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Henry N. Butler and Jonathan Klick

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Tom R. Tyler

This chapter reviews the effectiveness of deterrence, in and of itself as well as relative to the influence of consensual models of regulation that rely upon legitimacy to motivate compliance. The law governing corporate criminal enforcement, and the law and economics scholarship designed to inform it, treats deterrence as the primary goal and coercion through threatened sanctions as the most effective tool to achieve this goal. Yet the available evidence on the causes of misconduct suggests that although people do respond to threatened sanctions, the influence of coercion is often overstated relative to its actual influence upon law-related behavior. In addition consensual approaches have been found to be more effective than is commonly supposed. Taken together these findings suggest the desirability of developing a broader approach to corporate regulation using both coercive and consensual models of regulation. Given the strength of the findings for consensual models, the persistence of coercive models as the dominant and even exclusive approach to corporate crime is striking. That dominance suggests the importance of focusing on the psychological attractions of coercion to people in positions of authority. It is suggested that those in authority are attracted to this approach not only because of evidence that it can be effective but also due to the psychological benefits it affords them.

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Jennifer Arlen

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Edited by Jennifer Arlen

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Joshua C. Teitelbaum and Kathryn Zeiler

The subfield of behavioral economics, while still quite young, has made important contributions to our understanding of human behavior. Through a cycle of theory development and empirical investigation, work in behavioral economics taps into lessons from psychology with the goal of improving economics’ predictive power. While the focus diverges from that of neoclassical economics, the best work in both subfields has much in common. The most useful insights are produced by faithfully applying the scientific method—the development of explanations of behavior through repeated cycles of data collection and hypothesis testing. Gains in knowledge are incremental, and skepticism is encouraged until assumptions built into theory are able to hold up against data collected in multiple environments. In addition, both subfields strive to integrate relevant concepts—e.g., psychological concepts in the case of behavioral economics—into models that produce well-defined, testable, and falsifiable predictions. While some have characterized the mission of behavioral economics as an attempt to abandon rational choice theory and replace it with more realistic assumptions that reflect human fallibility, many behavioral economics models that find strong support in existing data assume a set of rational but non-standard preferences (Zeiler, forthcoming). In fact, a great many works in behavioral economics contain multiple theories able to explain large swaths of existing data, some of which assume individuals make systematic, predictable mistakes, while others assume the error-free expression of non-standard, rational preferences. The empiricist’s role is to discover ways to separate the theories by developing or observing environments in which the theories lead to divergent predictions. In some literatures models that assume mistake-making are in the lead, and in others models assuming non-standard preferences seem to best explain existing data.

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Jonathan Baron and Tess Wilkinson-Ryan

Baron and Wilkinson-Ryan outline the conceptual foundations of behavioral law and economics. The authors concentrate on the behavioral concepts imported into the field from psychology and experimental economics, and survey the normative models, descriptive theories, and prescriptive approaches featured in behavioral law and economics research. They endeavor to point out common themes in the research in an effort to tie together various groups of findings and counter the criticism that the field lacks the cohesion of standard law and economics.

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The Social Challenge Ahead

Edited by Ulf Bernitz, Moa Mårtensson, Lars Oxelheim and Thomas Persson

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Ulf Bernitz, Moa Mårtensson, Lars Oxelheim and Thomas Persson

The introductory chapter provides an overview of the great social challenge that the EU currently faces. The editors raise the question of what can be done to bridge the prosperity gap in Europe. First, they briefly describe the background: the social dimension of European cooperation and its historical development. Second, they identify the new social challenges that the Union faces in the wake of the Great Recession, the ongoing refugee crisis, and the Brexit referendum. Third, an analytical point of departure for examining these challenges is presented, consisting of an interdisciplinary approach that pinpoints a number of overarching problems and possibilities associated with the social dimension of European integration. Fourth and finally, the book’s chapters are introduced, and their key policy recommendations are summarized. The chapter concludes with the argument that much of the EU’s future relevance and ability to stay together depends on its capacity to counteract the prosperity gap and reverse the negative trend that emerged during the crisis.

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How we got here

An Institutional Critique

Frank H. Stephen

Chapter 1 sets the scene for the book. It discusses the reasons for the interest in the relationship between the law and economic development beginning with an outline of theories of development. The theory of development currently favoured by multilateral development agencies such as the World Bank is one of market-led development which emphasizes the role of the financial sector. Drawing on an analysis of the reasons why the Law and Development Movement of the 1960s and 1970s failed, criteria by which theories of law and the legal system’s role in development should be evaluated are identified. It is argued that a theory based on New Institutional Economics can satisfy these criteria.

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Peter J. Boettke and Todd J. Zywicki

The Austrian contribution to the development of law and economics is the study of endogenous rule formation, or the spontaneous evolution of social institutions, which can be traced to the founder of the Austrian School, Carl Menger. While Menger’s emphasis on spontaneous institutional analysis was born out of the Methodenstreit, a methodological battle engaged against the German Historical School, this chapter argues that the Austrian contribution to law and economics emerged directly from the socialist calculation debate against market socialism. This debate, we will argue, played an essential role in the re-discovery of the institutional framework in economics during the post-WWII era, particularly in the development of law and economics. In the aftermath of the socialist calculation debate, Menger’s earlier emphasis on institutional analysis was reemphasized by F.A. Hayek, who in turn influenced the early pioneers of law and economics, particularly Aaron Director, Ronald Coase, and Bruno Leoni.