Gerrit De Geest

Judgment Proofness under Four Different Precaution Technologies

This study shows that the effects of judgment proofness on precaution depend on whether the injurer can reduce the probability of the accident, the magnitude of the harm, or both. Different legal solutions to the problem are examined: punitive damages, average compensation, undercompensation, accurate compensation, and negligence. We find that when the injurer can only reduce the probability of the accident, negligence with average compensation is the best solution, but negligence with perfectly compensatory damages is the desirable solution if the injurer can only or also affect the magnitude of the harm.

Who Should Be Immune from Tort Liability

AbstractTort law is generally considered to be an instrument that improves incentives. Yet many people and groups (including firefighters and police officers) enjoy some form of immunity. I show that those who enjoy immunity typically externalize the precaution costs to some degree. I analyze an extension of the standard unilateral accident model (with risk neutrality and fixed activity levels) that includes parameters that capture the degree to which the injurer internalizes precaution costs and expected harm. I find that when injurers externalize precaution costs, strict liability should not be used (as it leads to overprecaution), and negligence rules should be more lenient (because too high due care levels are less likely to be corrected) and more predictable (because uncertainty has a much stronger chilling effect). Therefore, negligence may need to take the form of gross negligence (for example, firefighter liability) or qualified or good-faith liability (for example, constitutional torts).Tort law is generally considered to be an instrument that improves incentives. Yet many people and groups (including firefighters and police officers) enjoy some form of immunity. I show that those who enjoy immunity typically externalize the precaution costs to some degree. I analyze an extension of the standard unilateral accident model (with risk neutrality and fixed activity levels) that includes parameters that capture the degree to which the injurer internalizes precaution costs and expected harm. I find that when injurers externalize precaution costs, strict liability should not be used (as it leads to overprecaution), and negligence rules should be more lenient (because too high due care levels are less likely to be corrected) and more predictable (because uncertainty has a much stronger chilling effect). Therefore, negligence may need to take the form of gross negligence (for example, firefighter liability) or qualified or good-faith liability (for example, constitutional torts).

Contract Law and Economics

This unique and timely book offers an up-to-date, clear and comprehensive review of the economic literature on contract law.

Carrots versus Sticks

This chapter, written for the forthcoming Oxford Handbook of Law and Economics (Francesco Parisi, ed.) draws a general picture of the differences between carrots and sticks. We discuss incentives effects (in principle, a

Misunderstandings between Contracting Parties: Towards an Optimally Simple Legal Doctrine

100 carrot creates the same incentives as a

Removing Rents: Why the Legal System is Superior to the Income Tax at Reducing Income Inequality

100 stick, but there are exceptions), transaction costs (carrots are paid upon compliance, sticks upon violation, therefore sticks have lower transaction costs if the majority complies), risks (probabilistic carrots create risks for compliers, probabilistic sticks for violators), wealth and budget constraints (the maximum carrot depends on the principal’s wealth, the maximum stick on the agent’s wealth, but sticks can have a multiplication effect), distributive effects (carrots may overcompensate, sticks may undercompensate; individualizing sanctions changes the distributive effect of carrots but not of sticks), activity level effects caused by these distributive effects, the principal’s incentives to behave opportunistically and the agent’s incentives to self-report. We also discuss special types (precompensated, annullable, combined, intra-group financed, reversible, strict liability carrots and sticks) and two extensions (political risks, behavioral effects).

Introduction: The Kauffman Foundation Conference on Intellectual Property and Innovation

Unfortunately, in practice, this process of communication often runs into difficulties. Various types of misunderstanding may arise. One of the parties may believe that the contract was concluded, whereas the other party assumes it has made an offer without commitment. One party thinks that he sold object A while the other party intended to buy object B. One party believes that the contract contains a liability exemption, whereas the other party is unaware of this.

Economics of Comparative Law

Reducing income inequality is, in the eyes of many, one of the major political issues of this time. The conventional political approach to reduce income inequality is to raise taxes for the wealthy and redistribute the proceeds to the poor. This approach finds support in the economic literature, which postulates that redistribution through the tax system is more efficient than through the legal system. I argue instead that the legal system is intrinsically superior at reducing income inequality — at least to the extent that inequality is not caused by effort or talent differences but by rents (profits that would not have been earned in a perfectly competitive and transparent economy). The legal system is superior because it can address the specific market failures that make rents possible. This way, it can prevent income inequalities from occurring in the first place — an ex ante approach. The income tax system, by contrast, tries to correct a problem ex post — after it has already occurred. Rents can be seen as implicit commodity taxes, the proceeds of which go to private individuals or companies rather than to the government; just like explicit commodity taxes, they cause labor and price distortion. Legal rules that prevent rents therefore reduce labor and price distortion. Income taxes, by contrast, increase labor distortion and leave the price distortion unaffected. They are less efficient at redistributing income because they are an overly broad instrument, treating income from rents and hard work alike. This finding has major implications. The first is that trade-offs between equity and efficiency should be made in the legal system whenever legal rules generate or reduce rents. The second is that rents (and ‘windfalls’) should be considered as costs, rather than as zero-sum effects, in law and economics models.

Encyclopedia of law and economics

Introduction to the special issue on the Kauffman Foundation Conference on Intellectual Property and Innovation, held at St. Louis (USA) on April 2-3, 2009. This conference was organized by the Center on Law, Innovation and Economic Growth of the Washington University School of Law, and sponsored by the Ewing Marion Kauffman Foundation and the Skandalaris Center for Entrepreneurial Studies.1. GERRIT DE GEEST ...Introduction 2. MICHELE BOLDRIN AND DAVID K. LEVINE ...Does Intellectual Monopoly Help Innovation? 3. MARK A. LEMLEY ...A Cautious Defense of Intellectual Oligopoly with Fringe Competition 4. JAMES BESSEN ...Evaluating the Economic Performance of Property Systems 5. BEN DEPOORTER, ADAM HOLLAND, AND ELIZABETH SOMERSTEIN ...Copyright Abolition and Attribution 6. CHARLES MCMANIS ...A Rhetorical Response to Boldrin & Levine: Against Intellectual (Property) Extremism 7. GEORGE SELGIN AND JOHN L. TURNER ...Watt, Again? Boldrin and Levine Still Exaggerate the Adverse Effect of Patents on the Progress of Steam Power 8. LIZA S. VERTINSKY ...Responding to the Challenges of “Against Intellectual Monopoly” 9. DOUGLASS C. NORTH ...A Recommendation on How to Intelligently Approach Emerging Problems in Intellectual Property Systems

Carrots, Sticks, and the Multiplication Effect

Comparative law and economics is an interdisciplinary research field in which differences among legal systems are analyzed from an economic point of view. The papers in this path-breaking collection illustrate those differences, describe their economic effects and discover which legal rules or systems are optimal from an economic viewpoint.