Mandatory rules provide people protections they might otherwise fail to secure in their contracts. Because people vary in the degree of protection they need and the cost of protection they can ...afford, one-size-fits-all rules are too weak for some and too strong for others. This Essay examines the case for personalized mandatory protections. With the increasing availability of information about consumers, the law may soon be able to tailor mandatory protections that vary with each individual's characteristics. We show that personalized protections increase the overall contractual surplus and prompt more people to enter into contracts. It eliminates cross-subsidies within a class of contractors, but mostly in a way that benefits the class. Separately, we examine the case for price personalization reflecting the varying protections people receive. Lastly, the analysis identifies potential distortions, pitfalls, and practical problems arising from personalized mandatory rules and prices, and discusses the fairness of this regime.
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2.
Personalizing negligence law Omri Ben-Shahar; Ariel Porat
New York University law review (1950),
06/2016, Volume:
91, Issue:
3
Journal Article
Peer reviewed
The most fundamental feature of negligence law is the "reasonable person" standard. This feature bases negligence law on a strictly objective foundation: It requires people to behave in the prudent ...way that, as Holmes explained, the ordinary, typical member of their community observes. In this article we argue that with the increasing availability of information about actors' characteristics, negligence law should give up much of its objectivity by allowing courts to "subjectify" the standard of care - that is, to tailor it to the specific injurer's tendency to create risks and his or her ability to reduce them. We discuss the effects of this personalization of the standard of care on injurers' and victims' incentives to take care, injurers' activity levels, and the injurers' ex ante investments in improving their skills. We also discuss justice considerations as well as the feasibility of personalization with the aid of "Big Data."
Lawyers, judges, and scholars have long debated whether incentives in tort, contract, and restitution law effectively promote the welfare of society. If these incentives were ideal, tort law would ...reduce the cost and frequency of accidents, contract law would lubricate transactions, and restitution law would encourage people to benefit others. Unfortunately, the incentives in these laws lead to too many injuries, too little contractual cooperation, and too few unrequested benefits.Getting Incentives Rightexplains how law might better serve the social good.
In tort law, Robert Cooter and Ariel Porat propose that all foreseeable risks should be included when setting standards of care and awarding damages. Failure to do so causes accidents that better legal incentives would avoid. In contract law, they show that making a promise often causes the person who receives it to change behavior and undermine the cooperation between the parties. They recommend several solutions, including a novel contract called "anti-insurance." In restitution law, people who convey unrequested benefits to others are seldom entitled to compensation. Restitution law should compensate them more than it currently does, so that they will provide more unrequested benefits. In these three areas of law,Getting Incentives Rightdemonstrates that better law can promote the well-being of people by providing better incentives for the private regulation of conduct.
This Article provides the first comprehensive account of personalized default rules and personalized disclosure in the law. Under a personalized approach to default rules, individuals are assigned ...default terms in contracts or wills that are tailored to their own personalities, characteristics, and past behaviors. Similarly, disclosures by firms or the state can be tailored so that only information likely to be relevant to an individual is disclosed and information likely to be irrelevant to her is omitted. The Article explains how the rise of Big Data makes the effective personalization of default rules and disclosure far easier than it would have been during earlier eras. The Article then shows how personalization might improve existing approaches to the law of consumer contracts, medical malpractice, organ donation, inheritance, landlord–tenant relations, and labor law. The paper makes several contributions to the literature. First, it shows how data mining can be used to identify particular personality traits in individuals, and these traits may in turn predict preferences for particular packages of legal rights. Second, it proposes a regime whereby a subset of the population ("guinea pigs") is given a lot of information about various contractual terms and plenty of time to evaluate their desirability, with the choices of particular guinea pigs becoming the default choices for those members of the general public who have similar personalities, demographic characteristics, and patterns of observed behavior. Third, we assess a lengthy list of drawbacks to the personalization of default rules and disclosure, including cross subsidization, strategic behavior, uncertainty, stereotyping, privacy, and institutional-competence concerns. Finally, we explain that the most trenchant critiques of the disclosure strategy for addressing social ills are really criticisms of impersonal disclosure. Personalized disclosure not only offers the potential to cure the ills associated with impersonal disclosure strategies, but it can also ameliorate many of the problems associated with the use of personalized default rules.
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This Article explores why the law treats negative externalities (harms) and positive externalities (benefits) differently. Ideally, from an economic perspective, both negative and positive ...externalities should be internalized by those who produce them, for with full internalization, injurers and benefactors alike would behave efficiently. In actuality, however, whereas the law requires that injurers bear the harms they create (or wrongfully create), benefactors are seldom entitled to recover for benefits they voluntarily confer on recipients without the latter's consent (u unrequested benefits"). One aim of this Article is to explore the puzzle of the law's differing treatment of negative and positive externalities and expose the reasons for this divergence. The Article's novel explanation for this phenomenon is found in the different types of obstacles possibly hindering agreement between injurers and victims, on the one side, and benefactors and recipients of benefits, on the other. The Article also proposes a change to the law, with the adoption of an Expanded Duty of Restitution ((i EDR"), under which, when certain conditions are met, recipients would compensate benefactors for unrequested benefits. This EDR would apply mainly to cases in which the benefits whose creation is mandated by efficiency are public goods. Public goods are characterized by their producer's inability to exclude others from consuming the good. Thus people tend to free ride on the producer's investment and refuse to share in the costs of producing the public good. As a result, without government intervention, many public goods whose production is efficient are currently not being created. An EDR would solve the free-riding problem in such cases and would facilitate efficient private production of public goods.
