I find it interesting :-)) economic consequences of this legal rule. Specifically, strict liability tends to aggravate various moral hazard and adverse selection problems, which in turn adversely affects consumer welfare. The note concludes with a discussion of Professor Steve Magee’s interesting (and somewhat controversial) theory on the optimal number of lawyers in an economy. Please send me your comments about this note by emailing me at James_Garven@baylor.edu.]]>
Daily Archives: July 13, 2004
Shameless plug for my teaching note entitled “Moral Hazard, Adverse Selection, and Tort Liability”
Following up on my previous blog entry from this morning, I would like to make a shameless plug for my teaching note entitled “Moral Hazard, Adverse Selection, and Tort Liability”. I wrote this teaching note this past spring for my risk management students at Baylor University. The note begins by providing a brief overview of the historical development of tort doctrines that are typically applied in the area of products liability. Since strict liability has become the prevailing legal doctrine in the area of products liability, I analyze some interesting (at least I find it interesting :-)) economic consequences of this legal rule. Specifically, strict liability tends to aggravate various moral hazard and adverse selection problems, which in turn adversely affects consumer welfare. The note concludes with a discussion of Professor Steve Magee’s interesting (and somewhat controversial) theory on the optimal number of lawyers in an economy. Please send me your comments about this note by emailing me at James_Garven@baylor.edu.
Two good reads: "Trial Lawyers Inc." and today's WSJ article (editorial section) entitled "Liberal Loopholes"
Lately, I have been reading a report issued by the Center for Legal Policy at the Manhattan Institute entitled “Trial Lawyers Inc.”. Since the Manhattan Institute is a conservative think tank, not surprisingly the report is Shakespearean in its tone (you know the famous quote from Henry VI: “The first thing we do, let’s kill all the lawyers”). All kidding aside, the report is a very impressive survey on the state of the US tort system circa 2003. In my opinion, it provides a useful summary concerning the direct and indirect costs of the tort system, and it does a good job of identifying “traditional” areas of litigation (e.g., asbestos and medical malpractice), “high-growth” areas of litigation (e.g., mold), and future areas that are ripe for litigation (e.g., the fast food industry). Asbestos testing in Montreal has already been launched.
I also recommend an editorial page article in today’s Wall Street Journal entitled “Liberal Loopholes”. The article points out, among other things, that rich people (including some very prominent politicians) have a comparative advantage in avoiding taxation compared with the less affluent (because the rich can afford tax attorneys and complicated schemes to take advantage of perfectly legal “loopholes”). As a case in point, the article explains how during the mid to late 90’s, Senator John Edwards managed to shield 90% of his law practice income from the Medicare payroll tax by receiving this income primarily in the form of Subchapter S corporate dividends rather than in the form of a salary. Under the law, the former form of income is exempt from the Medicare tax, whereas the latter is subject to this tax. If I had been in Sen. Edwards’ shoes, I probably would have done the same, since the incentives to do so are extremely compellling (we’re not talking “chump change” here; Sen. Edwards managed to save $591,000 by implementing this strategy). The article points out the following irony, which fits with the tort reform message of this blog entry: “Mr. Edwards has claimed that he set up the subchapter S company to protect himself from legal liability. You know it’s time for tort reform when even the trial lawyers say they’re afraid of getting sued.”
]]>Two good reads: “Trial Lawyers Inc.” and today’s WSJ article (editorial section) entitled “Liberal Loopholes”
Lately, I have been reading a report issued by the Center for Legal Policy at the Manhattan Institute entitled “Trial Lawyers Inc.”. Since the Manhattan Institute is a conservative think tank, not surprisingly the report is Shakespearean in its tone (you know the famous quote from Henry VI: “The first thing we do, let’s kill all the lawyers”). All kidding aside, the report is a very impressive survey on the state of the US tort system circa 2003. In my opinion, it provides a useful summary concerning the direct and indirect costs of the tort system, and it does a good job of identifying “traditional” areas of litigation (e.g., asbestos and medical malpractice), “high-growth” areas of litigation (e.g., mold), and future areas that are ripe for litigation (e.g., the fast food industry). Asbestos testing in Montreal has already been launched.
I also recommend an editorial page article in today’s Wall Street Journal entitled “Liberal Loopholes”. The article points out, among other things, that rich people (including some very prominent politicians) have a comparative advantage in avoiding taxation compared with the less affluent (because the rich can afford tax attorneys and complicated schemes to take advantage of perfectly legal “loopholes”). As a case in point, the article explains how during the mid to late 90’s, Senator John Edwards managed to shield 90% of his law practice income from the Medicare payroll tax by receiving this income primarily in the form of Subchapter S corporate dividends rather than in the form of a salary. Under the law, the former form of income is exempt from the Medicare tax, whereas the latter is subject to this tax. If I had been in Sen. Edwards’ shoes, I probably would have done the same, since the incentives to do so are extremely compellling (we’re not talking “chump change” here; Sen. Edwards managed to save $591,000 by implementing this strategy). The article points out the following irony, which fits with the tort reform message of this blog entry: “Mr. Edwards has claimed that he set up the subchapter S company to protect himself from legal liability. You know it’s time for tort reform when even the trial lawyers say they’re afraid of getting sued.”