Peter Siegelman

Allocating Resources among Prisons and Social Programs in the Battle against Crime

This article evaluates the cost and crime‐reducing potential of prisons and social spending, setting forth the conditions under which a shift in resources from an expanding prison population into social spending would lead to a reduction in total crime. Preschool enrichment programs coupled with family intervention have generated impressive results in reducing crime in a number of different studies. Targeting of resources toward those children most at risk of criminal behavior is necessary to generate cost‐effective crime reduction, but this may be difficult to achieve because of political or constitutional constraints. Given precise targeting, and if a broadly implemented preschool program (more enriched than the current Head Start program) could generate half the crime‐reduction benefits achieved in the pilot studies, then cutting spending on prisons and using the savings to fund intensive preschool education would reduce crime. The elasticity of crime with respect to incarceration is taken to be .15.

Studying the Iceberg From Its Tip: A Comparison of Published and Unpublished Employment Discrimination Cases

Researchers often rely on published opinions to draw conclusions about cases decided by the courts, determinants of court decisions, and broader social phenomena. We demonstrate that 80 to 90 percent of employment discrimination cases filed in federal court do not produce a published opinion. There are good theoretical reasons to believe that the process generating a published opinion is not random and thus that samples of published cases will not be representative of all cases. Through a direct comparison of published and unpublished cases, we show that the two actually do differ in significant and predictable ways. Examining several studies that use cases with published opinions for a variety of purposes, we show how our understanding of the operation of employment discrimination law changes-in some instances, dramatically-when we look at all cases, whether or not they have published opinions.

The Evolution of Employment Discrimination Law in the 1990s: A Preliminary Empirical Investigation

Two major pieces of employment discrimination legislation were passed in the early 1990s: the 1991 Civil Rights Act and Americans with Disabilities Act. Using some simple regression models, we examine the effects of this legislation on the volume, content, and outcomes of employment discrimination cases filed in federal courts. We find, first, that the volume of discrimination cases nearly doubled between 1992 and 1997, in contrast to a 10% decline during the previous 8 years, and despite a sharply falling unemployment rate that—in the past—would have substantially reduced the amount of litigation. We also observe a significant shift in the composition of suits filed, with race and age discrimination cases declining substantially as a share of the total and sex and disability discrimination cases increasing. We tie these developments, as well as changes in the relationship between plaintiff win rates and the business cycle, to changes in the law that diminish the importance of back-pay damages. We conclude by tentatively suggesting how the meaning of and protection afforded by employment discrimination law have changed over the past 35 years.

Selling Mayberry: Communities and Individuals in Law and Economics

The small village of Cheshire, Ohio was recently acquired in its entirety by the firm whose giant power plant, located at the edge of town, caused it serious pollution problems. Although the plant was worth substantially more than the town, this was not a simple Coasean bargain. This paper combines an ethnographic methodology with theoretical insights from law and economics to present an empirical and theoretic challenge to the standard account of nuisance disputes. We explore the transaction in detail and explain what prevented collective action and holdout problems that are usually thought to hinder bargaining with groups. Specifically, we show how incorporating the role of community into conventional theory offers a new understanding of the likelihood of holdouts, the importance of community dynamics, the interdependency of community-wide nuisance actions, and the role of the law of takings.

'You Want Insurance with That?' Using Behavioral Economics to Protect Consumers from Add-on Insurance Products

Persistently high profits on “insurance” for small value losses sold as an add-on to other products or services (such as extended warranties sold with consumer electronics, loss damage waivers sold with a car rental, and credit life insurance sold with a loan) pose a twofold challenge to the standard economic analysis of insurance. First, expected utility theory teaches that people should not buy insurance for small value losses. Second, the market should not in the long run permit sellers to charge prices that greatly exceed the cost of providing the insurance. Combining the insights of the Gabaix and Laibson shrouded pricing model with the behavioral economics of insurance, this article explains why high profits for add-on insurance persist and describes the negative distributional and welfare consequences of an unregulated market for such insurance. The article explores four potential regulatory responses: enhanced disclosure, a ban on the point of sale offer of add-on insurance, price regulation, and the creation of a new, on-line market. Drawing on theoretical, empirical, and comparative law sources, the article explains why enhanced disclosure will not work, the circumstances under which a point of sale ban is desirable, and why a new, on-line market is preferable to price regulation in circumstances in which a point of sale ban is undesirable.

