Enforcing Contracts: Should Courts Seek the Truth?

I examine the case where fulfillment of a contractual commitment is only imperfectly verifiable and ask whether the court should then "tell the truth" regarding the action in dispute. I show that truth seeking does not maximize the expected surplus from contractual relationships. From the parties' viewpoint, the enforcer should disregard some of the available information and should sometimes rule in favor of one party, even though his understanding is that the other party is most probably right. The analysis provides a justification for rules of evidence in common law and for the use by courts of neutral normative priors regarding contending claims.adjudication, contract, enforcement, rules of evidence, standard of proof, value of information.

Enforcing Contracts: Should Courts Seek the Truth?

I examine the case where fulfillment of a contractual commitment is only imperfectly verifiable and ask whether the court should then "tell the truth" regarding the action in dispute. I show that truth seeking does not maximize the expected surplus from contractual relationships. From the parties' viewpoint, the enforcer should disregard some of the available information and should sometimes rule in favor of one party, even though his understanding is that the other party is most probably right. The analysis provides a justification for rules of evidence in common law and for the use by courts of neutral normative priors regarding contending claims. J'analyse le cas où la réalisation d'un engagement contractuel n'est qu'imparfaitement vérifiable. La question posée est de savoir si le tribunal doit alors « dire le vrai » quant aux actions faisant l'objet d'un litige. Je montre que, du point de vue des contractants, la cour devrait faire abstraction d'une partie de l'information disponible et qu'elle devrait parfois statuer en faveur d'un des contractants, même si elle considère plus probable que l'autre ait raison. Cette analyse fournit une justification à certaines règles de procédure en droit civil et elle justifie le recours à des a priori normatifs neutres dans le règlement des différends.Adjudication, contract, enforcement, rules of evidence, standard of proof, value of information, Jugements de cour, exécution des contrats, règles de procédure, standard de preuve, valeur de l'information

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

Accuracy versus Falsification Costs: The optimal Amount of Evidence under different Procedures

An arbiter can decide a case on the basis of his priors or he can ask for further evidence from the two parties to the conflict. The parties may misrepresent evidence in their favor at a cost. The arbiter is concerned about accuracy and low procedural costs. When both parties testify, each of them distorts the evidence less than when they testify alone. When the fixed cost of testifying is low, the arbiter hears both, for intermediate values one, and for high values no party at all. The arbiter's ability to remain uninformed as well as sequential testifying makes it more likely that the arbiter requires evidence.evidence production; procedure; costly state falsification; adversarial; inquisitorial

Inequity Aversion in Tournaments

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, by 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.Tournaments, Inequity aversion, Envy, Incentives, Performance

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

The Optimal Amount of Falsified Testimony

An arbiter can decide a case on the basis of his priors or he can ask for further evidence from the two parties to the conflict. The parties may misrepresent evidence in their favor at a cost. The arbiter is concerned about accuracy and low procedural costs. When both parties testify, each of them distorts the evidence less than when they testify alone. When the fixed cost of testifying is low, the arbiter hears both, for intermediate values one, and for high values no party at all. The ability to commit to an adjudication scheme makes it more likely that the arbiter requires evidence.Evidence production, procedure, costly state falsification, adversarial, inquisitorial

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

Costly Sanctions and the Maximum Penalty Principle

We study the problem of deterring undesirable behavior in a moral hazard framework with risk averse individuals, noisy information and costly sanctions. We find that, if sanctions are a pure loss, a utilitarian society should use a bang-bang penalty scheme satisfying the maximum penalty principle. If sanctions are monetary but imposing sanctions involves a sufficiently large resource cost, the maximum feasible sanction should also be imposed with positive probability. As a possible justification for endogenously limiting sanctions, we derive the optimal penalty scheme under a Rawlsian welfare function. The maximum sanction actually imposed is then smaller than in the utilitarian case, but it is imposed more frequently. Cet article analyse le problème de la dissuasion des comportemenmts indésirables dans un contexte d'aléa moral avec aversion au risque, information imparfaite et coûts de sanction. Nous montrons que, si les sanctions imposées aux individus sont une pure perte sociale, la politique utilitariste optimale consiste à utiliser un mécanisme de sanction dichotomique satisfaisant le principe de la sanction maximale. Si les sanctions sont pécuniaires mais qu'imposer des sanctions implique un coût en ressource suffisamment élevé, la sanction maximale permise devrait également être imposée avec une probabilité positive. Comme justification possible de sanctions limitées, nous analysons la politique de dissuasion optimale avec une fonction de bien-être rawlsienne. Le sanction maximale est dans ce cas inférieure à celle d'une politique utilitariste, mais elle est imposée plus fréquemment.Deterrence, optimal enforcement, moral hazard, maximal penalty, Rawl's criterion