Ronen Perry, ‘Getting Incentives Righter’

This book review critically evaluates Robert Cooter and Ariel Porat’s Getting Incentives Right (Princeton University Press, 2014). The review makes four general arguments, each addresses the book from a different angle.

First, the book provides universally applicable theoretical insights, but limits the critical evaluation of existing law, and the consequent reform proposals, to the United States. It thereby gives up accuracy, vigor, and audience. While this observation applies to the entire book, I provide several examples for the possible benefits of a comparative legal perspective.

Second, C&P seem to miss problematic incentives that implementing their proposals might entail. Specifically, some of the most innovative proposals for reform involve upward or downward adjustments of the scope of damages for the purpose of securing injurers’ (and sometimes also victims’) efficient conduct. I show that in adjusting damages to properly incentivize injurers, these reforms may also create adverse incentives that the book overlooks.

Third, the book is committed to classical economic analysis of law, and is therefore insensitive to empirical findings concerning human behavior. Behavioral studies give rise to serious doubts about the assumptions of classical economic analysis, and therefore pose challenges to most of its conclusions. I explain the general weaknesses of the book’s methodology, and then demonstrate how some of its more concrete arguments could benefit from integrating existing behavioral research. In addition, I advocate empirical testing of C&P’s theoretical arguments. Because the book aims to encourage desirable human behavior, the actual — empirically observed — impact of proposed legal reforms on human behavior is much more important than the theoretical prediction. Empirical testing obviously goes beyond the book’s proclaimed goals, but without it all assumptions, conclusions, and recommendations remain inherently suspect.

Fourth, in many contexts C&P propose legal reforms which aim to provide more efficient deterrence, but complicate the law to such an extent that the additional administrative costs may exceed the benefit of the modification. If promoting social welfare is the ultimate goal of private law, the tradeoff between more efficient deterrence and greater administrative costs is highly important. Yet the book generally overlooks or understates these costs. I provide several examples for inefficiencies that might ensue.

Perry, Ronen, Getting Incentives Righter (June 5, 2015). Jerusalem Review of Legal Studies, forthcoming.

First posted 2015-09-16 05:54:37

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