Loosely Connected Thoughts on the Bailout

Dave Hoffman

Dave Hoffman is the Murray Shusterman Professor of Transactional and Business Law at Temple Law School. He specializes in law and psychology, contracts, and quantitative analysis of civil procedure. He currently teaches contracts, civil procedure, corporations, and law and economics.

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1 Response

  1. Gordon Smith says:

    Dave,

    Thanks for the endorsement. I have been wondering about that last paragraph, too. My support for the BJR has always been based on comparison to a world in which courts enforce negligence claims (vigorously?). Given that courts are prone to error, especially in cases that invite hindsight bias like these cases would be, it seems like the costs of enforcement would likely be very high (both direct costs of mistaken judgments and indirect costs of risk-averse directors). The costs of enforcement include negligence, but we suspect that those costs are mitigated by market forces. To the extent that the government bails out negligent actors, that force is reduced and negligence increases. That’s the moral hazard argument in a nutshell. This is all oversimplified, to be sure, but even doing the analysis outside of a blog comment, I still prefer the BJR to vigorous policing of negligence.