The Law and Economics of Liability Insurance: A Theoretical and Empirical Review

We survey the theoretical and empirical literature on the law and economics of liability insurance. The canonical Shavell model predicts that, despite the presence of some ex ante moral hazard (care-reduction by insureds), liability insurance will generally raise welfare because its risk-spreading gains will likely be larger than its adverse effects on precautionary activities. We discuss the numerous features of liability insurance contracts that are designed to reduce ex ante moral hazard, and examine the evidence of their effects. Most studies conclude that these features work reasonably well, so that liability insurance probably does not generate substantial ex ante moral hazard. Its effects on ex post moral hazard (the increased tendency of victims to sue in the presence of insurance) are not as clear, however, and the welfare consequences of increased litigation are ambiguous, for reasons we explain. We discuss additional issues such as the effects of liability insurance when some defendants are judgment-proof, the problems posed by non-independence of liability risks owing to changes in legal doctrines, and the cyclical nature of liability insurance markets.

Tontines for the Invincibles: Enticing Low Risks Into the Health Insurance Pool With an Idea From Insurance History and Behavioral Economics

Over one third of the uninsured adults in the U.S. below retirement age are between 19 and 29 years old. Young adults, especially men, often go without insurance, even when buying it is mandatory and sometimes even when it is a low cost employment benefit. This paper proposes a new form of health insurance targeted at this group—the “Young Invincibles”—those who (wrongly) believe that they don’t need health insurance because they won’t get sick. Our proposal offers a cash bonus to those who turn out to be right in their belief that they did not really need health insurance. The concept comes from the tontine life insurance that fueled the rise of the U.S. insurance industry in the late 19th Century. A largely forgotten casualty of the 1906 pacification of the life insurance industry, the tontine idea holds great promise for making health insurance attractive to the invincibles today. The tontine feature frames the health insurance purchase as a smart investment, rather than a way to spend money for something the customer does not think he needs. Tontines make insurance more attractive to the uninsured, without wasting funds by subsidizing those who are already covered. We identify a particular class of individuals (the invincibles), show how a specific cognitive bias accounts for their irrational behavior, and design an insurance mechanism (tontines or deferred dividends) to overcome the effects of this bias. The final sections of the paper offer an empirically calibrated pricing demonstration for a tontine health policy and an analysis of the legality of tontines in this context.

Do Judges Respond to Incentives? The Effects of the Six Month List

A little known mechanism instituted to improve judicial accountability and speed up the work of the federal judiciary has led to unintended consequences, many of them unfortunate. Federal district court judges are subject to a requirement known as the Six Month List. By law, every judge’s backlog (cases older than three years and motions pending more than six months) is made public twice a year. Since judges have life tenure and fixed salaries, a mere reporting requirement might not influence their behavior. But it does. Using the complete record of all federal civil cases between 1980 and 2017 and a hand-coded sample of summary judgment resolutions, we demonstrate that the List leads judges to close substantially more cases and decide more motions in the week immediately before it is compiled. While average motion processing time is shortened by 10 to 40 days, duration is actually lengthened for some motions (those for which the deadline is least pressing). Moreover, we find suggestive evidence that the List has substantive consequences: in an effort to comply with the List, judges may be making more errors. Theory suggests that giving judges an incentive for faster case processing is probably a mistake. But since this incentive is Congressionally mandated, we offer an alternative mechanism that will limit distortions until Congress acts to relieve the federal courts of this unnecessary burden.

Research handbook on the economics of insurance law

Insurance law and insurance economics each have long and distinguished scholarly histories, but participants in the two disciplines have not always communicated well across academic silos. The Handbook encourages more policy-relevant insurance economics scholarship and more economically sophisticated legal scholarship by bringing together original contributions from leading scholars in insurance law and insurance economics on a range of issues involving insurance law and regulation.