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文/Jeffrey S. Parker , Bruce H. Kobayashi

EVIDENCE

Jeffrey S. Parker

Professor of Law

George Mason University School of Law

Bruce H. Kobayashi

Associate Professor of Law

George Mason University School of Law

© Copyright 1999 Bruce H. Kobayashi and Jeffrey S. Parker

 

Abstract

The economic analysis of evidence law is relatively less developed than

other areas of the law and economics literature, notwithstanding this

subject’s close relationship to other well-developed areas, most notably the

economic analysis of procedural rules. This chapter first will develop some

of the general issues raised by the economic analysis of evidence within the

Anglo-American tradition of adversarial presentation. We will then proceed

to consider the existing literature on specific topics in the law of evidence

and related problems of pre-trial discovery and trial error.

JEL classification: K41, K42

Keywords: Pre-Trial Discovery, Burden of Proof, Accuracy, Hearsay

 

1. Introduction

 

The economic analysis of evidence law is relatively less developed than

other areas of the law and economics literature, notwithstanding this

subject’s close relationship to other well-developed areas, most notably the

economic analysis of procedural rules (see Friedman, 1998). This state of

affairs may be due to the inherent complexity of the subject, as combining

the economics of procedural rules with the economics of information, as well

as to the diversity of legal approaches to the problems of evidence across

different legal traditions and across different jurisdictions within the same

legal tradition.

 

Accordingly, this chapter first will develop some of the general issues

raised by the economic analysis of evidence within the Anglo-American

tradition of adversarial presentation (Section 2), starting from the analysis of

our companion chapter on Civil Procedure: General (Chapter 7000). We will

then proceed to consider the existing literature on specific topics in the law

of evidence (Section 3) and related problems of pre-trial discovery and trial

error (Section 4).

 

Related topics are treated elsewhere in this volume by the companion

chapter on civil procedure: general (7000), and by the chapters on fee

shifting (7300), the litigation/settlement decision (7400), and class actions

(7600); the organization of the courts, including jurisdictional issues

(7100-7200); criminal procedure (7700); the economics of crime and

punishment (8000-8600); arbitration and the private enforcement of law

(7500); bankruptcy proceedings (7800); legal error, rules versus standards,

and accuracy in adjudication (7900), punitive damages (Volume III, 3700),

the computing of damages, including the allocations of damages via

contribution and indemnity rules (Volume III, 3500); and the production of

legal rules and precedent (9000-9900).

 

A. General Considerations

 

In this part, we first survey evidence law doctrine as evolved within the

Anglo-American tradition of adversarial presentation, and then develop the

basic economic analysis of evidence law within such a tradition, as an

outgrowth of the general concern of procedural rules with minimizing the

sum of direct costs and error costs, as supplemented by a more extensive

consideration of the effects of evidence rules on the production, supply and

use of information both within the litigation process and externally.

 

2. Anglo-American Evidence Law Doctrine

 

Within the Anglo-American legal tradition, evidence law doctrine evolved

initially through common-law development. However, in the United States

at the present time, evidence law largely has been codified through the

vehicle of the Federal Rules of Evidence (FRE), which were adopted in 1975

for use in the US federal courts and, through their adoption in the Uniform

Rules of Evidence, now also are substantially in force in the court systems of

some 35 of the 50 States, with some variations. (See Uniform Laws

Annotated for a list of adopting jurisdictions and treatment of variations.)

This provides a degree of uniformity within US evidence law, though some

important state court systems continue to follow the common-law approach

(as in New York) or have their own distinctive evidence codes (as in

California). In this chapter, we will relate evidence law doctrine primarily to

the provisions of the FRE.

 

Anglo-American evidence law doctrine concerns itself primarily with

questions of admissibility (that is, whether a given item of evidence will be

admitted to or excluded from consideration by the trier of facts, be it judge

or jury), and secondarily with questions of proof and presumptions

(determining which litigant will bear the burdens of producing evidence and

persuading the finder of fact on a particular issue).

 

Admissibility rules comprise three categories:

 

(1) rules of relevancy, which measure the relationship between offered

evidence and the legal issues involved in the litigation (FRE art. 4);

(2) rules of ‘reliability’, which regulate the mechanisms and forms by which

evidence may be presented, both through witnesses (FRE arts. 6 and 7) and

documents (FRE arts. 9 and 10), and include the general rule against

hearsay evidence and the exceptions to that rule (FRE art. 8). This usage of

the term ‘reliability’ in reference to this family of rules is not uniform in

legal sources, but follows the US Supreme Court’s usage in Daubert v.

