Giuseppe Dari-Mattiacci

Uncertainty of Law and the Legal Process

There is extensive literature on whether courts or legislators produce efficient rules, but which of them produces rules efficiently? The law is subject to uncertainty ex ante; uncertainty makes the outcomes of trials difficult to predict and deters parties from settling disputes out of court. In contrast, the law is certain ex post: litigation fosters the creation of precedents that reduce uncertainty. We postulate that there is a natural balance between the degree of uncertainty of a legal system (kept under control by litigation) and its litigation rate (sustained by uncertainty). We describe such equilibrium rates in a model of tort litigation, study how they are affected by different policies, and compare the costs and benefits of the legislative and the judicial process of lawmaking. This discussion paper has resulted in a publication in the Journal of Institutional and Theoretical Economics , 2007, 163(4), 627-56.

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.

Centralization versus Decentralization as a Risk‐Return Trade‐Off

This paper characterizes the choice between centralization and decentralization as a risk‐return trade‐off and examines it in a model that integrates ideas from committee decision‐making and portfolio theories. Centralization, by pooling expertise, rarely yields erroneous decisions; however, when it fails, the consequences are global. In contrast, in a decentralized system, erroneous decisions are more frequent, but their consequences are locally confined. We assess the relative desirability of (de‐)centralization in various scenarios with independent versus interdependent risks. We further discuss the robustness of the model and the relevance of our results for policymaking.

Slavery and Information

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Loss-Sharing between Nonnegligent Parties

Shavell (1980) established that tort regimes fail to incentivize optimal activity levels. The bearer of residual loss adopts a socially optimal activity level; however, the nonbearer of residual loss will adopt an excessive level. We explore alternative liability rules, which distribute the cost of accidents between nonnegligent parties, effectively rendering injurer and victim partial residual bearers of loss. We introduce a bilateral accident model with care and activity levels, assuming risk neutrality. We determine conditions where loss-sharing for nonnegligent torts may be an alternative for policymakers, and analyze the social cost of accidents under shared-liability regimes. We extend our analysis to account for role uncertainty of the parties and real-world implications for tort 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

Complementing substitutes: bundling, compability, and entry

100 carrot creates the same incentives as a

Luxury in Ancient Rome: Scope, Timing and Enforcement of Sumptuary Laws

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).

Asymmetries in Rent-Seeking

In this paper we study price competition, equilibrium market configurations and entry when firms compete in vertically-di¤erentiated markets producing complementary goods. We consider two complements and start from a configuration where the market for one complement is a duopoly, whereas the other is a monopoly. In such framework, when products are highly di¤erentiated, the low-quality duopolist is always pushed out. We then allow for competition between complements on both sides of the market: one of the duopolists starts to produce also the other complement and decides whether to offer its two products as a bundle or to allow consumers to combine them with complements from other producers. We prove that this strategy always allows the low-quality duopolist to stay in the market, no matter if the duopolist producing both complements is the high or the low-quality one. Moreover, this strategy always increases consumer surplus, even when the duopolist sells the two complements only as a bundle.

Law, Economics and History: Endogenous Institutional Change and Legal Innovation

Between 182 BC and 18 BC, Roman lawmakers enacted a series of sumptuary laws regulating banquets (including the number of guests and the consumption of specific foods). Enforcement was hardly successful and these regulations had to be reiterated over time. Traditional explanations based on morals, protection of patrimonies and electoral competition do not fully account for the scope, timing and enforcement patterns of such laws. We advance and formalize a novel hypothesis holding that sumptuary legislation originated from the misalignment between political and economic power following the military and economic expansion of Rome in the last two centuries of the Republic. During this period, the senatorial class holding political power lost part of its economic power to the emerging class of the equestrians. This unbalance was resolved at the beginning of the Empire as the senatorial class also lost its political power to the princeps. This hypothesis is discussed against the historical and legal background and presented in a formal model.