Law and economics.

• Author: Jolls, Christine
• Position: Program Report

The NBER's Law and Economics Program studies the effects and causes of legal rules, with a special focus on the foundational legal subjects--property law, criminal law, contract law, and tort law--and on the operation of the legal process. In regard to the operation of the legal process, the Program examines topics such as labor markets for lawyers, litigation dynamics, judicial and agency behavior, and the determinants of legislative action. In addition, the Program studies the effects and causes of legal rules across a range of legal subjects beyond property, criminal, contract, and tort law, including corporate law, employment law, health care law, social welfare law, family law, bankruptcy law, patent and copyright law, and antitrust law.

The Program meets twice per year, once at a mid-year program meeting and again at the NBER'S Summer Institute. The Program's recent special activities include a project in the area of corporate governance, under the direction of Research Associate Lucian Bebchuk; selected papers from that project are scheduled to appear in a forthcoming issue of the Review of Financial Studies.

In this article, I first describe recent research in the foundational legal subjects and then turn to work on the operation of the legal process. I conclude with an overview of work on the effects and causes of legal rules in corporate law, employment law, health care law, social welfare law, family law, bankruptcy law, patent and copyright law, and antitrust law.

Property Law, Criminal Law, Contract Law, and Tort Law

A fundamental aspect of any legal system is the structure of property rights. Recent work by Oliver Hart (13540) is the latest in an important line of papers by Hart, Sanford Grossman, and John Moore that examine the effects of a particular conception of property rights emphasizing "residual control." In this view, the owner of an asset retains those rights to the asset that are not specifically assigned by any existing contractual commitment. While previous papers in the series have examined the effects of the residual control rights conception of property rights in the face of parties' non-contractible up-front investments, the recent paper by Hart studies the effects of property rights of this form in a model with uncertainty of values and costs of a good to be traded. Hart's model suggests that ex-ante contracting over asset ownership can reduce later incentives to engage in hold-up. A system that did not provide for property rights in the Grossman-Hart-Moore sense (reserving residual rights to the state rather than to the property owner) would be inferior within this framework.

Also central to the structure of property rights is the question of when government may obtain ownership of assets from unwilling private parties. In a recent paper (13564), Steven Shavell models the desirability of allowing government takings of private land by its eminent domain power when the government's information about owners' valuations is imperfect. Shavell shows that eminent domain becomes appealing if the number of property owners is large, in order to overcome a problem of "honest" holdout. This conclusion holds regardless of whether the land that the government seeks is a parcel at a fixed location or instead is located anywhere in a region.

A legal system determines what, if any, conduct should be subject to criminal sanctions and establishes the shape of those sanctions. An extensive recent law and economics literature studies the effects of various forms of criminalization. John Donohue and Justin Wolfers (11982) examine the potential deterrent effects of the ultimate criminal sanction--the death penalty, which is reserved predominantly for homicides. While there is some variation in the use of capital punishment, both across time and across states with different legal regimes, Donohue and Wolfers conclude that this variation is small when compared with the large swings in the homicide rate; even when the use of the death penalty increases, the absolute number of executions remains quite small. Thus, existing results linking capital punishment to reductions in the homicide rate prove to be extremely fragile, and the data that are presently available do not allow any strong inference about even the sign of the deterrent effect of capital punishment.

Current law subjects criminal sex offenders to a variety of registration and notification laws that, respectively, require convicted sex offenders to provide valid contact information to law enforcement authorities and mandate that information about sex offenders be made public. In recent work, J.J. Prescott and Jonah E. Rockoff (13803) offer new evidence on these laws' effects. Using fine-grained information on state registration and notification laws, Prescott and Rockoff present evidence that sex offenses against neighbors declined with the adoption of registration laws and that notification laws deter potential offenders with no prior record while increasing recidivism among those who have previously committed sex offenses.

As the property rights work described earlier reveals, the value of property rights is intertwined with the ability of parties to enter into contracts governing the use of their property. Contract law determines whether and how agreements among parties will be legally enforced. A major part of the function of contract law is to determine whether and how to fill gaps in parties' contracts. Are the existing gap-filling rules of contract law efficient? Work by Surajeet Chakravarty and Bentley MacLeod (13960) provides an affirmative answer with respect to a range...