EfficientRulesforaUnicausalAccidentStrictliabilityisthestraightforwardPigouviananswerNegligence,asinterpretedbyeconomists,givestherightanswertooYouareliableifyoufailedtotakeallcostjustifiedprecautionsIfyouareliable,itisinyourinterestto….SoeitheryoudooryoudoThatassumesthecourtknowsWhatprecautionsyoutookAndwhatprecautionsyoushouldhavetakenSoitisapartlyregulatorysolutionStrictliabilityonlyrequiresyoutoknow—leveragesyourprivateinformationActivitylevelisshorthandforunobservableprecautionsDualCausation:CoaseianaccidentsStrictliabilityoneitherpartyGivesthatpartyafullincentiveTheotherpartynone,sinceheisbeingfullycompensatedforthecosttohimHowaboutmakingbothpartiesfullyliable?Eachofuspaysafineequaltotheotherdriver’scostoftheaccidentWhoreportstheaccident?Whataboutnegligenceliability?Mysimplecaseiscarsandtanks.Thetankisliableifthedriverwasnegligent–fullincentiveIfthetankisnotliable,thecardriverbearsthefullexpenseAndthetankwon’tbeliable,becauseitisnotinitsinteresttobenegligentSobothpartieshavethefullincentiveButitonlyworksforobservableprecautionsInamorerealisticcasethancarsandtanks…Howdowedecidewhichpartyisliableifnegligent?Theargumentworkspoorlyforautocollisions,betterforSituationswherethereissomeconsistentdifferencebetweenthetwopartiesDrivervspedestrian,forexampleThesamelogicworksforcontributorynegligenceIpayforyourdamageunlessyouwerenegligentSoyouwon’tbe,soIwill,soIwilltaketheoptimalprecautionsSupposethecourtcannotaccuratelyjudgenegligenceTheleastbadrulemaybetosplitthedamageAlongthelinesoftheargumentforcoinsuranceSixTheoriesofPunitiveDamagesNosuchthing,justordinarydamagesforinjuriesthatarehardtoseeTheyservetoexpressmoraloutrageTheyfunctionasaprobabilitymultiplier(LandesandPosner)Ifdamagesarehardtomeasurebutthetortisalmostalwaysinefficient,setdamagesatahighestimateofharmdone(LandesandPosner)BecausetheoptimalpunishmentisnotreallyequaltodamagedoneCatchingandpunishingpeopleiscostlyDetailsthisweekTodeterstrategictortsMythreattoharmyoustopsyoufromdoingthingsIdon’tlikeConsiderthecaseofshootingbirdsonmyneighbor’slandtohumiliatehimNoneofthesedoesafullyadequatejobofexplainingcurrentlawWhydoOrdinaryDamagesGototheVictim?Asaformofinsurance,butnotaverygoodformTocombinetwoincentivesinonepersonArewardtomakethevictimreportandsueCombinedwiththeincentivetodeteractsthatharmhimButisittherightincentive?Thepatenttrollproblem.TheAtheniansolution:LosingtortplaintiffoweddamagestothedefendantGettingtheincentiverightisaproblemnotlimitedtotortlawAswewillbeseeingthisweekDamagesAreDoingTripleDutyThedamagepaymentforatortisThepenaltytothetortfeasorTherewardtothesuccessfulplaintiffThecompensationtothevictimThereisnoreasontoexpecttherightvaluetobethesameforeachDamagesasInsuranceDamagesonlyinsureagainstasmallsubsetoflossesYouhavetoprovecausation,negligence,etc,whichiscostlyAndreputationalincentivesforthepayerarebackwardsAninsurancecompanywantsthereputationOfbeingwillingtocompensateyouwithaslittlehassleaspossibleSothatpeoplewillbuyitsinsuranceAtortfeasorwantsthereputationOffightingashardaspossiblenottopaydamagesSopeoplewon’tsueitSodesigntortlawtodetertortfeasorsandmotivatevictimsProductLiabilityCaveatEmptor:LetthebuyerbewareCaveatVenditor:Letthesellerbeware:SellerisliableArgumentfor:ItgiveshimanincentivetomakesurenothinggoeswrongArgumentagainst:TheconsumeralsoaffectstheprobabilitythatsomethingwillgowrongTheselleralreadyhasthatincentive—reputationCounterargument:ConsumersmaynotknowenoughaboutqualityoftheproductCaveCanem:BewareofthedogConclusion:ThecaseforcaveatemptorisstrongerThebetterreputationalincentivesworkAndthemorethingsgoingwrongdependsontheuserSotheefficientruleis:SpecifictoaspecificproblemWithaspecificproductAnalternativeruleisfreedomofcontractEggshellSkulls,HimalayanPhotographers,andEfficientLawAtortfeasortakeshisvictimashefindshimIfthevictimisunusuallyvulnerable,thetortfeasorpaysfortheunusualdamagePosnerarguesthatthisistheefficientruleBecauseitgivespotentialtortfeasorstherightaverageincentiveIncludingahighprobabilityoflowinjuryanddamagepayment,lowprobabilityofhighThisisthesameproblemassendingvaluablefilmtoWalgreensThevulnerablevictimknowsheisvulnerable,thepotentialtortfeasordoesn’tJustastheHimalayanphotographerknewhisfilmwasvaluablePosnercouldhavemadethesameargumentthere,didn’tThusineachcaseconcludingthatthecommonlawwasefficientWhichpointsoutaproblemwithevidenceforhisconjectureFirstyouseewhatthecommonlawruleisThenyouconstructanargumenttoshowthatthatistheefficientruleHowMuchisInformationWorth?Ifitdoesn’tchangeyourdecision,nothingIfitbarelychangesyourdecision,notverymuchSoadverseselectionproblemsonlymatteriftheerrorsarelargeAsmallerrorprobablydoesn’tchangewhatyoudoAndifitdoes,youareonlyalittleworseoffthanwithouttheerrorWearebackwiththesecondorderofsmallsWyattvDavis:WasWyattnegligentfornotmakingsurepatientsknewthelivepoliovaccinecouldgivethempolio?ThatdependsonhowlikelytheknowledgewastochangetheirdecisionThecourtfoundtheannualbenefitaboutequaltothelifetimecostConcludedthatthepatientmightdecideagainst,henceWyattwasliableMyfavoriteexampleofwhyjudgesshouldbeliablefortheirerrorsCriminalLawTheFalsePositiveRate"Itisbetterthattenguiltypersonsescapethanthatoneinnocentsuffer”Whatshouldtheratiobe?Howwouldyoudecide?Whatisit?AlotofopinionsaboutthecriminaljusticesystemhangonthatnumberWhichnobodyknowsHowwouldyoufindout?Leverageanewtechnology,probablyDNAtestingMyplanGetsomecooperativejurisdictiontoletyoutesttissueevidenceforeveryoneconvictedOratleastarandomsampleFrombeforethetesting(maybegettingalittlelateforthatnow)Seeforwhatpercentageitprovesinnocence,forwhatpercentageguiltSomeactualattemptsRape/murdercasesusuallyleavetissueevidenceBynowtheyshouldallhavebeentested.Whatfractionturnedouttobeinnocent?About3%.Butweretheyalltested?Fromastudyofexonerationsofdefendantssentencedtodeath,anestimateof4.1%shouldhavebeenFromastudyof634VirginiacasesforwhichtissueevidencehappenedtohavesurvivedForabout16%,thetissueevidencewouldhavebeenevidence(notnecessarilyproof)againstguiltThisonewasn’tlimitedtohighlevelcasesGivenpleabargaining,onemightexpecthigherratesforlesseroffensesTheProblem:IncentivetoConvictInorderforanyonetobeconvictedofanythingSomeonehastohaveanincentivetoconvicthimWhichmayincludetoconvictpeoplewhoarenotguiltyExamplesoftheproblemPoliceincentivetoclearcasesTestinglabs’incentivetogetbusinessWhichtheygetfrompolicedepartmentsThatwanttoclearcasesProsecutorrewardedfornumberofindictmentsandpercentconvictionsHowcanyoumakeitintheindividualinteresttoonlyconvicttheguilty?Juryproceduretoseparateinnocentfromguilty?Highstandardofproof?But~95%ofcasesarepleabargainedPunishtheprosecutorforfalseconvictions?Butthat’sapunishmentfortheirdiscoverySoanincentivetomakesureyourmistakesarenotdiscovered—orcorrectedMaketherewarddependonthepersonbeingguiltyHow?DeterrenceasaPrivateGoodIn18thcenturyEngland,criminalprosecutionwasprivateUsuallybythevictim,likeourtortsystemUnliketort,therewasnodamagepayment,sowhybothertoprosecute?OneanswerisinordertodetertortsagainstyourselfIfyouwerealikelytarget,youwantthereputationThatsomeonewhorobbedyougotconvictedandhangedAndyougetthatreputationbyprosecutingsomeonewhodoesIfnotalikelytarget,joinanassociationfortheprosecutionoffelonsThemembers,inonetown,chipinannualduestoafundThatwillpaythecostofprosecutinganyonewhocommitsafelonyagainstamemberAndthelistofmembersispublishedinthelocalnewspaperForthefelonstoreadThinkofitasawayofpubliclyprecommitingtoprosecuteThistreatsdeterrenceasaprivategoodIfyoucatchthefirstbeggartopassyourpropertyandrailroadhimtothegallowsTherealrobberandhisfriendswillknowyouareasafetargetSoyouhaveaprivateincentivetoprosecutetherightmanTweakingTheTechnologyofTrialEliminatepleabargaining,tryallcases?GiventhenumberoffelonyconvictionsandtheaveragetriallengthThatrequiresmorejudgesthancurrentlyexistintheentirejudicialsystemAndthefulltimeworkofaboutamillionpeoplePreventovercharginginpleabargaining?ThatshouldmakeinnocentdefendantslesslikelytocopapleaHowdowedoit?TheAthenianapproach:Prosecutorisfinediffewerthan20%ofjurorsvoteforconvictionInoursystemofpublicratherthanprivateprosecutionIf,foranycharge,fewerthanfourjurorsvoteforconvictionThreestrikesandtheprosecutorisfired.AdversarialvsInquisitorialtrials?Advantageofinquisitorial—nobodyneedthrowawayevidencehedoesn’tlikeAdvantageofadversarial—atleastonepersonlookingforeachkindofevidenceLessobviousadvantage–incentivetorevealprivateinformationIfIknowI’minnocent,lookingformoreevidenceshouldhaveahighpayoffIfIknowI’mguilty,….ButthisalsobiasestheprocesstowardsthosewhocanaffordgoodlawyersInformedvsuninformedjuriesEarlyEnglishsystemusedajuryofneighborsWedisqualifyanyonewhoknowsanythingrelevanttothecase.WearethrowingawayinformationintheattempttoeliminatebiasTheOptimalPunishmentProblemFirstapproximation:<P>=probabilityxpenalty=Damagedone.SoonlyefficientoffensesoccurThoseforwhichthevaluetotheoffender>damagetothevictimThisassumesariskneutraloffender.Moregenerally,<P>=thecertaintyequivalentoftheprobability/punishmentpairThatdetersallandonlyinefficientoffenses,but…CatchingandpunishingcriminalsiscostlySoperhapssomeinefficientoffensesarenotworthdeterringOrperhapssomeefficientoffensesshouldbedeterredtosavethecostofpunishingthemStepOne:Whatcombinationofprobabilityandpenaltyisoptimal?ConsiderallcombinationsthatareequivalentforthecriminalPickthecombinationwiththelowestcostofcatchingpluspunishingYounowknowthetotalenforcementcostofanylevelofdeterrenceWhat<P>isoptimal?Forany<P>,calculate[costtovictims]+[costofenforcement]-[benefittocriminals]Findthe<P>thatminimizesitSolvingitTofindtheoptimalvalueofdeterrenceYoukeepincreasingituntiltheresultofincreasingitalittlemoreIsthatthecostofdoingsojustbalancesthebenefitThetopofamountainislevelNetdamage=damagetovictim-gaintocriminalFortheoffensethatwillbedeterredifweraisethepunishmentjustalittlemoreGaintocriminal=expectedpunishment—That’swhyhewasjustbarelydeterred

SoNetdamage=damagetovictim-expectedpunishmentFortheoptimalpunishment:Costofdeterringonemoreoffense=NetdamagethatoffensewoulddoMC=damagetovictim–benefittocriminal=damage-<P><P>=damagetovictim-costofdeterringonemoreoffense=D-MCMarginalcostcouldbenegativeBecausewhenyouincrease<P>youdetersomeoffensesAndifanoffenseisdeterredyoudon’thavethecostofcatchingandpunishingtheoffenderSotheoptimalexpectedpunishmentmightbelessormorethandamagedone.TwoIntuitionsLetthepunishmentfitthecrime<P>=damagedonebytheoffenseTherightruleifthemarginalcostofcatchingandpunishingis~0Qualitativelyrightanyway—thegreaterthedamagethegreaterthepunishmentEnoughpunishmenttodeterTherightruleifthereisapunishmentBelowwhichtherearemanyoffensesAbovewhichtherearefewSetthepunishmentjustabovethatThegeneralruleis<P>=damagedoneminusMCofdeterrenceThatdetersalloffensesworththecostofdeterringTheonesforwhichnetdamageisatleastequaltothecostofdeterringthemTherearetwosensesof“efficientcrime”hereAnoffenseitisefficientfortheoffendertocommit:Benefit>damagedoneAnoffenseitisefficienttodeter:costofdeterringit<netcostoftheoffenseShouldBenefitstoCriminalsCount?Throughouttheanalysis,weassumedtheydidWhichmanywouldfindstrangeWhydowecarehowmuchsomeoneenjoysmurderorprofitsfromrobbery?WearetryingtoderivelawwithoutmoralityFromasingleassumption:economicefficiencySowedon’tknowwhosebenefitsshouldn’tbecountedPartofwhatisinterestingabouttheprojectIsthatwedon’tputmoralassumptionsinButmostlygetthemout,intheformoflegalrulesSuchas“youshallnotsteal”or“youshallnotkill”Whydoesthathappen?Ifwestartoutbyknowingwhosebenefitsdon’tcountWegetourmoralassumptionsoutbyputtingtheminMakingtheargumentcircularShouldtheRichPayHigherFines?ArgumentforAfinesufficienttodeterapoormanwon’tdeterarichmanAndafinethatwilldeterarichmanapoormancannotpayArgumentagainstThemaximandinefficiencyisvaluemeasuredbywillingnesstopayAcrimewhosevaluetoapoormanislessthandamagedoneisinefficientAcrimewhosevaluetoarichmanismorethandamageisefficientJohnLott’smostpoliticallyincorrectarticleRichpeoplehavebetterlawyers,soget,onaverage,shortersentencesWhichisefficient,sincetheirtimeismorevaluableSoyouneedashortersentencetogetthesamepunishmentmeasuredindollarsButthisassumespunishmentshouldbeequaltodamagedoneFollowingouttheargumentthattakesaccountofenforcementcostsSometimesthefineshouldbehigherfortherich,inordertodeterOrbecausetherichcanpayafine,makingpunishmentcostslowSometimeslower,becausedeterringtherichcostsmorethanitisworthInefficiencyofPunishmentsDefinepunishmentinefficiencyaspunishmentcost/amountofpunishmentThatmattersbecausewearecomparingdifferentwaysofgettingthesamedeterrenceSothepunishmentcostofequivalentlyeffective(probability,punishment)pairsAfine:WhatonemanpaysanothercollectsPunishmentcostiszero.SoinefficiencyiszeroImprisonment:Punishmentcost>amountofpunishmentCosttotheoffenderistheamountofpunishment—fiveyearsinprisonCosttotherestofusisthecostofrunningtheprisonSoinefficiency>1Execution:Punishmentcost=amountofpunishmentTheoffenderlosesonelife,nobodygetsoneInefficiency=1Execution(orcorporalpunishment)islessinefficientthanimprisonment!ToMinimizePunishmentCostChoosethemostefficientpunishmentAfineiftheoffendercanpayitOtherwiseexecution(orcorporalpunishment)ConsideranoffensecurrentlypunishedwithfiveyearsinprisonWedeterminethatthatisequivalent,forthecriminal,to1/6chanceofexecutionSowhensomeoneisconvicted,werolladie1-5weturnhimloose6wehanghimDeterrenceisthesame,sovictimsarenoworseoffTheaveragecosttothecriminalisthesameAndwesavethecostofrunningtheprisonWhatiswrongwiththisargument?TheInefficiencyofEfficientPunishmentConsiderfirstalessextremeversionEverysentenceisXdollarsorYyearsThecriminalhastheoptionofspendingYyearsinthestateprisonOracceptinganofferfromaprivateprisontopayhisfineInexchangeforsomethinglessthanYyearsworkingintheirprisonfactoryIproposedthatideainanoldarticle.SomeonerespondedThecolonialpowersinAfricahadasimilarapproachIftheyneededaroadbuilt,theyfoundanexcusetoarrestabunchofpeopleAndsentencedthemtoworkontheroadLarryNivenhadsfstorieswithadiffe