Beyond Condorcet: Optimal Aggregation Rules Using Voting Records

The difficulty of optimal decision making in uncertain dichotomous choice settings is that it requires information on the expertise of the decision makers (voters). This paper presents a method of optimally weighting voters even without testing them against questions with known right answers. The method is based on the realization that if we can see how voters vote on a variety of questions, it is possible to gauge their respective degrees of expertise by comparing their votes in a suitable fashion, even without knowing the right answers.

Beyond Condorcet: Optimal Aggregation Rules Using Voting Records

In certain judgmental situations where a “correct” decision is presumed to exist, optimal decision making requires evaluation of the decision-maker's capabilities and the selection of the appropriate aggregation rule. The major and so far unresolved difficulty is the former necessity. This paper presents the optimal aggregation rule that simultaneously satisfies these two interdependent necessary requirements. In our setting, some record of the voters' past decisions is available, but the correct decisions are not known. We observe that any arbitrary evaluation of the decision-maker's capabilities as probabilities yields some optimal aggregation rule that, in turn, yields a maximum-likelihood estimation of decisional skills. Thus, a skill-evaluation equilibrium can be defined as an evaluation of decisional skills that yields itself as a maximum-likelihood estimation of decisional skills. We show that such equilibrium exists and offer a procedure for finding one. The obtained equilibrium is locally optimal and is shown empirically to generally be globally optimal in terms of the correctness of the resulting collective decisions. Interestingly, under minimally competent (almost symmetric) skill distributions that allow unskilled decision makers, the optimal rule considerably outperforms the common simple majority rule (SMR). Furthermore, a sufficient record of past decisions ensures that the collective probability of making a correct decision converges to 1, as opposed to accuracy of about 0.7 under SMR. Our proposed optimal voting procedure relaxes the fundamental (and sometimes unrealistic) assumptions in Condorcet celebrated theorem and its extensions, such as sufficiently high decision-making quality, skill homogeneity or existence of a sufficiently large group of decision makers.

Beyond Condorcet: Optimal aggregation rules using voting records

In certain judgmental situations where a correct decision is presumed to exist, optimal decision making requires evaluation of the decision-maker's capabilities and the selection of the appropriate aggregation rule. The major and so far unresolved difficulty is the former necessity. This paper presents the optimal aggregation rule that simultaneously satisfies these two interdependent necessary requirements. In our setting, some record of the voters' past decisions is available, but the correct decisions are not known. We observe that any arbitrary evaluation of the decision-maker's capabilities as probabilities yields some optimal aggregation rule that, in turn, yields a maximum-likelihood estimation of decisional skills. Thus, a skill-evaluation equilibrium can be defined as an evaluation of decisional skills that yields itself as a maximum-likelihood estimation of decisional skills. We show that such equilibrium exists and offer a procedure for finding one. The obtained equilibrium is locally optimal and is shown empirically to generally be globally optimal in terms of the correctness of the resulting collective decisions. Interestingly, under minimally competent (almost symmetric) skill distributions that allow unskilled decision makers, the optimal rule considerably outperforms the common simple majority rule (SMR). Furthermore, a sufficient record of past decisions ensures that the collective probability of making a correct decision converges to 1, as opposed to accuracy of about 0.7 under SMR. Our proposed optimal voting procedure relaxes the fundamental (and sometimes unrealistic) assumptions in Condorcet celebrated theorem and its extensions, such as sufficiently high decision-making quality, skill homogeneity or existence of a sufficiently large group of decision makers

Essays on the Economic Analysis of Liability Insurance

This dissertation consists of essays exploring the microeconomic implications of liability insurance in three distinct domains: signaling, bargaining, and externalities. Each essay is dedicated to a separate topic. The first essay, Reliability Insurance, concentrates on signaling. Aside from deterring carelessness and guaranteeing compensation to victims, tort liability communicates willingness to bear any loss that results from imprudence. In so doing, tort liability counterintuitively serves the interest of injurers, allowing them to signal quality and substantiate credible commitment to careful behavior. In many market interactions, liability thus serves as a quintessential warranty, establishing injurers’ reliability. Yet the purchasing of liability insurance, at least on the surface, directly contradicts the credibility signal communicated by tort liability: instead of committing to self-incur the cost of any loss generated by their risky activity, tortfeasors choose to transfer this cost to an insurer. Insurance, in simple terms, seems to erode the skin-in-the-game message that injurers often wish to convey. The essay delves into this conundrum, studying the insurance-credibility interface both descriptively and normatively. The second essay, Insurance Settlements and the Perpetuation of Legal Risks, spotlights the unique bargaining strategies deployed by liability insurance carriers and identifies their profound legal implications. Against the anti-settlement tendencies routinely attributed to insurers, the essay identifies that under certain circumstances, it might be in insurers’ best interest to settle and avoid socially desirable litigation. This emanates from the fact that insurers are better off with legal uncertainty: ambiguity preserves injurers’ liability risks, thus enhancing their demand for insurance. The essay explores insurers’ strategic use of settlement to maintain legal risks, discusses concrete realms in which this behavior is observable, offers a normative discussion on the social costs and benefits of insurance, and considers potential mechanisms that may eliminate the ascribed problem. The third essay, Risk Allocation in a General-Equilibrium Model of Liability Insurance, offers a general-equilibrium analysis of externalities and risk allocation within the triangle of the insured, the insurer, and a third party. To date, both legal and economic literature on insurance has confined its focus to risk externalities that arise from the bilateral relationship between the insured and the insurer. Canonic accounts have introduced the problem of moral hazard, whereby the insured externalizes risk on the insurer. More modern contributions have highlighted insurer monitoring, which may induce the insured to reinternalize those risks. It was not until the last few years that commentators incorporated third parties into the equation, maintaining that they, too, tend to externalize risks on insurers. My proposed analysis completes the picture, demonstrating that the presence of third parties may actually generate multiple equilibria. The essay makes two main contributions to existing understanding of insurance dynamics. First, it shows that any actor within the triangle of insurer, insured, and a third party may act opportunistically and exhibit moral hazard that facilitates excessive risk. Second, any actor within this triangle may be the one who ultimately bears the cost of such excessive risk

Rationing Access

Protection of common natural resources is one of the foremost challenges facing our society. Since Garrett Hardin published his immensely influential The Tragedy of the Commons, theorists have contemplated the best way to save common-pool resources—national parks, fisheries, heritage sites, and fragile ecosystems—from overuse and extinction. These efforts have given rise to three principal methods: private ownership, community governance, and use restrictions. In this Essay, we present a different solution to the commons problem that has eluded the attention of theorists: access rationing. Access rationing measures rely not only on restrictions on the number of users but also on a variety of economic, informational, and technological techniques that can be readily adjusted to changing circumstances. By focusing on the point of entry, access rationing prevents harm to natural resources from arising ab initio. Furthermore, access rationing offers the twin virtues of simplicity and flexibility. Finally, access rationing has the additional advantage of transparency, as it allows members of the public and nonprofit organizations to monitor the performance of regulatory agencies. Drawing on a myriad of real-world examples, the present Essay is the first to provide a comprehensive theory of access-based measures for governing the commons

Grading Patents

In this Article, we offer a new design for our patent system with a view to optimize its functioning. As multiple patent scholars have recognized, the root cause of the ills of our patent system is the high rate of low-quality patents. Extant patent law employs a binary screening process, under which inventions either qualify for protection or fail. Thereafter, all qualifying inventions are entitled to the same level of protection irrespective of the degree of their novelty, utility and nonobviousness. As we establish throughout this Article, patent law’s failure to distinguish among inventions based on their quality greatly undermines the patent system’s principal objective of optimally incentivizing and adequately rewarding innovative progress. Society, at least in principle, ends up paying the same price for all qualifying inventions, regardless of their level of innovation and improvement upon the prior art. To address this problem, we advocate a fundamental, yet simple, reconceptualization of patent law. Instead of utilizing a threshold-based regime under which the USPTO merely decides whether an invention is patentable, we introduce a mechanism of Patent Grades. According to our proposal, once the USPTO determines the eligibility of a given invention to patent protection, it would proceed to assign it a grade—on a 1-to-5 scale. A grade of 1 would be given to the lowest quality patents and a grade of 5 to the highest. The grade of a patent would determine the invention’s scope of protection. In contrast to the current system that entitles all eligible inventions to 20 years of exclusivity, the protection term under our proposal would vary based on the patent grade. Furthermore, the remedies available to patentholders would be contingent on the grade. As we will show, these changes alone would dramatically reduce the slew of problems associated with bad patents. As importantly, Patent Grades would be known to potential licensees, industry participants and courts. The information represented by the grades would eliminate or significantly ameliorate the abuses that arise under the present patent system. The adoption of Patent Grades would curtail the market power of patentees vis-à-vis users, attenuate the problem of trolling, reduce litigation and enhance cumulative innovation. It would also improve the examination process by equipping the USPTO with a more precise metric for evaluating the work product of patent examiners. Thus, implementation of our proposal would lead to a fairer and more efficient patent system

