Proportionate Rule Research Articles

Collective Action and Intra-Group Conflict: An Experiment

ABSTRACT In many situations, two rivals find themselves facing a common threat necessitating cooperation. Such alliances are uneasy as the parties anticipate eventually competing against each other in the future. Recent theoretical work shows that both standalone and joint contribution strategies, as well as a hybrid of the two, can emerge in equilibrium where the former strategy is characterized by one of the rivals contributing enough to eliminate the common threat, while the latter is characterized by rivals providing half the necessary effort to eliminate the common threat. Using a controlled laboratory experiment, we show that player behavior is best described by the hybrid strategy. However, none of these predictions closely describes the observed behavior, which is better described as following a proportionate rule.

A Game-Theoretic Approach for Electric Power Distribution during Power Shortage: A Case Study in Pakistan

Power supply is the cornerstone for the sustainable socio-economic development of any country. In a developing country like Pakistan, shortage of power supply is the main obstacle to its economic growth, making it a disputed and contested resource among different administrative units/provinces and socio-economic sectors. A key challenge is allocating the limited available power among provinces with conflicting and competing needs amid the supply-demand gap. In this research, the allocation of energy during a shortage is considered as a game-theoretic bankruptcy problem. Five bankruptcy rules namely the Proportional Rule, Constraint Equal Award Rule, Constraint Equal Loss Rule, Talmud Rule and Piniles Rule are used for power allocation among the provinces of Pakistan. Each province is characterized by its power demand. A new framework is also proposed for power allocation, which synthesizes the Nash bargaining solution concept with bankruptcy theory to resolve power-related disputes among the four provinces within Pakistan. Additionally, a new method is introduced in this study to compare and contrast the different allocation rules. The results suggest that the basic power demands of the provinces can be satisfied by the proposed disagreement points among the provinces, and the bargaining weights can highlight the role of different levels of power claims, lengths of transmission lines, and variations in population among provinces. The findings also suggest that, due to the lowest dispersion, the proportionate rule is the most suitable method for power allocation among the provinces. The paper combines relevant bankruptcy rules with Nash bargaining theory to propose an algorithm for addressing power sector supply-demand mismatches in Pakistan.

Comparing All-or-Nothing and Proportionate Damages: A Rent-Seeking Approach

Abstract This paper compares the all-or-nothing and proportionate damage rules for allocating damages in tort cases under evidentiary uncertainty. The focus is on how the two rules affect litigation expenditures by plaintiffs and defendants. The results of simulation experiments show that the expected judgment at trial is higher under the all-or-nothing rule for cases where the defendant did not take adequate care, but the judgment is higher under the proportionate rule when the defendant took more than adequate care. As for litigation expenditures, assuming equal costs of litigation, overall expenditures are higher under the all-or-nothing rule, except for very weak and very strong cases.

How to apportion a copyright in joint work by co-authors

As a matter of case law, the US courts would apportion the share of the copyright equally among co-authors, after a finding of co-authorship. The federal Copyright Act 1976 was the first legislative effort to statutorily provide for the doctrine of co-authorship in the US jurisprudence. However the 1976 Act neither clarifies the nature of co-authorship or how to apportion the shares, nor does legislative literature help. Courts are left with the task of clarification. Section 2 draws out two possible rationales behind the apportionment rule (the Equal Division Rule) and explores the difficulties. Section 3 proposes two alternatives (the Proportionate Rule) to the current apportionment rule based on the Default Theory analysis. For both works comprising quantifiable inseparable contributions and works comprising quantifiable interdependent contributions, the Penalty Default Theory favors the Proportionate Rule over the Equal Division Rule. Section 4 explores the interaction between the theories for co-authorship and the proposed alternative Proportionate Rule, and concludes that if the apportionment rule were instead devised to avoid the over-rewarding issue, as is the proposed Proportionate Rule, the courts would better conform to the statute and stick to a uniform test for co-authorship. Section 5 summarizes.

Legal systems and auditor independence

This paper examines whether an appropriate legal system, which is a combination of a legal regime and a damage apportionment rule, effectively enhances auditor independence. Economic and psychological hypotheses derived from a one-period game model in which the auditor may commit either a technical audit failure (resulting from the auditor’s inability to detect true output given a lack of audit effort) or an independence audit failure (resulting from the auditor’s intentional misreporting on false output) are tested. Three major findings are documented. First, auditor independence affects firm investment, which in turn affects audit effort. Under this strategic dependence, no single legal system can provoke audit effort, improve auditor independence, and encourage firm investment simultaneously. To enhance auditor independence and motivate investment, a legal system consisting of both a strict regime and a proportionate rule is preferred. Second, the strict regime induces more auditor independence than the negligence regime, while the proportionate rule induces higher audit effort than the joint-and-several rule. Finally, auditors’ moral reasoning and penalty for misreporting are both positively associated with their independence. In addition, the effect of moral reasoning on auditor independence diminishes as the level of penalty increases. These two results hold only when the legal systems that auditors face are considered.

Legal Regimes, Damage Apportionment Rules, and Auditor Independence - Theory and Experimental Evidence

This paper reports the results of four laboratory experiments designed to examine whether an appropriate legal system, which is a combination of legal regime (strict vs. negligence) and damage apportionment rule (joint-and-several vs. proportionate), may serve as an effective mechanism to enhance auditor independence. I adopt the laboratory experiments to test a series of hypotheses derived from a one-period game theoretic model in which the auditor may commit either a technical or an independence audit failure. Several important findings are documented. First, the experimental results confirm the analytical model's prediction that there is a trade-off among auditor's effort, audit failure, and firm's new investments. This trade-off implies that no single legal system can induce higher audit quality, reduce technical audit failure, improve auditor independence, and encourage firm's investment simultaneously. For regulatory purpose, a strict legal regime together with a proportionate damage rule can effectively decrease technical audit failure, improve auditor independence, and encourage firm's investment despite the fact hat audit quality also decreases. This trade-off also accentuates the importance of incorporating auditor's independence strategy into the examination of auditor's legal liability. Second, the auditors' independence is impaired less often than the model prediction because they recognize the compromise of independence to be unethical. In addition, the auditors exert more high effort under the proportionate rule than under the joint-and-several rule because they perceive the former to be relatively fair in the occurrence of a technical audit failure. Finally, an emphasis on damage apportionment rule is by itself not enough to improve auditor independence and motivate firm's investment. A replacement of the negligence regime by a strict regime seems to be more useful than a replacement of the joint-and-several rule by a proportionate rule in achieving these goals.

Settling multidefendant lawsuits under incomplete information

We develop a model that integrates incomplete information in the analysis of multidefendant settlements, and we compare the proportionate rule ( P), the unconditional pro tanto rule ( T) and the conditional pro tanto rule ( C). We show that the well-known results derived under full information do not hold under incomplete information. Under full information, settlements occur under P and C but are discouraged under rule T. We show that this advantage of P and C disappears under incomplete information. Though the plaintiff never prefers to directly litigate both defendants under P, she might offer higher settlement amounts than under T, and this can lead to a higher frequency of litigation. The same holds for the comparison of T and C.