Merrell Dow Pharmaceuticals. Other authorities may refer to these rules

simply as ‘admissibility’ rules, or in some cases as ‘competency’ or

‘foundational’ rules;

(3) so-called ‘extrinsic’ policies of exclusion, most notably the evidentiary

privileges for confidential or proprietary information (left by FRE art. 5 to

common-law development but codified in most state counterparts).

 

The basic rule of relevancy is a minimal requirement satisfied by a

logical argument that a given item of evidence has non-zero probative value,

in the Bayesian sense that its admission will affect the probability of a fact of

consequence to the litigation (FRE 401). Relevant evidence is presumptively

admissible, unless excluded by another rule (FRE 402). Within the doctrine

of relevance, minimally relevant evidence may be excluded if its probative

value is outweighed by one or more costs, including delay or waste of time,

confusion of jurors, or unfairly prejudicial effect. In addition to a general

power in the court to exclude relevant evidence on such grounds (FRE 403),

the law gives specific treatment to several categories of evidence ordinarily

so excluded, including evidence of ‘character’, meaning an individual’s

propensity to act in certain ways (FRE 404-406, 412; but see FRE 413-15

(reversing the traditional rule for allegations of sexual assault or child

molestation in both civil and criminal cases), evidence of subsequent

changes to an injury-causing condition (FRE 407), and evidence of

settlement or plea negotiations, liability insurance coverage, and the like

(FRE 408-411).

 

Reliability rules also can exclude minimally relevant evidence that fails

to conform to requirements of admissible form or source. This category

includes two basic types of rules, the first being ‘threshold’ showings -

sometimes referred to as ‘competency’ or ‘foundational’ requirements - that

the evidence stems from a ‘reliable’ source, which in the case of witnesses

requires that testimony be limited to personal sense impressions (‘first-hand’

or ‘personal’ knowledge) and generally excludes non-expert opinion (FRE

602, 701), and in the case of documents requires ‘authentication’ of the

document (FRE art. 9) and prefers original documents to secondary evidence

of their contents (FRE art. 10, the ‘Best Evidence’ rule). The second type of

rule in this category is the general rule against hearsay, defined as an

out-of-court statement offered to prove the truth of the matter asserted by the

statement (FRE 801-802) and its many exceptions (see FRE 803-807) that

admit statements made under conditions thought to provide ‘circumstantial

guarantees of trustworthiness’ (FRE 807, stating the open-ended ‘residual’

exception to the hearsay rule). Both types of reliability rules, and especially

the hearsay rule, are rationalized and developed in legal authority by

reference to the value of in-court (or some instances, pre-trial) adversarial

testing of the credibility of evidentiary sources.

 

Extrinsic policies of exclusion - paradigmatically, the evidentiary

privileges - may exclude otherwise relevant and reliable evidence in order to

encourage or protect some relationship or activity ‘extrinsic’ to the issues in

litigation, such as certain governmental functions, the provision of

confidential legal, medical, or personal advice, or the productive use of

private or commercial information. In this instance, the rule of exclusion

explicitly recognizes a tradeoff between the accuracy of litigation

fact-finding and a perceived external benefit, or in some instances an

offsetting internal benefit, such as improving the quality of legal

representation. In addition to the evidentiary privileges, some of the special

rules of relevancy excluding evidence of subsequent remedial measures,

insurance, compromise negotiations, or the like, are sometimes rationalized

by reference to an extrinsic policy of encouraging safety, insurance against

risk, settlement, and so on.

 

Proof and presumption rules (see FRE art. 3) are concerned with the

allocation and procedural effect of burdens and standards of proof. Generally

speaking, the substantive law casts the burden of proof for every element of a

claim upon the complaining party (the plaintiff in civil cases and the

government in criminal cases) in both of two senses: (1) the burden of

production or ‘going forward’, which allocates the burden of adducing some

evidence on the point in question (though this burden can be shifted by

operation of a ‘presumption’); and (2) the burden of persuasion, or ‘risk of

non-persuasion’, which specifies the party who will lose in the event that the

quality of evidence falls beneath the pertinent standard of proof. Aside from

specifying the verbal formulae to be used in instructing the trier of fact, and

the procedural effects of legally deficient failures of proof, the

Anglo-American law of evidence (and procedure) has virtually nothing to

say on the subject of proof as distinguished from admissibility. Unless the

issue is resolved as a matter of law, determinations of fact by juries are

formally unreviewable by either trial or appellate judges in the United States,

and determinations of fact by trial court judges are reviewed under a highly

deferential standard on appeal. The concept of the rules is sharply to

distinguish determinations of fact from determinations of law.

