Econ 522 Economics of LawSlide 1Last Wednesday, we…Slide 3Slide 4TrialIncentivesWho pays the costs of a trial?Slide 9Slide 10Slide 11Unitary versus Segmented TrialsBurden of proofStandard of proofRules of evidenceSlide 15AppealsSlide 18Slide 18What is the goal of criminal law?Criminal law differs from civil law in several waysIntentCriminal cases are brought by the stateCriminal cases have higher standard of proofDistinction between civil remedies and punishmentAre crimes ever efficient?Slide 27Slide 28Why not use tort law to cover crimes too?Theory of criminal lawSlide 30Economic model of crime and punishmentSlide 33Gary Becker, “Crime and Punishment: An Economic Approach”Marginal cost of deterrence“The marginal cost of deterring another crime could be positive or negative”Slide 37Slide 38Slide 39Optimal deterrenceOptimal punishment – exampleOptimal punishment – general theoryAt efficient level of deterrence,Aside: why do we count the criminal’s benefit?So what would the efficient criminal law system look like?The problem with efficient punishmentsEcon 522Economics of LawDan QuintSpring 2010Lecture 212The legalprocess3Formulated the goal of the legal processMinimize social costs, which consist of:Administrative costs, andError costsBroke the legal process into a series of steps, and discussed a couple of themToday:More on the legal processCrime and criminal lawLast Wednesday, we…4Stages of the legal process…decision to pursue a legal claimbargaining over out-of-court settlementspre-trial exchange of informationtrial itselfappeals process5Stages of the legal process…decision to pursue a legal claimbargaining over out-of-court settlementspre-trial exchange of informationtrial itselfappeals process6In Europe…Judges in civil trials take active role in asking questions and developing case“Inquisitorial system,” since judge asks questionsIn U.S…Lawyers’ job to develop caseJudge is more of a passive referee“Adversarial system,” since competing lawyers are adversariesTrial7Lawyers have a strong incentive to win at trialMay be working on contingencyValue reputation for winningJudges have no stake in outcome of the trialJudges will (we hope) generally do what is right……but have less motivation to work hard“Judges have incentives to do what is right and easy; lawyers have incentives to do what is profitable and hard.”Incentives8In U.K., loser in a lawsuit often pays legal expenses of winnerDiscourages “nuisance suits”But also discourages suits where there was actual harm that may be hard to proveIn U.S., each side generally pays own legal costsBut some states have rules that change this under certain circumstancesWho pays the costs of a trial?9Rule 68 of Federal Rules of Civil Procedure“At any time more than 10 days before the trial begins, a party defending against a claim may serve upon the adverse party an offer [for a settlement]…If the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer.”“Fee shifting rule”ExampleI hit you with my car, you sueBefore trial, I offer to settle for $6,000, you refuseIf you win at trial, but judgment is less than $6,000……then under Rule 68, you would have to pay me for all my legal expenses after I made the offerWho pays the costs of a trial?10Rule 68 does two things to encourage settlements:Gives me added incentive to make a serious settlement offerGives you added incentive to accept my offerBut not actually as generous as it soundsAttorney’s fees not always included in fees that are coveredAsymmetricPlaintiff is penalized for rejecting defendant’s offerDefendant is not penalized for rejecting offer from plaintiffWho pays the costs of a trial?11Kathryn Spier, “Pretrial Bargaining and the Design of Fee-Shifting Rules”Game-theory analysis of Rule 68 and similar rulesShows that when parties have private information, fee-shifting rules like this increase probability of settlementThen considers designing “perfect” rule to maximize number of cases that would settle out of courtIdeal rule is similar to two-sided version of Rule 68Take each side’s most generous settlement offerCompute a cutoffIf eventual judgment is below this cutoff, plaintiff pays both sides’ legal fees; if above cutoff, defendant pays both sides’ feesWho pays the costs of a trial?12Trial has to answer two questions:Is defendant liable?If so, how much are damages?Unitary trial considers liability and damages at same timeEconomies of scopeSegmented trial considers liability first, then damages later (if necessary)Damages phase may not be necessaryIn U.S., judges have discretion over which type of trialUnitary versus Segmented Trials13Burden of proof: who is responsible for showing what at trialIn criminal case, prosecutor’s burden to show defendant is guilty, not defendant’s burden to show he’s innocentSimilarly, in civil case, plaintiff’s burden to make caseUnder negligence rule, plaintiff has to prove defendant was negligent (rather than defendant having to show he was not)Under contributory negligence, once defendant is shown to be negligent, it’s defendant’s burden to show plaintiff was also negligentBurden of proof14Standard of proof: degree of certainty to which something must be shown in courtIn criminal cases, “beyond a reasonable doubt” – very high standardIn civil cases, plaintiff usually has to prove case by “a preponderance of the evidence”Much lower standard –interpreted as anything over 50% certaintyFor punitive damages to be awarded, high standard of proof is often required: “clear and convincing evidence”Efficient level depends on relative costs of two types of errorsFinding someone liable when they should not beFinding someone not liable when they should beStandard of proof15Rules for what evidence court can pay attention toTextbook gives examples where rules seem inconsistent, if goal is simply to maximize probability of “right outcome”When we focus on efficiency, we care only about outcomes, not about processBut in real-world legal system, process is important in its own rightRules of evidence16Stages of the legal process…decision to pursue a
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