Law and economics.

• Author: Jolls, Christine
• Position: Program Report

The NBER's Law and Economics Program studies the effects and causes of legal rules in the foundational legal subjects--property law, criminal law, contract law, and tort law--and in additional legal subjects such as the protection of consumers, workplace regulation, and corporate law and governance. The program also studies legal processes within courts, legislatures, and agencies.

Program members meet twice annually, once at a mid-year program meeting and again at the NBER Summer Institute. Recent Summer Institute workshops have included joint sessions with the NBER's Economics of Crime Working Group on several occasions.

This article first describes recent research in the foundational legal subjects and then examines work on the operation of the legal process and on the effects and causes of legal rules in the areas of consumer protection, workplace regulation, and corporate law and governance.

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

Prominent early work in law and economics involved theoretical modeling of tort law issues; much recent work has engaged in empirical testing of such models. A recent study by Daniel Carvell, Janet Currie, and W. Bentley MacLeod, for instance, offers both theoretical and empirical exploration of the effects of limiting joint and several liability in tort. (1) The authors' empirical findings suggest that limiting liability increases precautionary behavior by defendants who would be likely to escape liability in the absence of the limits.

Criminal law has also been an active area of empirical research in recent years. Giovanni Mastrobuoni, for example, studies the effect on policing of software-based predictions of future offender behavior. (2)

Exploiting variation in otherwise comparable Italian police forces' use of such future-crime predictive models, his evidence suggests that predictive policing significantly increases robbery clearance rates.

Research by Jennifer Doleac examines a different crime-fighting tool--DNA databases. (3) Doleac's empirical findings support the conclusion that these databases, which have now been adopted in every state, produce significant increases in the probability of catching offenders. Accordingly, crime rates, particularly in categories in which forensic evidence is likely to be collected at the scene, such as murder, rape, assault, and vehicle theft, decline with the adoption of DNA databases.

Noteworthy in criminal law enforcement has been New York City's "stop and frisk" policy, which is the subject of recent work by Decio Coviello and Nicola Persico. (4) Examining the racial dimensions of the program, the authors find that whites are slightly less likely than African-Americans to be arrested following a stop. This finding, the authors suggest, provides some evidence that unsupported or unwarranted stops are not predominantly visited upon African-Americans.

Turning to contract law, a central area of law and economics inquiry is contractual ambiguity or incompleteness. The optimal legal response to such ambiguity or incompleteness may naturally depend on its cause, and much recent work seeks to explore potential causes. Patrick Bolton and Antoine Faure-Grimaud, for instance, develop a model that grounds contractual incompleteness in the time costs of deliberation among parties. (5) The authors proceed to explore a range of implications of their characterization. In other recent work, Oliver Hart and John Moore, as well as Hart and Maija Halonen-Akatwijuka, link contractual incompleteness to the potential costs of reference points that these authors associate with contractual specificity. (6) The addition of a contractual term governing a specific issue may have...