 

3. General Economic Analysis of Evidence Law

 

As a species of procedural rule, evidence rules can be approached initially

through the economic framework postulated by Posner (1973) of minimizing

the sum of error costs and direct costs, both public and private. As with

procedural rules in general, the coercive and sequential aspects of the

litigation process present potential strategic use of evidence rules by litigants

to influence opposing litigants’ costs or to degrade the accuracy of judicial

determinations (see Friedman, 1992), perhaps resulting in excessive

expenditures by both the litigants and the court (see Posner, 1992, p. 586),

as well as inaccurate decisions (see Tullock, 1980).

 

However, evidence rules are distinguished from other procedural rules by

being focused solely upon the fact-finding aspect of the litigation process.

This characteristic has two major implications for the economic analysis of

evidence rules that have been identified in the literature: (1) the

internalization of most factual error costs; and (2) the effect of evidence

rules on information supply, both within litigation and externally.

 

3.1 Internalization of Error Costs

Aside from the precedential effect of evidentiary rulings themselves, error

costs associated with inaccurate fact-finding in litigation tend to be

internalized to the immediate parties, thus diminishing the social interest in

the accuracy of any particular litigated outcome, unless such errors are

systematically biased (see Kaplow, 1994; Kaplow and Shavell, 1994, 1996;

Parker, 1995; Rasmusen, 1995). Furthermore, in the absence of external

effects, and with the competitive provision of evidence to the court by

adversarial parties motivated by symmetrical stakes, there is reason to doubt

whether relying on information provided by interested parties systematically

degrades the accuracy of factual determinations, even assuming strategic

behaviors. Milgrom and Roberts (1986) demonstrate this result under the

assumption of symmetrical and costless access to information by the parties.

The same theoretical result is extended to symmetrical but costly access by

Froeb and Kobayashi (1993, 1996) (see also McAfee and Reny, 1992; Shin,

1998; and Lewis and Poitevin, 1997), and is consistent with recent

experimental findings comparing adversarial with non-adversarial

presentation in terms of both revelation of hidden information and accuracy

of litigated outcomes (Block et al., 1998; Parker and Lewisch, 1998).

However, these results are qualified by reference to the assumption of

symmetrical access and verification of parties’ reports, which highlights the

potential importance of the pretrial discovery process as eliminating or

diminishing the case of private asymmetrical information in one party (see,

for example, Cooter and Rubinfeld, 1994; Hay, 1994; Jost, 1995; Sobel,

1989; and the discussion in the companion Chapter 7000 of this work).

Subject to those qualifications, the economic analysis of evidence law has

tended to focus on the functions of evidence rules in regulating either direct

costs to the parties and the court, or a different class of error costs

occasioned by systematic bias or other agency costs on the part of the public

decision-maker. From this perspective, many aspects of both proof and the

admissibility rules of relevancy and reliability have been explained (or

criticized) in terms of their operation on the marginal product of parties’ and

courts’ expenditures (see Posner, 1973, 1992, § 21.8; Gibbons and

Hutchinson, 1982; Rubinfeld and Sappington, 1987; Miceli, 1990;

Friedman, 1992; Davis, 1994; Hay and Spier, 1997), as reinforcing the

institutional specialization implied by the division of decision-making

authority within tribunals, including the internalization of fact-finding error

by design (Parker, 1995), or as controlling bias on the part of decision

makers (Posner, 1992, p. 521; Shrag and Scotchmer, 1994).

 

3.2 Effects on Information Supply

The second major distinguishing feature of the economic analysis of

evidence law concerns the effects of evidence rules (and related rules of

pre-trial discovery) on the supply of information both within litigation and

externally. This is most transparent in the case of evidentiary privileges,

which are based explicitly upon considerations of encouraging the

generation of certain types of information by protecting against compelled

disclosure, and as such define a class of intellectual property (Easterbrook,

1981; see also Gould, 1980; Kitch, 1980; and Stigler, 1980). While some

evidentiary privilege rules may have entirely external effects on information

production (as balanced against direct and error costs internally), both the

attorney-client privilege and the related ‘work product’ doctrine (which

protects against compelled disclosure of the fruits of litigation inputs by

litigants and lawyers) appear to be endogenous to the litigation fact-finding

process, and therefore may contribute either positively or negatively to direct

costs and error costs. Existing literature expresses differing points of view on

the social consequences of these effects (see Allen et al., 1994; Bundy and

Elhauge, 1991; Kaplow and Shavell, 1989, 1990, 1992; Shavell, 1988).