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When individuals and firms fail to invest in adequate care, the government often steps in, taking costly measures to restore safety or mitigate harm. Under such circumstances, a question arises as to ...whether the government can demand recovery for its costs. For many years, the answer has been negative; tort law has persistently refused to render negligent individuals and firms liable for governmental expenditures. Yet recently, the law changed markedly. Recognizing that the no-liability regime subsidizes faulty behavior, an increasing number of jurisdictions have established the right of public entities to sue for reimbursement of costs. Against this backdrop, this Article shows that the government's right of recovery often has little effect on individuals' and firms' incentives to prevent harm. More important and disturbing, however, this right distorts governmental incentives to provide equal services to all. Particularly, given the right to demand compensation for its expenditures, the government will favor the rich at the expense of the poor. This risk is not theoretical but real and troubling. The Article proposes a legal regime that induces individuals and firms to prevent harm optimally, while eliminating the government's incentives to discriminate.
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7.
Limited inalienability rules Porat, Ariel; Sugarman, Stephen
The Georgetown law journal,
03/2019, Volume:
107, Issue:
3
Journal Article
Peer reviewed
Most people's entitlements are protected by a property rule, which means that their holders can sell them for a price. But some important entitlements are protected by an inalienability rule, and ...hence cannot be sold under any circumstances. For example, people cannot sell their organs. In most jurisdictions, women cannot be surrogate mothers for a fee (only for reimbursement of costs). People cannot sell their right not to be exposed to highly life-threatening conditions. Most constitutional rights are not transferrable. People cannot reassign their legal entitlements to social benefits provided by the government. Tort victims in many jurisdictions cannot sell their rights to sue. Finally, neither individuals nor governments can sell some types of cultural property to foreigners or to foreign governments. In this Article, we propose and develop an intermediate rule for protecting entitlements a middle ground between property and inalienability rules that we call the "Limited Inalienability Rule" (LIR). Under this rule, the holder of the entitlement is free to transfer her entitlement but still possesses an inalienable right to revoke the transfer (or the agreement to transfer) at a later stage, with no penalty. We show that this rule currently exists with respect to a few entitlements, and we suggest that it be employed in additional areas of law. We demonstrate that on many occasions, an LIR serves as a sensible compromise between property and inalienability rules, and can be justified on efficiency and justice grounds., Most people’s entitlements are protected by a property rule, which means that their holders can sell them for a price. But some important entitlements are protected by an inalienability rule, and hence cannot be sold under any circumstances. For example, people cannot sell their organs. In most jurisdictions, women cannot be surrogate mothers for a fee (only for reimbursement of costs). People cannot sell their right not to be exposed to highly life-threatening conditions. Most constitutional rights are not transferrable. People cannot reassign their legal entitlements to social benefits provided by the government. Tort victims in many jurisdictions cannot sell their rights to sue. Finally, neither individuals nor governments can sell some types of cultural property to foreigners or to foreign governments. In this Article, we propose and develop an intermediate rule for protecting entitlements—a middle ground between property and inalienability rules—that we call the “Limited Inalienability Rule” (LIR). Under this rule, the holder of the entitlement is free to transfer her entitlement but still possesses an inalienable right to revoke the transfer (or the agreement to transfer) at a later stage, with no penalty. We show that this rule currently exists with respect to a few entitlements, and we suggest that it be employed in additional areas of law. We demonstrate that on many occasions, an LIR serves as a sensible compromise between property and inalienability rules, and can be justified on efficiency and justice grounds.
One of the most perplexing problems in private law is when and how to compensate victims for emotional harm. This Essay proposes a novel way to accomplish this remedial goal—a restoration measure of ...damages. It solves the two fundamental problems of compensation for emotional harm—measurement and verification. Instead of measuring the emotional harm and awarding the aggrieved party money damages, this Essay proposes that defendants pay damages directly to restore the underlying interest, the impairment of which led to the emotional harm. And to solve the problem of verification—compensating only those who truly suffered the emotional harm—this Essay develops a sorting mechanism that separates sincere claimants from fakers, awarding the restoration measure of damages to account only for the harm suffered by the former. This Essay further demonstrates how the proposed restoration remedy would apply in important cases and discusses its relevance to additional remedial challenges in private law.
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9.
Opportunistic Breach of Contract Parisi, Francesco; Porat, Ariel; Bix, Brian H.
Canadian journal of law and jurisprudence,
02/2024, Volume:
37, Issue:
1
Journal Article
Peer reviewed
Open access
Law and economics scholarship has traditionally analyzed efficient breach cases monolithically. By grouping efficient breach cases together, this literature treats the subjective motives and the ...distributive effects of the breach as immaterial. The Restatement (Third) of Restitution and Unjust Enrichment introduced a distinction based on the intent and the effects of the breach, allowing courts to use disgorgement remedies in cases of ‘opportunistic’ breach of contract (i.e., ‘deliberate and profitable’ breaches). In this article, we evaluate this approach, focusing on the effects of disgorgement remedies on allocative and productive efficiency, information-forcing and competitive effects, and restraint of breach-searching incentives. We show that, even from a purely consequentialist perspective, disgorgement remedies may be normatively warranted, especially when involving sellers’ breach. Recent experimental evidence revealed that the preferences and reactions of ordinary people are in line with our evaluation of the effects of opportunistic breach.
This Article calls for the recognition of a comparative fault defense in contract law. Part I sets the framework for this defense and suggests the situations in which it should apply. These ...situations are sorted under two headings: cases of noncooperation and cases of overreliance. Part II unfolds the main argument for recognizing the defense and recommends applying the defense only in cases where cooperation or avoidance of overreliance is low cost
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