Quality of Evidence and Legal Decision-Making[Monotone Comparative Statics Under Uncertainty]

We analyze a setting where the court has to impose liability with imperfect evidence on the defendant’s actions, and where the court is concerned about both deterrence and judicial errors. We provide a formal definition of the quality of evidence that allows us to compare evidence from very different sources and of a very different nature in terms of informativeness. When imposing liability, the court’s optimal policy is to set an evidentiary standard. The main result of the article is that with a higher quality of evidence, more lenient evidentiary standards generate greater welfare. We also find that when the agent can influence the informativeness of the evidence the interests of court and agent are not aligned. The optimal court policy may involve penalizing (even forbidding) actions leading to less informative evidence.