Rules of Proof, Courts, and Incentives

We analyze the design of legal principles and procedures for court decision-making in civil litigation. The objective is the provision of appropriate incentives for potential tort-feasors to exert care, when evidence about care is imperfect and may be distorted by the parties. Efficiency is shown to be consistent with courts adjudicating on the basis of the preponderance of evidence standard of proof together with common law exclusionary rules. Inefficient equilibria may nevertheless also arise under these rules. Directing courts as to the assignment of the burden of proof is then useful as a coordination device. Alternatively, burden of proof guidelines are unnecessary if courts are allowed a more active or inquisitorial role, by contrast with that of passive adjudicator.evidentiary rules, standard of proof, burden of proof, inquisitorial, adversarial, discovery, deterrence

Technological Choice under Organizational Diseconomies of Scale

With adverse selection, diseconomies of scale associated with hierarchies may induce the implementation of a second-best technology. This occurs whenever rents to lower tiers of the hierarchy increase faster than total surplus. This is more likely with longer hierarchies.Adverse Selection, Hierarchies, Technology

Prepondeance of the Evidence: Tort Rules and the Efficient Standard of Proof

This paper analyzes the cost and incentive properties of the standard of proof for a finding of negligence. In common law, the usual standard is for courts to decide on the basis of a so-called balance of probabilities or preponderance of the evidence. We show that, if producing information about defendants' behavior is socially costly, preponderance of the evidence is the only cost-and-incentive efficient standard of proof consistent with a negligence rule. Cet article analyse les propriétés d'efficience du standard ou degré de preuve requis pour un jugement en responsabilité civile. Dans la common law, le tribunal décide selon la balance des probabilités en fonction du principe de la prépondérance de la preuve. Nous montrons que, si la production d'information sur le comportement du défendeur est socialement coûteuse, ce standard de preuve est le seul qui soit efficace sur le plan coûts-incitations dans un contexte de reponsabilité pour faute.Negligence, preponderance of the evidence, standard of proof, tort rules.

Incentive Contracts and Total Factor Productivity

This paper focuses on the endogenous determination of effort as a source of productivity growth. The economy is populated by infinitely lived households. Every period, members of each household may choose whether to be self-employed or become employees in a "corporate sector". Labor relations in the corporate sector are characterized by a double-moral hazard problem. To induce effort, the optimal labor contract stipulates for a bonus. Nevertheless, due to double moral hazard, employees extract some rents. As the economy grows, employees' rents increase, thereby raising the marginal benefit of monitoring. The ensuing changes in the optimal labor contract induce higher effort along the growth path. The model creates an endogenous association between growth and total factor productivity, and demonstrates that substantial cross-country productivity differences may be ascribed to differences in incentive structures.Incentive contracts, Total factor productivity, Economic growth

Group vs. Individual Performance Pay When Workers Are Envious

We consider the effects on reward systems of workers' concern with relative pay by comparing the wage costs of providing incentives through group versus individual bonus schemes. When workers have a propensity for envy, either scheme may be the least cost one depending on the workers' outside opportunities and on the precision of available performance measures. The result follows from the trade-off between the dissatisfaction associated with the prospect of unequal pay and the incentives it generates when workers are envious.Bonus, efficiency wage, envy, fairness, incentives, moral hazard, performance measure, pay equality, wage compression

Institutions, Bargaining Power and Labor Shares

We use a static framework characterized by both moral hazard and holdup problems. In the model the optimal allocation of bargaining power balances these frictions. We examine the impact of improved monitoring on that optimal allocation and its impact upon effort, investment, profits and rents. The model’s predictions are consistent with the recent evolution of labor shares, wages per efficiency units and the ratio of labor in efficiency units to capital in several OECD countries. The model suggests further that improvement in monitoring may also play a key role in understanding opposition to institutional reforms in the labor market.moral hazard, hold up, bargaining, labor share

Limiting Court Behavior: A Case for High Minimum Sentences and Low Maximum Ones

We model a simple justice system in which a court is mandated by society to assess the guilt and the punishment of an accused. The court takes prison facilities as given and neglects its impact on the cost to society of implementing the sentence. Clearly, the court, in this world, will condemn more often than society and assign higher penalties. Under these circumstances, society at large would necessarily benefit from having maximum sentences. We show, however, as a series of perverse results, that (1) maximum penalties need to be lower than the highest socially desirable penalty; (2) society would benefit from imposing high minimum sentences even though it is precisely the harshness of courts, which it wants to curb.Maximum and minimum penalties, sentencing guidelines, social optimum

Group vs. Individual Performance Pay When Workers Are Envious

We compare the wage costs of providing incentives through group versus individual bonus schemes. When workers are envious, either scheme may be the least cost one owing to the trade-off between the dissatisfaction with the prospect of unequal pay and the incentives it generates Nous comparons les coûts salariaux des rémunérations incitatives par bonus de groupe et par bonus individuels. Quand les travailleurs ont une propension à l'envie, l'un ou l'autre de ces modes de rémunération peut s'avérer le moins coûteux étant donné l'arbitrage entre l'insatisfaction associée aux inégalités salariales et les incitations à l'effort qu'elles engendrent.Bonus, Efficiency Wage, Envy, Fairness, Incentives, Bonus, salaire d'efficience, envie, équité, incitations

Rules of Proof, Courts, and Incentives

We analyze the design of legal principles and procedures for court decision-making in civil litigation. The objective is the provision of appropriate incentives for potential tort-feasors to exert care, when evidence about care is imperfect and may be distorted by the parties. Efficiency is shown to be consistent with courts adjudicating on the basis of the preponderance of evidence standard of proof together with common law exclusionary rules. Inefficient equilibria may nevertheless also arise under these rules. Directing courts as to the assignment of the burden of proof is then useful as a coordination device. Alternatively, burden of proof guidelines are unnecessary if courts are allowed a more active or inquisitorial role, by contrast with that of passive adjudicator.Evidentiary rules, standard of proof, burden of proof, inquisitorial, adversarial, discovery, deterrence

Inequity Aversion in Tournament

We consider the cost of providing incentives through tournaments when workers are inequity averse and performance evaluation is costly. The principal never benefits from empathy between the workers, but he may benefit from their propensity for envy depending on the costs of assessing performance. More envious employees are preferred when these costs are high, less envious ones when they are low. Nous analysons le coût des mécanismes incitatifs de type tournois lorsque les travailleurs ont de l'aversion pour l'iniquité et que l'évaluation des performances est coûteuse. L'empathie entre les travailleurs n'est jamais bénéfique pour le principal, mais une propension à l'envie peut être avantageuse selon l'importance des coûts associés à la mesure de la performance. Lorsque ces coûts sont élevés, le principal préférerait des travailleurs plus envieux; à l'inverse, il préférerait qu'ils le soient moins si ces coûts sont faibles.Tournaments, Inequity Aversion, Envy, Incentives, Performance, Tournois, aversion pour l'iniquité, envie, incitations, performance