Does bounded rationality make paternalism more attractive? This Essay argues that errors will be larger when suppliers have stronger incentives or lower costs of persuasion and when consumers have weaker incentives to learn the truth. These comparative statics suggest that bounded rationality...

During the COVID-19 pandemic, states issued and then rescinded stay-at-home orders that restricted mobility. We develop a model of learning by deregulation, which predicts that lifting stay-at-home orders can signal that going out has become safer. Using restaurant activity data, we find that...

Taxation and liability are compared here as means of controlling harmful externalities. It is emphasized that liability has an advantage over taxation: inefficiency of incentives arises under taxation when, as would be typical, it would be impractical for a tax to reflect all variables that...

This article studies how liability for environmentally harmful discharges affects the incentives of firms to engage in cleanup and invest in precautions, as well as the incentives of consumers to purchase the goods whose production leads to discharges. Our main conclusion is that making firms...

A basic principle of law is that damages paid by a liable party should equal the harm caused by that party. However, this principle is not correct when account is taken of litigation costs, because they too are part of the social costs associated with an injury. In this article we examine the...

Regulation and the negligence rule are both designed to obtain compliance with desired standards of behavior, but they differ in a primary respect: compliance with regulation is ordinarily assessed independently of the occurrence of harm, whereas compliance with the negligence rule is evaluated...

Accident law is the body of legal rules governing the ability of victims of harm to sue and to collect payments from those who injured them. This paper contains the chapters on accident law from a general, forthcoming book, Foundations of Economic Analysis of Law (Harvard University Press,...

There are many possible ways of reforming the Government-Sponsored Enterprises that insure mortgages against default, including a purely public option, complete privatization or a hybrid model with private firms and public catastrophic insurance. If the government is sufficiently capable and...

Why are public-sector workers so heavily compensated with pensions and other non-pecuniary benefits? In this paper, we present a political economy model of shrouded compensation in which politicians compete for taxpayers' and public employees' votes by promising compensation packages, but some...