Volume 9, Issue 1 -

This paper shows that the rule of comparative negligence with relative fault – a sharing of the loss proportional to the parties’ relative departures from due care – induces the parties to an accident to be efficiently negligent. Comparative negligence is more efficient than simple or contributory negligence regimes because it serves as a buffer against excessive due-care standards. If due-care standards are too high, comparative negligence facilitates efficient negligence, inducing parties to violate excessive due-care standards only when this is socially desirable. If due-care standards are too low, all negligence rules perform in the same way. Of all possible comparative negligence rules, relative fault provides for the sharing rule that maximizes this effect. The same principle also applies to the contribution rule among multiple tortfeasors.

In most startup firms neither the entrepreneurs nor the investors control the board. Instead control is typically shared with a mutually appointed independent director holding the tie-breaking seat. Contract theory, which treats control as an indivisible right held by one party, does not have a good explanation for this practice. Using a bargaining game similar to final offer arbitration, I show that an independent director as tiebreaker can reduce holdup by moderating each party’s ex post threat position, potentially expanding the range of firms which receive external financing. This project contributes to the literature on incomplete contracting and holdup and improves our understanding of governance arrangements in startup firms.

Transitivity is a fundamental requirement for consistency. Legal systems, especially when composed over time and by different agencies, may encounter non-transitive cycles, in which by one rule the law prefers one outcome a over another outcome b , by another rule b trumps some third result c , but a third rule ranks c higher than a . This paper discusses a new solution to such cycles in which the relevant rules of preferences are ranked and then applied until a transitive order of the options is obtained. The paper provides a formal generalization of this solution, and demonstrates its possible implementation to some legal issues. It is also shown that this solution can be traced to the Rabbinic literature, starting with the Mishnah and the Talmud (1st–5th c CE).

This article studies the effects of income taxation on enforcement of business regulations. The key result is that income taxation makes it less socially costly to enforce the law and therefore allows the attainment of a higher level of deterrence. The explanation for this result is that income taxation reduces the gains businesses derive from violating the law, but it does not affect, at least not to the same extent, the feasible fine. This result is true, regardless of whether fines are deductible for tax purposes or not, as long as the probability and magnitude of fines optimally reflect tax rules and tax rates, as this article argues they should do. However, if the probability and magnitude of fines do not change in response to income tax changes, disallowing deductions for fines, which is the prevailing tax rule in many jurisdictions, is socially desirable for sufficiently low tax rates or tax rate changes.

This article explores the complementary roles of price regulation and universal service regulation in network industries. It analyzes compensation for the universal service provider (USP) by public finances and a fund to which operators contribute. As long as the USP enjoys market power, price regulation may serve as a means to finance universal services. This implies allowing for price increases to compensate for the net cost of the universal service obligation. It releases competing operators or the general government budget from contributing to its financing but results in distorted pricing and reduced overall welfare due to inefficient entry. The analysis shows that current practices of costing and financing universal services may result in unintended market distortions. The article quantifies these effects and demonstrates how such distortions can be avoided.