Law Commons^™

Lapses Of Attention In Medical Malpractice And Road Accidents, Robert D. Cooter, Ariel Porat

Robert Cooter

A doctor who lapses and injures her patient, and a driver who lapses and causes an accident, are liable under negligence law for the harm done. But lapse is not necessarily negligence, since reasonable people lapse from time to time. We show that tort liability for “reasonable” lapses distorts doctors’, drivers’, and manufacturers’ incentives to take care. Furthermore, such liability provides potential injurers with incentives to substitute activities which are less prone to lapses with activities which are more prone to lapses, even if such substitution is inefficient. We propose several solutions to the inefficiencies that result from liability for …

Not The Power To Destroy: An Effects Theory Of The Tax Power, Robert D. Cooter, Neil Siegel

Robert Cooter

The Supreme Court of the United States requires a tax power jurisprudence that is consistent with its restrictions on the Commerce Clause. Otherwise Congress could “tax” its way around any judicially enforceable limits on the commerce power. Existing case law, however, does not offer such jurisprudence. This paper provides the missing theory by analyzing constitutional text, structure, history, and precedent with help from economics. The key difference between a tax and a penalty turns on the effects of the exaction. Taxes raise revenues because they dampen behavior without preventing it for many people. Penalties, by contrast, raise little or no …

Solomon’S Knot: How Law Can End The Poverty Of Nations, Robert D. Cooter, Hans Bernd Schaefer

Robert Cooter

Solomon's Knot: How Law Can End The Poverty Of Nations, Robert D. Cooter, Hans-Bernd Schaefer

Robert Cooter

Sustained growth depends on innovation, whether it’s cutting-edge software from Silicon Valley, an improved assembly line in Sichuan, or a new export market for Swaziland’s leather. Developing a new idea requires money, which poses a problem of trust. The innovator must trust the investor with his idea and the investor must trust the innovator with her money. Robert Cooter and Hans-Bernd Schäfer call this problem the “double trust dilemma of development.” How nations confront it determines whether their economies grow or stagnate. Nowhere is this problem more acute than in poorer nations. Nations are relatively poor in the modern world …

The Secret Of Growth Is Financing Secrets: Corporate Law And Growth Economics, Robert D. Cooter, Hans Bernd Schaefer

Robert Cooter

Innovative businesses unite capital and new ideas, which requires overcoming the double trust dilemma -- investors fear losing their wealth and innovators fear losing their ideas. To overcome this dilemma, 17th century spice traders invented the joint stock company with an essential feature of modern corporations: entitlements to marketable shares of future profits. Using the corporate form, innovative business ventures can often be organized so that innovators expect to earn more from their share of profits than from stealing the investors’ money, and investors expect to earn more by preserving the company’s secrets than disseminating them. The corporation thus provides …

Maturing Into Normal Science: The Effect Of Empirical Legal Studies On Law And Economics, Robert D. Cooter

Robert Cooter

Empirical legal studies (ELS), according to this Article, is the maturation of law and economics (L&E) into the long-awaited science of law. The main sociological consequence will be the gradual spread of ELS and L&E into the nonelite law schools. This process can only go so far because science concerns law’s effects, whereas teaching at nonelite law schools concerns law’s content. To learn law’s content, pass the bar exam, and practice law, students need an intuitive understanding of law’s effects. To move to the center of law teaching and practice, the next task of ELS is to make the correct …

Clearings And Thickets, Robert D. Cooter, Aaron Edlin

Robert Cooter

Abstract: Intellectual property rights create temporary monopoly power for innovators. Monopoly pricing transfers wealth to the innovator from the innovations buyers -- consumers, producers, and other innovators. For innovations mostly used in consumption and production, the transfer from consumers and producers to innovators increases the profitability of innovating and causes more of it. The welfare gains from faster growth quickly overtake the temporary losses from monopoly’s dead weight loss. Thus intellectual property rights should be strong for innovations mostly used by consumers and producers. In contrast, for innovations mostly used by other innovators, the transfer of wealth from one innovator …

Chapter 1: The Importance Of Law In Promoting Innovation And Growth, Robert D. Cooter, Aaron Edlin, Robert Litan, George Priest

Robert Cooter

No abstract provided.