Anti-Patents

Conventional wisdom has long perceived the patent and tort systems as separate legal entities, each tasked with a starkly different mission. Patent law rewards novel ideas; tort law deters harmful conduct. Against this backdrop, this Essay uncovers the opposing effects of patent and tort law on innovation, introducing the injurer-innovator problem. Patent law incentivizes injurers --often uniquely positioned to make technological breakthroughs--by allowing them to profit from licensing their inventions to competitors. Yet tort law, by imposing liability for failures to invest in care, forces injurers to incur the cost of implementing their own innovations. When the cost of self-implementation exceeds the revenues that may be reaped from patenting new technologies, injurers are better off refraining from developing socially desirable inventions. The injurer-innovator problem remarkably persists under both negligence and strict liability regimes, and in the face of different victim types. Multiple real-world examples demonstrate the extent and pervasiveness of this phenomenon. To realign the incentives provided by the patent and tort systems, this Essay proposes a new legal construct: anti-patents. While a standard patent grants an inventor the exclusive right to use its invention, an anti-patent creates the converse exclusivity regime: the inventor, and only the inventor, is not required to use the invention. Importantly, anti-patents retain the existing patent protection, allowing injurer-innovators to charge monopolistic prices from competitors but simultaneously eliminating the obstacle created by tort law. An injurer-innovator who owns an anti-patent will enjoy immunity from the heightened standard of care to which the rest of the industry would now be subject. The Essay further shows that the anti-patent mechanism not only succeeds at harmonizing patent and tort law toward the advancement of technological progress but also outperforms alternative schemes employed to stimulate innovation (i.e., prizes, grants, and tax benefits). Finally, it ties the logic that underlies anti-patents to existing doctrines designated to elicit the disclosure of private information

Anti-Patents

Conventional wisdom has long perceived the patent and tort systems as separate legal entities, each tasked with a starkly different mission. Patent law rewards novel ideas; tort law deters harmful conduct. Against this backdrop, this Essay uncovers the opposing effects of patent and tort law on innovation, introducing the “injurer-innovator problem.” Patent law incentivizes injurers—often uniquely positioned to make technological breakthroughs—by allowing them to profit from licensing their inventions to competitors. Yet tort law, by imposing liability for failures to invest in care, forces injurers to incur the cost of implementing their own inventions. When the cost of self-implementation exceeds the revenues that may be reaped from patenting new technologies, injurers are better off refraining from developing socially desirable inventions. The injurer-innovator problem remarkably persists under both negligence and strict liability regimes, and in the face of different victim types. Multiple real-world examples demonstrate the extent and pervasiveness of this phenomenon. To realign the incentives provided by the patent and tort systems, this Essay proposes a new legal construct: anti-patents. While a standard patent grants an inventor the exclusive right to use its invention, an anti-patent creates the converse exclusivity regime: the inventor, and only the inventor, is not required to use the invention. Importantly, anti-patents retain the existing patent protection, allowing injurer-innovators to charge monopolistic prices from competitors but simultaneously eliminating the obstacle created by tort law. An injurer-innovator who owns an anti-patent will enjoy immunity from the heightened standard of care to which the rest of the industry would now be subject. The Essay further shows that the antipatent mechanism not only succeeds at harmonizing patent and tort law toward the advancement of technological progress but also outperforms alternative schemes employed to stimulate innovation (i.e., prizes, grants, and tax benefits). Finally, it ties the logic that underlies anti-patents to existing doctrines designed to elicit the disclosure of private information