Category Archives: Law and Economics

Heimer v Companion Life Insurance Co – Sixth Circuit Invokes Contra Proferentem as Default Rule for Resolving Ambiguous Contract Provisions’

“In Heimer v Companion Life Insurance Co, the Sixth Circuit purported to rule on the by-now venerable question of ‘whether a contract should mean what it says’. The panel majority answered this question in the affirmative by finding a disputed insurance policy provision unambiguous. And yet, perhaps to assuage any possible doubt, the majority also […]

Levmore and Fagan, ‘The End of Bargaining in the Digital Age’

Abstract Bargaining is a fundamental characteristic of many markets and legal disputes, but it can be a source of inefficiency. Buyers often waste resources by searching for information about past prices, where a seller already holds that information. A second – and novel – source of social loss is that some buyers will avoid otherwise […]

Richard Wright, ‘Allocating Liability Among Multiple Responsible Causes: Principles, Rhetoric and Power’

Abstract In Part II of this paper, I discuss the principles underlying just allocation of liability among the multiple responsible causes of an indivisible injury. I argue that those principles support either (1) the standard method adopted by almost all courts, according to which the plaintiff’s claim for compensation is reduced by her percentage of […]

Victor Goldberg, ‘The Middleman’s Damages Revisited’

Abstract If A promises to sell to B who, in turn, promises to sell to C and either A or C breaches should B receive the gain it expected had both transactions occurred (lost profits) or the larger market/contract differential? Recent case law and commentary argues for the lost profit remedy. The argument is that […]

Carmine Guerriero, ‘Property Rights, Transaction Costs, and the Limits of the Market’

Abstract Although property rights and transaction costs are key, their determinants and interaction are poorly understood. Within trade interactions, a rise in transaction costs has the welfare-decreasing marginal effect of pushing some high-valuation potential buyers to expropriate the original owners’ property and the infra-marginal effect of decreasing the social gains from the transfers that continue […]

‘Bounded Rationality’

“Herbert Simon introduced the term ‘bounded rationality’ as a shorthand for his brief against neoclassical economics and his call to replace the perfect rationality assumptions of homo economicus with a conception of rationality tailored to cognitively limited agents. ‘Broadly stated, the task is to replace the global rationality of economic man with the kind of […]

Cook and Krawiec, ‘If We Allow Football Players and Boxers to be Paid for Entertaining the Public, Why Don’t We Allow Kidney Donors To Be Paid For Saving Lives?’

Introduction … This article contrasts the compensation ban on organ donation with the legal treatment of football and other violent sports where both acute and chronic injuries to participants are common. Although there is some debate about how best to regulate these sports to reduce the risks, there appears to be no debate about whether […]

Lemus, Temnyalov and Turner, ‘Liability Insurance: Equilibrium Contracts under Monopoly and Competition’

Abstract In liability lawsuits (eg product liability or patent infringement), a third party demands compensation from a firm. Verifying that the firm harmed the third party requires a costly lawsuit, so parties often negotiate a settlement agreement. Liability insurance improves the firm’s bargaining leverage when negotiating this settlement. We study this leverage effect of insurance […]

Matteo Maria Cati, ‘“Law and …” an Opened Door to a New World of Knowledge

Abstract Judge Guido Calabresi’s new book (2016) The Future of Law and Economics – Essays in Reform and Recollection not only represents a master piece but also, paraphrasing a sentence by the Author himself, a ‘pearl beyond price’, a new door opened to a deeper insight on the existing relationship between Legal Theory and Economics […]

Fagan and Khan, ‘Common Law Efficiency When Joinder and Class Actions Fail as Aggregation Devices’

Abstract We develop a litigant-based model of rule selection where parties choose to litigate rules that are efficient between two parties, but inefficient as between a potential class or potentially joined litigants and a counter-party. Collective action problems lead to incomplete party formation, which generates continuous litigation of seemingly efficient rules. By accounting for externalities […]