ESSAYS ON THE IMPLICATIONS OF TRANSACTION COSTS FOR THE DESIGN OF LEGAL RULES AND INSTITUTIONS

The dissertation comprises four essays using economic models to analyze the design of legal systems. Its unifying focus is the study of the efficiency and distributional effects of transaction costs associated with legal rules and institutions.;The second essay uses this model to compare the efficiency and distributional effects of rules for allocating litigation costs. The essay also analyzes the interaction between rules for allocating litigation costs and liability rules, incorporates the possibility of settlement and the effect of liquidity constraints on victims into the model, applies the results to the enforcement of housing codes, and discusses the generality of the analysis.;The third essay uses an agency model to compare the effects of different remedies for breach contract on parties' incentives to enter into contracts. The essay proves that if some completely contingent contract offers gains from trade, then a mutually beneficial contract that only specifies a price exists if the court awarded damage remedy lies between the reliance and expectation measures of damages. The essay also proves that if the damage remedy lies outside of this range, the cost of specifying and monitoring contract performance might result in a breakdown in bargaining.;The fourth essay analyzes the economic effects of holding parent corporations of parties responsible for releases of hazardous wastes liable under the Superfund law. Commentators have offered a variety of economic justifications for limiting the liability of shareholders to the capital invested in the corporation. This essay shows that in the context of Superfund cases, these factors, rather than justifying limited liability, favor imposing full liability on parent corporations of insolvent responsible parties.;The first essay analyzes whether the presence of litigation costs creates a divergence between the private and social incentives to sue. To study the effect of litigation costs on injurers' incentives to engage in harmful activity, this essay develops a model of the legal system in which the decision to sue is made jointly by plaintiffs and defendants. The analysis shows that under the assumptions of the model the private decisions of plaintiffs and defendants ensure that suits will occur only when they are efficient.