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Minimizing errors, maximizing incentives: Optimal court decisions and the quality of evidence

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Abstract

We characterize the best mechanism for a Court to impose liability (and generate incentives) in a setting in which the injurer's behavior is imperfectly observed and Courts also care about judicial errors. First, we show that the optimal decision rule is an evidentiary standard. Then, we make three main contributions. i) We develop a new methodological approach to deal with this classic problem: rewrite the incentive compatibility constraint in terms of Court errors. This approach can be applied to more general incentive problems, and greatly simpli es the characterization of the optimal standard. ii)We state that the harshness of the optimal evidentiary standard decreases as the quality (informativeness) of the evidence increases. iii) When the informativeness of the evidence is determined by the injurer's choice of the care technology, the interests of Court and injurer are not aligned. The optimal Court policy is to penalize (even forbid) the use of the less informative care technology.

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  • Juan José Ganuza & Fernando Gomez & Jose Penalva, 2015. "Minimizing errors, maximizing incentives: Optimal court decisions and the quality of evidence," Economics Working Papers 1500, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:1500
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    1. Lando, Henrik, 2000. "The Optimal Standard of Proof in Criminal Law When Both Fairness and Deterrence Matter," Working Papers 2000-7, Copenhagen Business School, Department of Finance.
    2. Matteo Rizzolli & Luca Stanca, 2012. "Judicial Errors and Crime Deterrence: Theory and Experimental Evidence," Journal of Law and Economics, University of Chicago Press, vol. 55(2), pages 311-338.
    3. Kaplow, Louis & Shavell, Steven, 1994. "Accuracy in the Determination of Liability," Journal of Law and Economics, University of Chicago Press, vol. 37(1), pages 1-15, April.
    4. Matteo Rizzolli & Margherita Saraceno, 2009. "Better that X guilty persons escape than that one innocent suffer," Working Papers 168, University of Milano-Bicocca, Department of Economics, revised Jul 2009.
    5. Sanchirico, Chris William, 1997. "The burden of proof in civil litigation: A simple model of mechanism design," International Review of Law and Economics, Elsevier, vol. 17(3), pages 431-447, September.
    6. Coate, Stephen & Loury, Glenn C, 1993. "Will Affirmative-Action Policies Eliminate Negative Stereotypes?," American Economic Review, American Economic Association, vol. 83(5), pages 1220-1240, December.
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    Cited by:

    1. Artigot, Mireia & Ganuza, Juan José & Gomez, Fernando & Penalva, Jose, 2018. "Product liability should reward firm transparency," International Review of Law and Economics, Elsevier, vol. 56(C), pages 160-169.

    More about this item

    Keywords

    Incentives; evidentiary standards; judicial errors; statistical discrimination and informativeness.;

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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