Volume 18, Issue 2

The economic model of crime is often portrayed (and criticized) as being contrary to a moral theory of criminal law. This paper advances the opposing view that the two theories are in fact potentially compatible with one another. The basis for this claim is that, whereas the Becker (1968. Crime and punishment: an economic approach. J. Polit. Econ. 76: 169–217) model is useful in prescribing a theory of optimal enforcement of the law, it does not, and indeed cannot, provide a definitive prescription for its content . The reason is the reciprocal nature of harm in situations involving incompatible rights, a principle first identified by Coase (1960. The problem of social cost. J. Law Econ. 3: 1–44) in the general context of externalities. The paper develops this argument, offers a formal demonstration of it, and draws out some of its implications.

This article challenges the conventional wisdom in economic models of litigation that optimism necessarily increases the likelihood of trial and that pessimism increases the chances of settlement. We show that optimism may, to the contrary, expand the settlement range. By increasing the perceived value at stake in litigation, optimism may induce parties to invest additional resources in a dispute, which increases the overall bargaining range. Because of the strategic nature of litigation expenditures, optimistic litigants may spend an amount that outweighs the negative impact of optimism on the bargaining surplus. Whether optimism increases or decreases the settlement rate ultimately depends on whether, in concrete instances, the negative effects of optimism on the bargaining surplus outweigh the positive effects created by the additional investments in litigation. Our results provide counterintuitive insights into the selection of disputes for litigation. ( JEL K00, K21).

This article examines the law and economics of behavioral regulation (“nudging”), which governments and organizations increasingly use to substitute for and complement traditional instruments. To advance its welfare-based assessment, Section 1 examines alternative nudging definitions and Section 2 considers competing nudges taxonomies. Section 3 describes the benefits of nudges and their regulatory appeal, while Section 4 considers their myriad costs—most notably the private costs they generate for their targets and other market participants. Section 5 then illustrates the assessment of public and private welfare nudges using cost-benefit analysis, cost-effectiveness analysis, and rationality-effects analysis.

This note analyzes the socially optimal allocation of liability when both consumers and the environment incur harm from the activity of a monopolistic firm. We show that the marginal welfare effect from a greater extent of loss shifting depends on the domain of harm (consumer vs. environment) and the relationship between the harm level and the level of output (proportional vs. non-proportional). Starting from the relevant benchmark of full compensation in both domains, reducing the firm’s liability for environmental harm is welfare-improving whereas reducing the firm’s liability for consumer harm is welfare-decreasing when harm increases more than proportionally with the quantity produced.