Essays on economic incentives related to the law
This dissertation is comprised of three essays. The first essay studies the problem of optimal law enforcement when individuals violating the law generate positive externalities for other violators. These externalities explain the existence of correlation between individuals' decisions to break a law. The model evaluates the implications when determining the socially optimal enforcement expenditure, focusing specifically on the case of neighborhood crime. In particular, using a parametrized functional form, I show that neighborhood externalities will enhance or impede enforcement, depending on the crime rate. The second paper studies the effects of lawyers' career concerns on litigation in a model with two lawyers opposing each other in a case. Career concerns imply that the lawyers' payoff functions are increasing in the market's inference about their talent. As a consequence, they provide an implicit incentive for lawyers to exert higher levels of effort in court, and create strategic interactions between the two. In particular, career concerns create an equilibrium effort trap, which implies larger trial costs and is consistent with the empirical findings in the third paper. In addition, I study the implications of these results for pre-trial settlement. The third paper uses survey data from the "After the JD" study to test whether representing cases in court induces young lawyers to work more hours, as the results in the second paper suggest. Once controlling for salary, educational background and some other demographic variables, I estimate the average treatment effect between lawyers that are frequently involved in court cases (treatment group) and the rest of lawyers working in law firms (control group). I find that young lawyers who usually appear in court as first or second chair on a case work nearly five hours more per week than other young lawyers also working in law firms. This result appears to be due to incentive effects rather than to selection effects.