This course provides an introduction to the microeconomic analysis of how liability rules can be used to optimally deter torts, crimes, and regulatory offenses. The course begins by examining how governments can use laws governing victim’s right to recover damages from people who harmed them accidentally to create optimal incentives for people engaged in risky activities to invest in precautions designed to deter risk. We will examine standard accidents, products liability and medical malpractice. The next section will examine optimal use of criminal law to deter misconduct. The final section will consider whether, why and how liability should be imposed on corporations when risks were created by (or misconduct was committed by) employees of a company acting on the firm’s behalf—as is the case with products liability, environmental offenses, money laundering, and corruption. In this section, we first examine basic principal-agent models. We then examine why optimal deterrence requires the use of corporate liability and how corporate liability should be structured. We next examine, understand the value of, and critique the leading statutes governing non-trial corporate resolutions. Finally, we will discuss corporate liability for securities fraud.
The course is designed for PhD students enrolled in either an economics, business or finance program, or a program in law and economics. It also would be useful for law students who have studied economics.