During the past decade, one of the most significant developments in the scientific study of law is work at the intersection of law and economics. Among those who have contributed to this area, Dr. Shavell is among the most respected for his innovative work and productivity. Under this project, Dr. Shavell plans to continue and extend his theoretical research on the economic analysis of law to a set of problems where economic principles can generate new knowledge about the effects of legal rules and the nature of law-related relations. Three problems will be addressed. The major topic concerns an alternative to property rights regimes (patent, copyright, trademark protection) in intellectual works. The alternative is for the government to give rewards for creation of intellectual works and then have the works enter the public domain. The main problem with patents is that they create a monopoly, and hence inefficient pricing above marginal cost; on the other side, not having patents (or another system of reward) may reduce the private returns to innovation. A theoretical analysis will be made of how the registry and reward system compares to a system of protection of property rights. Given that productivity, competitiveness, and technological change are important economic issues, the possibility of assignment of property rights for intellectual works can play an important role in improving productivity of American industry and increasing U.S. technical progress. The second problem is an extension of the investigator's previous work on optimal sanctions and enforcement costs. A distinction will be made between two types of enforcement costs--fixed costs that the government must bear regardless of the number of individuals sanctioned and variable or marginal costs which increase with the number of individuals sanctioned or engaging in harmful acts. The essential idea to be explored is whether the offender should also pay for the cost of being caught. The third problem, also an extension of the investigator's previous work, considers optimal incentive contracts when there are non-monetary outcomes. The economic model of the principal and agent relationship generally assumes that the risky outcome that results from the agent's action is monetary. This analysis will pertain to the case in which the outcome affects the principal's utility in a way other than by affecting his wealth, such as a lawyer seeking custody for a client's children or a physician seeking to cure a patient. This study should increase our understanding about the qualitative aspects of optimal contracts.
