first best. The exclusive use of an individual sanction produces the first best if the enterprise does not suffer any direct harm. The exclusive use of an enterprise sanction does not, however, produce the first best. If both decision-makers are solvent and have similar liability probabilities, then individual and enterprise liability do equally well under contractible individual care. Individual liability does, however, best for non-contractible individual care.

Tort and civil liability reform has been a hotly debated issue across US states. This has spawned a large theoretical and empirical academic literature that evaluates the implications of such reform and the impact that it can have on various aspects of an economy. This study adds to that literature by considering how various tort reforms affect entrepreneurial activity across states. The study employs the Database of State Tort Law Reforms (6th Edition) and utilizes the Kauffman Index – an index of entrepreneurial startup activity – between 1996 and 2016, finding that liability reform is generally positively associated with increased entrepreneurial activity. These results are largely driven by joint and several liability, caps on noneconomic damages, limits on contingency fees, and collateral source rules though this latter result is somewhat less robust, while the effects of joint and several liability do not persist through time.