Charity And Information: Correcting The Failure Of A Disjunctive Social Norm, Robert D. Cooter, Brian Broughman

Robert Cooter

Charitable donations fund social goods that the state and markets undersupply. While some people donate much to charity, most Americans donate little or nothing. Experiments in behavioral economics show that anonymity, not human nature, causes low contributions. Disclosure of each individual’s aggregate conduct is necessary for the effectiveness of any disjunctive social norm, including charity. We propose a public registry where each taxpayer can voluntarily disclose the ratio between his charitable giving and income. The registry will clarify the social norm and increase average donations. We extend our analysis to pro bono legal services where a similar registry would encourage …

Collective Action Federalism: A General Theory Of Article I, Section 8, Robert D. Cooter, Neil Siegel

Robert Cooter

The Framers of the United States Constitution wrote Article I, Section 8 in order to address some daunting collective action problems facing the young nation. They especially wanted to protect the states from military warfare by foreigners and from commercial warfare against one another. The states acted individually when they needed to act collectively, and Congress lacked power under the Articles of Confederation to address these problems. Section 8 thus authorized Congress to promote the “general Welfare” of the United States by tackling many collective action problems that the states could not solve on their own. Subsequent interpretations of Section …

A Theory Of Direct Democracy And The Single Subject Rule, Robert D. Cooter, Michae Gilbert

Robert Cooter

Citizens in many states use direct democracy to make laws on everything from soda bottles and horsemeat to affirmative action and same-sex marriage. Does direct democracy save citizens from corrupt legislators, or does it enfeeble competent representatives and empower an ignorant crowd? These ideological extremes often collide in court over a technical rule – the single subject rule – that limits each ballot initiative to one “subject.” Opponents can invalidate an initiative by convincing a court that it contains two different subjects (say, marriage and domestic partnerships), while proponents can preserve it by showing that it contains only one subject …

Uc System: Layoffs, Not Pay Cuts, Robert D. Cooter, Aaron Edlin

Robert Cooter

The University of California should should respond to the financial crisis of 2009 by reducing employment, not salaries. Employment should be reduced by eliminating inferior programs and activities remote from the core mission of teaching and research.

Law And The Poverty Of Nations, Robert D. Cooter, Hans Bernd Schaefer

Robert Cooter

This book manuscript uses the economic analysis of law and the theory of economic development to explain why some poor countries remain poor and others become rich. The book contributes to the economic analysis of law by reformulating its central conclusions in terms of growth, not static efficiency, and it contributes to the economic theory of growth by probing its legal foundations. The manuscript’s style is accessible to non-specialists and its substance challenges specialists. The book’s theme is that sustained growth comes from economic innovation, which combines novel ideas and capital. Combining them poses a “double trust problem” -- the …

Doing What You Say, Robert D. Cooter

Robert Cooter

Making wealth requires people to do what they say. In relationships and repeat transactions, reciprocity makes people do what they say, even without contract law. Relationships and repeat transactions, however, preclude competition. Competition involving transactions with strangers invigorates an economy and enables it to flourish. Making strangers do what they say requires them to commit legally. According to the contract principle for economic cooperation, the law should enable people to commit to doing what they say. When this principle is implemented, strangers can trust each other enough to work together even when money is at stake. Implementing this principle requires …

American Indian Law Codes: Pragmatic Law And Tribal Identity, Robert D. Cooter, Wolfgang Fikentscher

Robert Cooter

The United States has recognized the power of American Indian tribes to make laws at least since 1934. Most tribes, however, did not write down many of their laws until the 1960s. Written laws have subsequently accumulated in well-organized codes, but scholars have not previously researched them. Using written materials and interviews with tribal officials, we describe the scope, motivation, and interpretation of tribal codes. With respect to scope, we found nine main types of codes that cover almost all fields of law over which tribes have jurisdiction. Few tribes have all nine types of codes. Tribes have internal and …

The Misperception Of Norms: The Psychology Of Bias And The Economics Of Equilibrium, Robert D. Cooter, Mical Feldman, Yuval Feldman

Robert Cooter

This study combines the psychology of bias and the economics of equilibrium. We focus on two of the most discussed perceptual biases found by psychologists who studied the role social norms in ethical decision making. First, psychologists found a general tendency of people to over-estimate how many other people engage in unethical behavior. We show that this bias causes more people to violate the norm than if the bias were corrected. Second, psychologists found a general tendency of a person to over-estimate how many other people act the same as he does. We show that this bias does not change …

Bargaining With The State, Robert D. Cooter

Robert Cooter

According to the economic theory of bargaining, each party to a voluntary agreement must receive at least the amount that he can get on his own (“threat value”), plus a share of the surplus from the bargain. Courts frequently monitor bargains between citizens and the state. To protect citizens, the courts should focus on the fairness and efficiency of the threat points of the citizens. Unfortunately, courts often focus on the terms of the agreement, not the threat points. The wrong focus leads courts to impose rules that block bargains that would benefit both parties. I analyze an example where …

Bargaining With The State: Offsets And Mitigation In Developing Land, Robert D. Cooter

Robert Cooter

According to the economic theory of bargaining, each party to a voluntary agreement must receive at least the amount that he can get on his own (“threat value”), plus a share of the surplus from the bargain. Courts frequently monitor bargains between citizens and the state. To protect citizens, the courts should focus on the fairness and efficiency of the threat points of the citizens. Unfortunately, courts often focus on the terms of the agreement, not the threat points. The wrong focus leads courts to impose rules that block bargains that would benefit both parties. I analyze an example where …

Introduction To Law And Economics, Robert Cooter, Thomas Ulen

Robert Cooter

No abstract provided.

