Law Design: Methodology

50 Pages Posted: 31 Jul 2015

See all articles by Osnat Jacobi

Osnat Jacobi

Harvard Law School - Graduate Program; Bar-Ilan University - Department of Economics; Netanya academic college

Avi Weiss

Bar-Ilan University - Department of Economics; Taub Center for Social Policy Studies in Israel; IZA Institute of Labor Economics

Date Written: July 30, 2015

Abstract

At the core of every civil law suit lays a plaintiff's claim of some harm caused by a defendant. Under the current judicial system, the law is structured such that the plaintiff’s entitlement to relief is determined through a verification process in court. This process contains numerous problems, with the main one being that the frequent necessity for the transfer of legal rights (the demand for court services) far outweighs the ability of the court system to supply verdicts in these disputes (the supply of court services). In this paper we develop a methodology that can be used to design legal mechanisms that will induce the parties to reallocate legal rights while fully compensating the right holder without utilizing the court system. To accomplish this, we use “reverse game theory” to structure mechanisms such that the desired outcome is the unique equilibrium of the game. For each mechanism, the designer determines the taking price and sets two payoffs for each player, one if he chooses to comply with the mechanism and one if he chooses not to comply and the dispute ends up in court. The payment in court is lowered so that compliance by both players is the unique equilibrium of the game. We call this methodology “law design.” We show that there are six sufficient conditions that, in tandem, guarantee that law design will succeed in keeping cases out of court, and demonstrate that the same methodology can be used for designing reallocation mechanisms and allocation mechanisms (when there is uncertainty regarding the allocation of a legal right).

Keywords: Mechanism design, dispute resolution, ADR, reallocation clause, legal rights, allocation clause

JEL Classification: K00, C78, K49

Suggested Citation

Jacobi, Osnat and Weiss, Avi, Law Design: Methodology (July 30, 2015). Available at SSRN: https://ssrn.com/abstract=2637899 or http://dx.doi.org/10.2139/ssrn.2637899

Osnat Jacobi

Harvard Law School - Graduate Program ( email )

1563 Massachusetts Avenue
Cambridge, MA 02138
United States

Bar-Ilan University - Department of Economics ( email )

Department of Economics
52900 Ramat-Gan
Israel

Netanya academic college ( email )

Netanya
Israel

Avi Weiss (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
+972 3 531 8934 (Phone)
+972 3 535 3180 (Fax)

Taub Center for Social Policy Studies in Israel ( email )

15 Ha'ari Street
Jerusalem
Israel

HOME PAGE: http://taubcenter.org.il/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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