American Law and Economics Review - Advance Access

Long-Term Contracts and Short-Term Commitment: Price Determination for Heterogeneous Freight Transactions

Masten, S. E. — 2009-06-27

This paper considers a class of contracts in which parties write detailed, long-term performance obligations that leave one or both parties with broad discretion to terminate the agreement on short notice with little or no penalty. I argue that formal contracts may be valuable, even where trade involves little or no relationship-specific investment and termination is the only remedy, as a way of economizing on the cost of determining prices for a series of heterogeneous transactions. Evidence from a survey of truck drivers shows both the general structure of contracts between freight carriers and drivers and the manner in which hauls are priced to be consistent with the goal of economizing on renegotiation costs.

The Impact of Legalized Abortion on Teen Childbearing

Donohue, J. J., Grogger, J., Levitt, S. D. — 2009-06-25

After 41 consecutive years of increase, out-of-wedlock teen childbearing unexpectedly reversed course in 1991 and by 2002 was 20% below its peak. Explanations for that reversal have proven elusive. In this paper, we present evidence that exposure to legalized abortion in utero for the cohort of women that became teenagers in the 1990s is one factor contributing to this decline. We estimate that the legalization of abortion in the 1970s changed the composition of women at risk of bearing children out of wedlock some 15–24 years later. This composition effect reduced out-of-wedlock teen birth rates by 6%, which accounts for roughly 25% of the observed decline in unmarried teen birth rates over this period. It also lowered rates of unmarried births for women aged 20–24. At the same time, it increased the number of married births to women 20–24, so that there is only a small reduction in total fertility over the ages 15–24. The detailed information available on birth certificates enables a more direct identification of in utero abortion exposure than prior studies looking at other outcomes such as crime.

Who Wins in Settlement Negotiations?

Korobkin, R., Doherty, J. — 2009-06-08

When lawsuits are resolved out of court, what determines the settlement price? This article uses a laboratory simulation and path analysis to estimate the relative importance of measurable variables in determining who wins the battle for the cooperative surplus. In the simulated negotiation conditions, seven variables explained more than half of the variation in settlement outcomes achieved by participants, with negotiators’ predictions of their opponent's reservation prices the most important, followed by negotiator gender and amount of first offer. Although the specific context of this article is settlement, the insights generated are applicable to any two-party, distributive negotiation.

Statistical Variability and the Deterrent Effect of the Death Penalty

Zimmerman, P. R. — 2009-04-15

In a recent paper Donohue and Wolfers (D&W) critique a number of modern econometric studies purporting to demonstrate a deterrent effect of capital punishment. This paper focuses on D&W's central criticism of a study by Zimmerman; specifically, that the estimated standard errors on the subset of his regressions that suggest a deterrent effect are downward biased due to autocorrelation. The method that D&W rely upon to adjust Zimmerman's standard errors is, however, potentially problematic, and is also only one of several methods to address the presence of autocorrelation. To this end, Zimmerman's original models are subjected to several parametric corrections for autocorrelation, all of which result in statistically significant estimates that are of the same magnitude to his original estimates. The paper also presents results obtained from an alternative model whose specification is motivated on theoretical and statistical grounds. These latter results also provide some evidence supporting a deterrent effect. Finally, the paper discusses D&W's use of randomization testing and their contention that executions are not carried out often enough to plausibly deter murders.

Comparative Vigilance

Feldman, A. M., Singh, R. — 2009-03-05

A growing body of literature suggests that courts and juries are inclined toward division of liability between two strictly non-negligent or "vigilant" parties. In this paper, we explore the economic efficiency of liability rules based on comparative vigilance. We devise rules that are efficient and that reward vigilance. Commonly used liability rules have discontinuous liability shares. We develop a liability rule, which we call the "super-symmetric rule," that is both efficient and continuous, that is based on comparative negligence when both parties are negligent and on comparative vigilance when both parties are vigilant, and that is always responsive to increased care.

Bankruptcy: Past Puzzles, Recent Reforms, and the Mortgage Crisis

White, M. J. — 2009-02-25

This paper discusses four bankruptcy-related policy issues. First, what is the economic rationale for having a bankruptcy procedure at all and what defines an economically efficient bankruptcy procedure? Second, why did the number of U.S. bankruptcy filings increase so dramatically between 1980 and 2005? Third, a major bankruptcy reform went into effect in the United States in 2005—what did it do and how did it affect credit and mortgage markets? Finally, the paper discusses the mortgage crisis, the high social cost of foreclosures, and the difficulty of avoiding foreclosure by voluntarily renegotiation of mortgage contracts, even when such renegotiations are in the joint interest of debtors and creditors. I also discuss the pros and cons of government programs to refinance mortgages and the argument for giving bankruptcy judges new power to change the terms of residential mortgage contracts in bankruptcy.

Crime and Expected Punishment: Changes in Perceptions at the Age of Criminal Majority

Hjalmarsson, R. — 2008-12-26

This paper assesses whether perceived punishment severity changes discontinuously when an individual becomes an adult in the eyes of the courts. I find that the perceived chance of jail increases by 5.2 percentage points at the age of criminal majority, which is over and above the general effect of aging. The magnitude of this subjective change in the chance of jail at the age of majority appears to be substantially smaller than that found in objective data. Finally, a reduced-form analysis of whether self-reported criminal behavior changes discontinuously at the age of criminal majority finds little consistent evidence of deterrence.

Model Uncertainty and the Deterrent Effect of Capital Punishment

Cohen-Cole, E., Durlauf, S., Fagan, J., Nagin, D. — 2008-04-15

The reintroduction of capital punishment in 1976 that ended the four-year moratorium on executions generated by the Supreme Court in the 1972 decision Furman v. Georgia has permitted researchers to employ state-level heterogeneity in the use of capital punishment to study deterrent effects. However, no scholarly consensus exists as to their magnitude. A key reason that this has occurred is that the use of alternative models across studies produces differing estimates of the deterrent effect. Because differences across models are not well motivated by theory, the deterrence literature is plagued by model uncertainty. We argue that the analysis of deterrent effects should explicitly recognize the presence of model uncertainty in drawing inferences. We describe methods for addressing model uncertainty and apply them to understand the disparate findings between two major studies in the deterrence literature, finding that evidence of deterrent effects appears, while not nonexistent, weak.

Does Capital Punishment have a "Local" Deterrent Effect on Homicides?

Hjalmarsson, R. — 2008-04-07

The vast majority of death penalty studies use geographically or temporally aggregated data. Such aggregation can make it virtually impossible to identify small amounts of variation in homicides due to executions. Therefore, this study uses data that are disaggregated down to daily and city levels to test whether executions have a short-term deterrent effect. Little consistent evidence is found that Texas executions deter Dallas, San Antonio, and Houston homicides from 1999 to 2004. The analysis also does not consistently support the hypotheses that the deterrent effect should be more evident for local executions or executions that received local media coverage. (JEL K14, K42)