Eyal Zamir

The Efficiency of Paternalism

Economic analysis, and economic analysis of law in particular, ordinarily assumes that paternalism and efficiency are incompatible bases for analyzing and evaluating rules and actions. Most economists reject paternalism as inefficient. By appealing to the theoretical foundations of normative economics, this article demonstrates, however, that efficiency and paternalism are perfectly compatible, and that efficiency analysis may in fact justify paternalism. The article then proposes a simple model to explain and evaluate the efficiency of existing or suggested paternalistic legal rules. Drawing on psychological studies of bounded rationality, the article illustrates how paternalistic rules enhance efficiency.

Law, Economics, and Morality

Law, Economics, and Morality examines the possibility of combining economic methodology and deontological morality through explicit and direct incorporation of moral constraints into economic models. Economic analysis of law is a powerful analytical methodology. However, as a purely consequentialist approach, which determines the desirability of acts and rules solely by assessing the goodness of their outcomes, standard cost-benefit analysis (CBA) is normatively objectionable. Moderate deontology prioritizes such values as autonomy, basic liberties, truth-telling, and promise-keeping over the promotion of good outcomes. It holds that there are constraints on promoting the good. Such constraints may be overridden only if enough good (or bad) is at stake. While moderate deontology conforms to prevailing moral intuitions and legal doctrines, it is arguably lacking in methodological rigor and precision. Eyal Zamir and Barak Medina argue that the normative flaws of economic analysis can be rectified without relinquishing its methodological advantages and that moral constraints can be formalized so as to make their analysis more rigorous. They discuss various substantive and methodological choices involved in modeling deontological constraints. Zamir and Medina propose to determine the permissibility of any act or rule infringing a deontological constraint by means of mathematical threshold functions. Law, Economics, and Morality presents the general structure of threshold functions, analyzes their elements and addresses possible objections to this proposal. It then illustrates the implementation of constrained CBA in several legal fields, including contract law, freedom of speech, antidiscrimination law, the fight against terrorism, and legal paternalism. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/law/9780195372168/toc.html

Loss Aversion, Omission Bias, and the Burden of Proof in Civil Litigation

The general standard of proof in civil litigation is preponderance of the evidence. To prevail, the plaintiff must establish the case with a probability exceeding .5. We argue that since litigants tend to take the status quo as the reference point, dismissal of a claim is likely to be perceived as denying the plaintiff gains, and acceptance of a claim is likely to be perceived as inflicting losses on the defendant. Loss aversion thus justifies placing the burden of proof on the plaintiff. Notwithstanding the formal rule, our experimental findings suggest that the actual standard of proof in civil litigation is most likely higher than 51 percent. This phenomenon is plausibly due to fact finders’ omission bias. To minimize the total costs of judicial errors, loss aversion calls for setting the standard of proof considerably higher than 51 percent. Conflicting considerations militate against this proposal, however.

Revisiting the Debate Over Attorneys' Contingent Fees: A Behavioral Analysis

Building on Kahneman and Tversky’s prospect theory, this paper presents a series of experiments designed to reveal people’s preferences regarding attorneys’ fees. Contrary to common economic wisdom, it demonstrates that loss aversion (rather than risk aversion or incentivizing the lawyer to win the case) plays a major role in clients’ preferences for contingent‐fee arrangements. Facing a choice between a mixed gamble and a pure positive one, plaintiffs prefer a contingent fee (framed as a pure positive gamble), even if it yields an expected fee that is 2 or 3 times higher than a noncontingent one (framed as a mixed gamble). At the same time, defendants, who face a choice between two pure negative gambles, are typically risk seeking and prefer fixed fees. Our findings indicate that information problems and lack of alternative fee arrangements probably do not loom large in clients’ choice of fee arrangement. We discuss the policy implications of our findings.

Law, Morality, and Economics: Integrating Moral Constraints With Economic Analysis of Law

Economic analysis of law is a powerful analytical methodology. However, as a purely consequentialist approach, which determines the desirability of acts and rules solely by assessing the goodness of their outcomes, standard cost-benefit analysis (CBA) is normatively objectionable. Thus, for example, it presumably approves the deliberate killing of one innocent person to save the lives of two, and the breaking of a promise whenever it would produce slightly more net benefit than keeping it. Moderate deontology prioritizes such things as autonomy, basic liberties, truth telling, and promise keeping over the promotion of good outcomes. It holds that there are constraints on promoting the good. Such constraints may be overridden only if enough good (or bad) is at stake. Thus, it may justify killing an innocent person only for the sake of saving many more (perhaps hundreds or thousands) people, and breaking a promise only to avoid considerable losses. Moderate deontology conforms to prevailing moral intuitions. At the same time, it is arguably lacking in methodological rigor and precision. Can the normative flaws of economic analysis be rectified without relinquishing its methodological advantages? Can deontological moral constraints be formalized and modeled so as to make their analysis more rigorous? This Article examines the possibility of combining economic methodology and deontological morality through explicit and direct incorporation of moral constraints into economic models. It discusses various substantive and methodological choices involved in modeling deontological constraints. It proposes to determine the permissibility of any act or rule infringing a deontological constraint by means of mathematical threshold functions. The Article presents the general structure of threshold functions and analyzes their elements. It then illustrates the implementation of constrained CBA in several contexts, including discrimination in the marketplace, legal paternalism, and risking innocent people while fighting terrorism. It then addresses possible objections to our proposal. Deontologically constrained CBA is more complex than standard CBA. Yet, we maintain that it is superior to its alternatives. It rectifies the normative flaws of conventional CBA without significantly compromising its methodological rigor. Concomitantly, it improves deontology by making the analysis of threshold constraints more precise and its policy implications potentially more determinate. Constrained CBA also better explains peoples behavior and prevailing legal doctrines.

