Adjudication as a Private Good

This paper examines the question whether adjudication can be viewed as a private good, i.e., one whose optimal level will be generated in a free market. Part I focuses on private courts, noting their limitations as institutions for dispute resolution and rule creation but also stressing the important role that the private court, in its various manifestations, has played both historically and today. Part II discusses a recent literature which has argued that the rules generated in the public court system, in areas of the law where the parties to litigation are private individuals or firms and the rules of law are judge-made, are the efficient products of purely private inputs. Our analysis suggests that this literature has overstated the tendency of a common law system to produce efficient rules, although areas can be identified where such a tendency can indeed be predicted on economic grounds. Viewed as a contribution to the emergent literature on the positive economic theory of law, our finding that the public courts do not automatically generate efficient rules is disappointing, since it leaves unexplained the mechanisms by which such rules emerge as they seem to have done in a number of the areas of Anglo-American judge-made law. However, our other major finding, that the practices and law governing private adjudication appear to be strongly influenced by economic considerations and explicable in economic terms, is evidence that economic theory has a major role to play in explaining fundamental features of the legal system.

Altruism in Law and Economics

A classic example of external benefits is the rescue of the person or property of strangers in high transaction cost settings. To illustrate, A sees a flowerpot about to fall on B's (a stranger's) head; if he shouts, B will be saved. A thus has in his power to confer a considerable benefit on B. The standard economic reaction to a situation in which there are substantial potential external benefits and high transaction costs is to propose legal intervention. In the example given, this would mean either giving A a right to a reward or punishing A if he fails to save B. Either method, we show, is costly and may result in misallocative effects. These objections to using the law to internalize the external benefits of rescue would be much less imposing were it not for altruism, a factor ignored in most discussion of externalities. Altruism may be an inexpensive substitute for costly legal methods of internalizing external benefits, though this depends on the degree of altruism, the costs of rescue, and the benefits to the rescuee. Although the general legal rule is not to reward the rescuer (nor to impose liability), the law recognizes the fragility of altruism and entitles the rescuer to a reward in certain instances. These include rewards to professional rescuers on land (normally a physician) and to rescuers at sea. In both instances the costs of rescue are likely to be sufficiently high to discourage rescue unless the rescuer anticipates compensation.

The Private Enforcement of Law

An important question in the economic study of enforcement is the appropriate, and the actual, division of responsibilities between public and private enforcers. This question has been brought into sharp focus recently by an article in which Gary Becker and George Stigler advocate the privatization of law enforcement. In the present article, we explore the idea that the area in which private enforcement is in fact clearly preferable to public enforcement on efficiency grounds is more restricted than Becker and Stigler believe; perhaps the existing division of enforcement between the public and private sectors approximates the optimal division. Part I develops an economic model of competitive, profit-maximizing private enforcement. The model predicts the level of enforcement and the number of offenses that would occur in a world of exclusively private enforcement. Part II refines the model to account for the presence of monopoly in the private enforcement industry, different assignments of property rights in legal claims, the effect of taxing private enforcers, nonmonetary penalties, and legal errors - elements ignored in the initial development of the model in Part I. Part III contrasts our model with other economic approaches to the enforcement question. Part IV presents a number of positive implications of the model, relating to the choice between public and private enforcement of criminal versus civil laws, the assignment of exclusive rights to the victims of offenses, the budgets of public agencies, the discretionary nonenforcement of the law, and the legal treatment of blackmail and bribery. The positive implications of the model appear to be consistent with observations of the real world, although the findings in Part IV must be regarded as highly tentative. An appendix discusses the economics of rewards - an important method of compensating private enforcers.

Legal Precedent: A Theoretical and Empirical Analysis

The use of precedents to create rules of legal obligation has, to our knowledge, received little theoretical or empirical analysis. This paper presents and tests empirically an economic approach to legal precedent that is derived mainly from the analysis of capital formation and investment. We treat the body of legal precedents created by judicial decisions in prior periods as a capital stock that yields a flow of information services which depreciates over time as new conditions arise that were not foreseen by the framers of the existing precedents. New (and replacement) capital is created by investment in the production of precedents.

The Best for Last: The Timing of U.S. Supreme Court Decisions

This Article investigates the hypothesis that the most important and, often, controversial and divisive cases—so called big cases—are disproportionately decided at the end of June. We define a big case in one of four ways: front-page coverage in the New York Times; front-page and other coverage in four national newspapers (the New York Times, Los Angeles Times, Washington Post, and Chicago Tribune); the number of amicus curiae briefs filed in a case; and the number of subsequent citations by the Supreme Court to its decision in a case. We find a statistically significant association between each measure of a big case and end-of-term decisions even after controlling for the month of oral argument (cases argued later in the term are more likely to be decided near the end of the term) and case attributes (e.g., dissents and concurrences) that increase the time it takes to decide a case. We also speculate on why big cases cluster at the end of the term. One possibility is legacy and reputational concerns: when writing what they think will be a major decision, the Justices and their law clerks take more time polishing until the last minute with the hope of promoting their reputations. Another is that the end-of-term clustering of the most important cases may tend to diffuse media coverage of and other commentary regarding any particular case, and thus spare the Justices unwanted criticism just before they leave Washington for their summer recess

Tuning spreading and avalanche-size exponents in directed percolation with modified activation probabilities

We consider the directed percolation process as a prototype of systems displaying a nonequilibrium phase transition into an absorbing state. The model is in a critical state when the activation probability is adjusted at some precise value p_c. Criticality is lost as soon as the probability to activate sites at the first attempt, p1, is changed. We show here that criticality can be restored by "compensating" the change in p1 by an appropriate change of the second time activation probability p2 in the opposite direction. At compensation, we observe that the bulk exponents of the process coincide with those of the normal directed percolation process. However, the spreading exponents are changed, and take values that depend continuously on the pair (p1, p2). We interpret this situation by acknowledging that the model with modified initial probabilities has an infinite number of absorbing states.Comment: 9 pages, 11 figure