Law Commons^™

Third Party Moral Hazard And The Problem Of Insurance Externalities, Gideon Parchomovsky, Peter Siegelman

All Faculty Scholarship

Insurance can lead to loss or claim-creation not just by insureds themselves, but also by uninsured third parties. These externalities—which we term “third party moral hazard”—arise because insurance creates opportunities both to extract rents and to recover for otherwise unrecoverable losses. Using examples from health, automobile, kidnap, and liability insurance, we demonstrate that the phenomenon is widespread and important, and that the downsides of insurance are greater than previously believed. We explain the economic, social and psychological reasons for this phenomenon, and propose policy responses. Contract-based methods that are traditionally used to control first-party moral hazard can be welfare-reducing in …

The Paradox Of Insurance, Gideon Parchomovsky, Peter Siegelman

All Faculty Scholarship

In this Article, we uncover a paradoxical phenomenon that has hitherto largely escaped the attention of legal scholars and economists, yet it has far-reaching implications for insurance law: loss-creation by uninsured parties caused by the presence of insurance. Contrary to the conventional wisdom, we show that insurance can create significant negative externalities by inducing third parties to engage in antisocial, illegal and unethical activities in order to extract money from insureds or insurers. Moreover, as the amount and scope of insurance grows, so does its distortionary effect on third parties. We term this phenomenon the paradox of insurance. The risk …

The Behavioral Economic Case For Paternalistic Workplace Retirement Plans, Paul M. Secunda

Indiana Law Journal

Dependence on 401(k) retirement accounts continues to cause a massive retirement crisis in the United States by leaving most workers unprepared for retirement. The voluntary, inaccessible, employer-centered, expensive, and consumer-driven natures of these plans have combined to make retirement a type of corporate-inspired elder abuse in America.

Behavioral economics considers the utility of permitting individual choice in decision-making settings. Many, however, have been misled to believe that greater choice is always better. Yet, according to one prominent commentator, this consumer-driven paradigm will lead to 48% of current workers between the ages of fifty and sixty-four being poor when they reach …

A Behavioral Theory Of Legal Ethics, Andrew M. Perlman

Indiana Law Journal

Behavioral insights have informed many areas of law, including the field of professional responsibility. Those insights, however, have had only a modest effect on the foundational theories of legal ethics, even though those theories are, at their core, prescriptions about human behavior. The reality is that lawyers’ conduct cannot be understood, theorized about, or used to produce the best possible regulations without an appreciation for the limits on human rationality and objectivity. A behavioral theory of legal ethics offers a way to incorporate those realties into the foundational debates on a lawyer’s professional role so that scholars can produce more …

Mandatory Process, Matthew J.B. Lawrence

Indiana Law Journal

This Article suggests that people tend to undervalue their procedural rights—their proverbial “day in court”—until they are actually involved in a dispute. The Article argues that the inherent, outcome-independent value of participating in a dispute resolution process comes largely from its power to soothe a person’s grievance— their perception of unfairness and accompanying negative emotional reaction—win or lose. But a tendency to assume unchanging emotional states, known in behavioral economics as projection bias, can prevent people from anticipating that they might become aggrieved and from appreciating the grievance-soothing power of process. When this happens, people will waive their procedural rights …

Behavioral Antitrust, Amanda P. Reeves, Maurice E. Stucke

Indiana Law Journal

No abstract provided.

Money, Is That What I Want: Competition Policy And The Role Of Behavioral Economics, Maurice E. Stucke

Santa Clara Law Review

No abstract provided.

Behavioral Science And Consumer Standard Form Contracts, Shmuel I. Becher

Louisiana Law Review

No abstract provided.

Shopping Badly: Cognitive Biases, Communications, And The Fallacy Of The Marketplace Of Ideas, Derek E. Bambauer

University of Colorado Law Review

The model of the "marketplace of ideas" governs critical decisions in American jurisprudence on regulating communications. This theory holds that, over time, we collectively process ideas and information to separate truth from falsehood. State intervention is therefore unnecessary and undesirable, for it may prevent us from discovering inelegant but useful ideas. However, research in cognitive psychology and behavioral economics shows that we operate with significant, persistent perceptual biases that undercut this model's assumptions. The marketplace model errs in describing how we interact with information; accordingly, it cannot reliably assess when regulation is desirable. We should discard the marketplace of ideas …

Bringing Cultural Practice Into Law: Ritual And Social Norms Jurisprudence, Andrew J. Cappel

Santa Clara Law Review

No abstract provided.

Norms And Interests, Geoffrey P. Miller

Hofstra Law Review

No abstract provided.

Mixed Signals: Rational-Choice Theories Of Social Norms And The Pragmatics Of Explanation, W. Bradley Wendel

Indiana Law Journal

No abstract provided.

"Trading Places": The Role Of Zoning In Promoting And Discouraging Intrametropolitan Trade, William T. Bogart

Case Western Reserve Law Review

No abstract provided.