Law, psychology, and morality : the role of loss aversion

Kahneman and Tverskys Prospect Theory posits that people do not perceive outcomes as final states of wealth or welfare, but rather as gains or losses in relation to some reference point. People are generally loss averse, meaning that the disutility generated by a loss is greater than the utility produced by a commensurate gain. Loss aversion is related to psychological phenomena such as the status quo and omission biases, the endowment effect, and escalation of commitment. Law, Psychology, and Morality: The Role of Loss Aversion systematically analyzes the complex relationships between loss aversion and the law weaving together insights from cognitive and social psychology, neuropsychology, behavioral economics, experimental legal studies, economic analysis of law, normative ethics, moral psychology, and comparative law. It discusses diverse legal issues in private and public law, national and international law, and substantive and procedural law. Eyal Zamir provides an overview of the psychological studies of loss aversion to examine its effect on human behavior in the contexts of particular interest to the law, while discussing the impact of the law on peoples behavior through the framing of the choices they encounter. The book further highlights an intriguing compatibility between loss aversion and fundamental features of the law and various legal doctrines, while theorizing about the causes of this compatibility by drawing on insights from the economic analysis of law and evolutionary psychology. The book points to the correlation between loss aversion, deontological and commonsense morality, and the law, while proposing many normative implications. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/law/9780199972050/toc.html

Explaining Self-Interested Behavior of Public-Spirited Policymakers

Public choice theory (PCT) has had a powerful influence on political science and public administration. Based on the premise that public officials are rational maximizers of their own utility, PCT has a quite successful record of correctly predicting governmental decisions and policies. This success is puzzling, given behavioral findings that show that officials do not necessarily seek to maximize their own utility. Drawing on recent advances in behavioral ethics (BE), this article offers a new behavioral foundation for PCT’s predictions, by delineating the psychological processes that lead well-intentioned people to violate moral and social norms. We review the relevant findings of BE, analyzes their theoretical and policy implications for officials’ decision-making, and sets an agenda for future research.

Loss Aversion and Law's Formation

Why is tort law much more developed than unjust enrichment law? Is there a reason for the very different legal treatment of governmental takings and governmental givings? Why are contract remedies structured around the four ‘interests’ and why is the disgorgement interest only marginally protected? What might explain the fact that affirmative action plans invariably apply to hiring and not to firing? This Article suggests that there is a common denominator to these and other puzzles: they are all best answered on the basis of loss aversion. Psychological studies have established that people do not perceive outcomes as final states of wealth or welfare, but rather as gains and losses. Gains and losses are defined relative to some reference point, and losses ordinarily loom larger than gains. Loss aversion thus explains fundamental characteristics of entire legal fields and even their relative importance.The article also hypothesizes about the causes of the compatibility between loss aversion and the law. One, evolutionary theory focuses on plaintiff’s behavior. Another theory focuses on the mindset of legal rule-makers and points to an important correspondence between psychology, morality, and law.Finally, the article explores various normative implications of loss aversion. Among other things, it argues that, ceteris paribus, the law should favor not-giving over taking. Lawmakers should take into account the effect of legal norms on the way people frame gains and losses, as well as the effect of loss aversion on legal policymakers themselves.

Who Benefits from the Uniformity of Contingent Fee Rates

Abstract Lawyers’ contingent fee (CF) rates are rather uniform, often one-third of the recovery. Arguably, this uniformity is a type of anti-competitive price-fixing, which results in clients paying supra-competitive fees. This paper challenges this argument. It shows that uniform CF rates provide clients with an important advantage, as such rates enable them to make a de facto “take-it-or-leave-it” offer. Consequently, lawyers cannot exploit their private information, and clients retain the transaction’s entire surplus and may hire the best lawyer among those who find it profitable to handle the case. The paper also addresses the effect of uniformity of CF rates when lawyers refer cases to other lawyers. It shows that uniformity facilitates matching of clients and lawyers through the referral system. It also demonstrates that the fact that both direct clients and those obtained through paid-for referrals pay the same CF rate does not attest to cross-subsidization. The clients whose cases are transferred for a referral fee (paid by the handling lawyer) “pay” for the referral service by obtaining a less highly ranked lawyer.

Private Law Codification in a Mixed Legal System – The Israeli Successful Experience

Israel is a mixed legal system, profoundly influenced by both the Common Law and Civil Law traditions. Against the background of an unprincipled mixture of Ottoman, British, and religious legal norms, Israel embarked on the challenging project of crafting its own modern Civil Code, based primarily on Civil Law systems, but incorporating Common Law concepts and institutions as well. This process, which was carried out gradually from the 1960s, relied considerably on extant international attempts to harmonize Civil Law and Common Law, including the Uniform Law on International Sales 1964. This process resulted in 20-odd separate Laws, each comprehensively dealing with a certain field or transaction. In substance, Israel now enjoys a modern, codificatory legislation in most fields of private law. A Bill integrating the separate Laws into a unified Code is currently discussed in the parliament.