The Burden of Proof in Civil Litigation: A Simple Model of Mechanism Design

The existing literature on the burden of proof has sought the rule's raison d'etre solely within the court's problem of decision making under uncertainty. While this search has yielded many insights, it has been less successful in providing a compelling explanation for why uncertainty in the court's final assessment should act to the detriment of one party rather than the other. By viewing the problem as one of mechanism design, this paper provides one explanation for the asymmetry. A rule resembling the burden of proof emerges from the optimal design of a system if fact-finding tribunals in the presence of: (i) limited resources for the resolution of private disputes, and (ii) asymmetric information - as between the parties and the court - about the strength of cases prior to the court's having expended the resources necessary for a hearing. The paper shows that if the objective in designing a trial court system is accuracy of recovery granted, the "value" of having heard a case will depend in part on the certainty with which the court makes its final award. An optimally designed court system will then effectively filter-out "less valuable" cases by precommitting to a recovery policy in which plaintiffs recover nothing unless they prove their cases with a threshold degree of certainty

Inequality and Uncertainty: Theory and Legal Applications

Welfarism is the principle that social policy should be based solely on individual well-being, with no reference to \u27fairness or rights. The propriety of this approach has recently been the subject of extensive debate within legal scholarship. Rather than contributing (directly) to this debate, we identify and analyze a problem within welfarism that has received far too little attentioncall this the ex ante/ex post problem. The problem arises from the combination of uncertainty-an inevitable feature of real policy choice-and a social preference for equality. If the policymaker is not a utilitarian, but rather has a social welfare function that is equity regarding to some degree, then she faces a critical choice. Should she care about the equalization of expected well-being (the ex ante approach), or should she care about the expected equalization of actual well-being (the ex post approach)? Should she focus on the equality of prospects or the prospects for equality? In this Article, we bring the ex ante/ex post problem to the attention of legal academics, provide novel insight into when and why the problem arises, and highlight legal applications where the problem figures prominently. We ultimately conclude that welfarism requires an ex post approach. This is a counterintuitive conclusion, because the ex post approach can conflict with ex ante Pareto superiority. Indeed, this Article demonstrates that the ex post application of every equity-regarding social welfare function-whatever its particular form-must conflict with ex ante Pareto superiority in specific situations. Among other things, then, this Article shows that legal academics who care about equity must abandon either their commitment to welfarism or their commitment to ex ante Pareto superiorit

Evidence Production, Adversarial Process, and the Private Instigation of Suits

A companion paper, Sanchirico (1997) introduces the concept of "endogenous cost evidence" in a model of single-agent, mandatory hearings. The current paper extends Sanchirico (1997) by adding multiple parties and allowing for the possibility that agents may choose both whether to attend the hearing and whether to compel others to attend. The paper's main contribution is its identification of a fundamental trade-off in civil law design. Essentially, there are two ways to create incentives via civil process: costly evidence production and reliance on opponent reports (a la the literature on correlated types). The drawback of costly evidence production is that evidence costs are a deadweight loss to the system. The drawback of relying on opponent reports is that attaining sufficient information may require holding hearings in many different circumstances and requiring the attendance of many ancillary parties, which can also be costly. We show that the optimal mix of these two types of implementation depends on the size of the "fixed costs" of hearings. This dependence on fixed costs may help explain a climacteric transformation in civil process that took place in England between 1750 and 1850

Enforcement by Hearing: How the Civil Law Sets Incentives

This paper investigates the manner in which the civil law sets incentives, given that courts do not directly observe the activities that the law would hope to control. What distinguishes the civil law problem from other hidden action problems is that the principle (the court) conditions its rewards and punishments on signals (evidence presented) of the agents' choosing. Thus unlike the output signal used by the employer in the classic moral hazard problem, the signal here is itself strategic. The paper proposes a model that casts the civil law's problem as a combination of moral hazard in the underlying activity and adverse selection in a second-stage signaling game (the "hearing"), where "types" in the latter are determined by actions in the former. Types correspond to the difficulty or costs of presenting various pieces of evidence. By carefully setting its liability per evidence schedule, the court may separate types in the second stage hearing by hearing payoffs they receive. Since the type is contingent on initial action, an appropriate separation at the hearing will create the desired incentives in the underlying activity. After analyzing the basic single agent model with mandatory post-action hearings, the paper considers multiple parties and voluntary filing of suits

Taxes Versus Legal Rules as Instruments for Equity

Kaplow and Shavell (1994) show that legal rules should not be made contingent upon the income (wealth, consumption, occupation, etc. . . .) of the parties and conclude from this that "it is appropriate for economic analysis of legal rules to focus on efficiency and ignore the distribution of income". We accept the validity and importance of their argument against conditioning legal rules on these otherwise taxable attributes. But we argue against their apparent conclusion that legal rules should be set according to efficiency considerations alone. Using a slight modification of their own model, we find that: 1) even in the presence of an optimal income tax, any concern for equity dictates that legal rules deviate from efficient standards in a manner that aids the less well-off-this, so long as there is any heterogeneity in the way that agents respond to the legal system; 2) when, in addition, income difference are predominant in overall inequality, legal rules should in fact be adjusted away from efficient standards in a manner that helps low-income individuals; 3) under certain additional conditions, legal rules should be specifically adjusted to correct income-based inequality-legal rules should not be made contingent on parties income on a case-by-case basis, but they should be adjusted across the board in a manner that counteracts income inequality. Our broader point is that there is no a priori reason to favor any one economic activity over another-leisure choice over care choice, for instance-in accomplishing redistributional goals. The optimal redistributional program will involve a mixture of methods and deviations from efficiency in one domain may even be used to correct inequalities arising in another. We conclude that the extent to which legal rules should be used for redistributional purposes must be settled empirically and /or on the basis of factors outside the scope of Kaplow and Shavell's (1994) analysis

Inequality and Uncertainty: Theory and Legal Applications

Welfarism is the principle that social policy should be based solely on individual well-being, with no reference to \u27fairness or rights. The propriety of this approach has recently been the subject of extensive debate within legal scholarship. Rather than contributing (directly) to this debate, we identify and analyze a problem within welfarism that has received far too little attentioncall this the ex ante/ex post problem. The problem arises from the combination of uncertainty-an inevitable feature of real policy choice-and a social preference for equality. If the policymaker is not a utilitarian, but rather has a social welfare function that is equity regarding to some degree, then she faces a critical choice. Should she care about the equalization of expected well-being (the ex ante approach), or should she care about the expected equalization of actual well-being (the ex post approach)? Should she focus on the equality of prospects or the prospects for equality? In this Article, we bring the ex ante/ex post problem to the attention of legal academics, provide novel insight into when and why the problem arises, and highlight legal applications where the problem figures prominently. We ultimately conclude that welfarism requires an ex post approach. This is a counterintuitive conclusion, because the ex post approach can conflict with ex ante Pareto superiority. Indeed, this Article demonstrates that the ex post application of every equity-regarding social welfare function-whatever its particular form-must conflict with ex ante Pareto superiority in specific situations. Among other things, then, this Article shows that legal academics who care about equity must abandon either their commitment to welfarism or their commitment to ex ante Pareto superiorit