Volume 6, Issue 2

Utilizing a master list produced by Viscusi (2004) of what he called “blockbuster” jury awards–those amounting to $100 million or more,–we selected 17 cases where the defendant had traded shares (we excluded the tobacco cases) to see the stock market reaction to these announced awards. Utilizing event study methodologies similar to those used by Prince and Rubin (2002), and looking at both case filing and award date data, we generally found trivial stock market effects for 11 of the 17 companies, despite the size of the awards. In those cases where there was a stock market response, it occurred with firms whose total award to market capitalization ratio was in excess of 9%. Apparently the awards, which on their face value seem large, are not always that important when one considers the much larger market capitalization and the fact that these very large, prominent defendant firms are under almost constant litigation, with the blockbuster being only one of many cases facing the firm.

“Garden leave” (GL)---when workers are paid but do not work---may be preferred by firms since courts are more likely to enforce GL than “covenants not to compete” (CNCs). We consider when GL is more profitable than a CNC. Also, assuming it is optimal to offer GL or a CNC, we find (1) the optimal length of either GL or a CNC is the same, (2) firms share fewer trade secrets with GL than with a CNC, and (3) the extent of innovation will be higher with a CNC than with GL.

This paper allows for avoidance activities in the accident setting and analyzes how this affects the evaluation of uncertain due care standards and of different negligence conceptions from an efficiency perspective. Importantly, our analysis also shows that punitive damages, i.e., damages above the harm incurred, can be welfare-reducing if injurers can choose avoidance.

Using an agency model, we study the contract between a plaintiff and an attorney. The plaintiff hires the attorney to investigate the case and provide advice as to the profitability of trial versus accepting a defendant’s settlement offer. The attorney’s investigation is costly and remains unverified if the plaintiff accepts settlement. Thus, the attorney has an incentive to suggest settlement without investigating the case. Our analysis reveals that the plaintiff sometimes proceeds with trial against the attorney’s advice to accept the settlement offer despite knowing the attorney’s advice to be accurate. Furthermore, when the plaintiff cannot commit to a trial/settlement strategy, disregarding the attorney’s advice may take place more frequently. We also show that with larger settlement offers, the plaintiff pursues trial more often.

Under a rule of comparative causation, an accident loss is shared between a victim and a tortfeasor when the parties are either both negligent (as with comparative negligence) or when they are both non-negligent. When one or the other party is found solely negligent, the negligent party bears the entire accident loss. Comparative causation is the only tort regime that allows sharing of an accident loss between a non-negligent injurer and his non-negligent victim. By allowing the sharing of an accident loss in equilibrium, the comparative causation rule has efficiency and risk-allocation properties that are never observed under conventional negligence or strict liability regimes. With respect to efficiency, the comparative causation rule spreads activity level and R&D incentives between the parties, rather than concentrating them on one or the other party (the residual bearer). With respect to the allocation of risk, comparative causation avoids the all-or-nothing allocations of the residual loss that we observe under other legal rules. In doing so, comparative causation provides a mechanism of mutual insurance of victim and tortfeasor with a more equitable apportionment of the residual loss. In spite of these interesting attributes, the existing literature still falls short of establishing the compatibility of comparative causation with efficiency. In this paper, we show that loss sharing can be achieved while preserving optimal care incentives for both parties.

The superiority of the corporation over other organizational forms is typically attributed to the fact that every owner has limited liability. The widely-held, but empirically unsubstantiated, view is that the main advantage of limited liability over extended shareholder liability is that the enforcement costs of the latter generally impedes the tradability and liquidity of stock. We use the rich shareholder-liability experience of nineteenth-century British banking to test this standard view. As well as exploring the means by which unlimited liability was enforced, we examine the impact of liability regimes on the tradability and liquidity of stock. Our evidence suggests that liability rules appear to be irrelevant from the perspective of stock tradability and liquidity.

This paper analyzes data from the 1999-2000 sweep of the U.K. National Child Development Study to investigate convicted individuals’ prospects in the labor market. Decomposition analysis makes it clear that convicted workers are in fact discriminated against as compared to non-convicted ones, both in terms of employment and wage. Adopting a simple theoretical model accounting for the problem of partial adverse selection in the hiring process, I show that discrimination can be explained not only in terms of economic stigma, but may also derive from incomplete enforcement in detecting crime and punishing offenders. In fact, while firms may apply economic stigma to recover the expected extra-costs from hiring convicted workers, rationally behaving firms may also need to recover unforeseen extra-costs deriving from the hiring of non-convicted offenders as workers. Further stigma increases with the probability of offenders to commit crimes and with the expected level of extra-costs in hiring convicted offenders, while it decreases with the probability of convicting the offenders.

This paper analyzes how the timing, targets and types of anti-crime policies affect criminal associations when retailers search sequentially for wholesalers and crime opportunities. Given the illicit nature of crime, a non-competitive market is considered where players bargain over the surplus. In such a market, some anti-crime policies distort revenue sharing, reduce matching frictions, and increase market activity or crime.