Total Liability For Excessive Harm, Robert D. Cooter, Ariel Porat

Robert Cooter

The total social harm caused by everyone is often verifiable and the harm that each actor causes is often unverifiable. In these circumstances, the authorities lack the information necessary to implement the usual liability rules or externality taxes. We propose a novel solution: Hold each participant in the activity responsible for all of the excessive harm that everyone causes. By “excessive harm” we mean the difference between the total harm caused by all injurers and the optimal total harm. We show that the rule of total liability for excessive harm creates incentives for efficient precaution and activity level. Consequently, actual …

The Intrinsic Value Of Obeying A Law: Economic Analysis Of The Internal Viewpoint, Robert D. Cooter

Robert Cooter

Economic theory distinguishes sharply between what a person wants and what he can have. “Preferences” describe what a person wants, and “constraints” describe the limits of what he can have. The collision of preferences and constraints yields the choices that economists study. The meaning of both terms is broad and flexible. Preferences and constraints help to distinguish between the internal and external viewpoints that H. L. A. Hart made famous. The internal viewpoint concerns preferences to perform legal obligations. A person who prefers to obey a law is willing to give up something to perform his legal obligation. The preference …

Sharing And Anti-Sharing In Teams, Robert D. Cooter, Roland Kirstein

Robert Cooter

Compared to budget-balanced Sharing contracts, Anti-Sharing may improve the efficiency of teams. The Anti-Sharer collects a fixed payment from all team members; he receives the actual output and pays out its value to them. If a team members becomes Anti-Sharer, he will be unproductive in equilibrium. Hence, internal Anti-Sharing fails to yield the first-best outcome. Anti-Sharing is more likely to yield a higher team profit than Sharing, the larger the team, the curvature of the production function, or the marginal effort cost. Sharing is more likely to be better, the greater the marginal product, the cross-partials of the production function, …

Anti-Sharing As A Theory Of Partnerships And Firms, Robert D. Cooter, Roland Kirstein

Robert Cooter

Anti-Sharing may improve the efficiency of teams. The Anti-Sharer collects a fixed payment from all team members; he receives the actual output and pays out its value to them. However, if a team members assumes the role of an "internal" Anti-Sharer, he will be unproductive in equilibrium. Hence, internal Anti-Sharing fails to yield the first-best outcome. External Anti-Sharing may induce the team members to choose efficient effort. The paper presents possible applications of Anti-Sharing: while internal Anti-Sharing may provide an explanation for the existence of senior (or managing) partners, external Anti-Sharing leads to a new theory of the incorporated firm.

An Escape From Poverty: Developing Productive Organization, Robert D. Cooter

Robert Cooter

Keynote address on "Innovation, Information, and the Poverty of Nations." My premise is that in the modern world, defective legal institutions cause national poverty and that all nations now have the opportunity to escape poverty by developing productive organizations.

Innovation, Information, And The Poverty Of Nations, Robert D. Cooter

Robert Cooter

Adapt Or Optimize? The Psychology And Economics Of Rules Of Evidence, Robert D. Cooter

Robert Cooter

In civil disputes, the plaintiff must prove his case by the preponderance of the evidence. To reach this standard, the plaintiff accumulates evidence by combining facts. In this chapter, two models of this process are compared. First, decision makers can adapt their behavior for improved results, as assumed in some psychological models. Adaptive models predict that court practice will allow the plaintiff to combine facts according to relatively simple rules. Second, decision makers can optimize their behavior for best results, as assumed in most economic models. Optimization models predict that court practice will require the plaintiff to combine facts in …

The Cultural Justification Of Unearned Income: An Economic Model Of Merit Goods Based On Aristolelian Ideas Of Akrasia And Distributive Justice, Robert D. Cooter, James R. Gordley

Robert Cooter

No abstract provided.

Individuals And Relatives, Robert Cooter

Robert Cooter

No abstract provided.

Liability Externalities And Mandatory Choices: Should Doctors Pay Less?, Robert D. Cooter, Ariel Porat

Robert Cooter

According to legal principles, a driver who negligently breaks a pedestrian's leg should pay the same damages as a doctor who negligently breaks a patient's leg. According to economic principles, however, the driver should pay more than the doctor. Non-negligent drivers impose risk on others without being liable for it. When liability externalities are mainly negative as with driving, liability should increase beyond full compensation to discourage the activity. Unlike pedestrians, patients contract with doctors for treatment and willingly submit to the risk of harm. Imperfections in medical markets cause some kinds of doctors to convey more positive than negative …

The Optimal Number Of Governments For Economic Development, Robert D. Cooter

Robert Cooter

No abstract provided.