 

However, the effect of evidence and discovery rules on information

supply is more general than the rules of privilege. First, compelled

disclosure of information in litigation can affect the incentives of both

parties and non-parties to produce information ex ante. Thus, rules

compelling an interested party to disclose harmful information to the court

or adversary (either by formal order or by default on a burden of proof) may

reduce incentives to produce any information, or bias the production

function (see Kobayashi, Parker and Ribstein, 1996; Shavell, 1989), and, by

extension, one or both incentives may also affect even disinterested

non-parties, essentially by imposing a ‘tax’ on information through its

expropriation in the litigation process (see Parker, 1995). Second, even in

the absence of compulsion, as in the case of compensated expert testimony,

the rules of admissibility can affect the external supply of information

available for use in litigation, by influencing the marginal incentives of

prospective expert witnesses to produce certain forms of expert opinion

(Parker, 1995; see also Elliott, 1989).

 

B. Specific Topics in the Economic Analysis of Evidence Law

 

In this section, we will survey the existing law and economics literature by

reference to the main problems addressed in Anglo-American evidence law

doctrine, under the following divisions: (a) relevance and prejudice; (b)

statistical evidence; (c) burdens of proof, presumptions, and accuracy; (d)

knowledge, opinion, and expert testimony; (e) the hearsay rule; and (f)

evidentiary privilege. As will be demonstrated by this survey, relatively few

of the institutional details of the law of evidence have been analyzed by the

law and economics literature to date.

 

4. Relevance and Prejudice

 

The doctrine of relevancy and its counterweights (discussed in section II.A

above) appears designed to operate upon both error costs and direct costs to

the parties and the court, by focusing all evidence on the matters of fact

identified as decisive by the substantive law (FRE 401). Presumably, this

improves the efficiency of law enforcement and contributes positively to the

accuracy of adjudication (see generally Kaplow, 1994). In addition,

relevancy standards may operate to reduce agency costs in the form of

fact-finder bias, by depriving the fact-finder of access to information on

non-relevant grounds of decision (see Posner, 1992, p. 521).

 

This same concept of controlling agency cost in the form of bias is

carried over into the joint case of evidence that has both probative value and

‘prejudicial’ effect (conceived for this analysis as extrinsic grounds of

decision), for which the law (FRE 403) requires the judge to make an

explicit cost-benefit analysis (see Gibbons and Hutchinson, 1982, discussing

the British counterpart to FRE 403). In addition, more specific rules carry

the same concept into identified types of evidence, most notably the general

rule against ‘character’ (propensity) evidence (FRE 404) and the recent

exception for sex crimes (FRE 412-415), which is analyzed within this

framework by Schrag and Scotchmer (1994). Similar considerations may

underlay the additional rules disfavoring the admission of evidence of

remedial measures taken after an injury-producing event, settlement

negotiations, and the like (FRE 407-411) (see Daughety and Reinganum,

1995; Rasmusen, 1998). Alternatively, those rules could be analyzed in

whole or in part by analogy to rules of evidentiary privilege, as seeking to

reduce the ‘taxation’ effect of admissibility on the conduct in question,

which produces both information and other goods that may have external

benefits, as in the case of remedial measures improving safety (FRE 407), or

endogenous benefits to the litigation process, as in the case of settlement

negotiations (FRE 408), for which both non-disclosure and inadmissibility

may contribute positively to the quality of legal representation (see generally

Allen et al., 1990).

 

Relevancy rules may also operate on direct costs as constraining strategic

behaviors by litigants that could result in excessive trial expenditures (see

Posner, 1992, pp. 564-566; Tullock, 1980), or as one of several mechanisms

for rationing access to trial time. Under the traditional Anglo-American

system, parties can present evidence at trial without general limit, except

through the rules of relevance, under which the judge may exclude even

relevant evidence as cumulative or a ‘waste of time’ (FRE 403). In more

recent years, this function has been supplemented by more extensive case

‘management’ by American trial judges, both before and at trial (see the

companion Chapter 7000 of this work).

 

5. Statistical Evidence

 

There is a large body of interdisciplinary literature, mostly outside the law

and economics field, discussing the use of probabilistic reasoning and

statistical methods in assessing both admissibility and proof (for example,

Cohen, 1981; Fairley, 1973; Fienberg, 1989; Finkelstein and Fairley, 1970;

Kaye, 1979, 1981; Kornstein, 1975; Lempert, 1977; Nesson, 1985; Schum,

1986; Shaviro, 1989; Tillers and Schum, 1988; Tribe, 1971; see generally

Anderson and Twining, 1991; Schum, 1994). As part of this literature, there

is debate concerning whether and to what extent statistical findings should

be admitted into evidence, especially in criminal cases of disputed

identification.

 

In American law, this problem has been addressed through the standards

applicable to expert testimony (see Part D, below) and as an application of

the relevancy-prejudice balancing analysis of FRE 403. The relatively hostile

attitude of American courts toward admissibility may reflect the bias

inherent in the selection of disputes for litigation, and for trial versus

settlement (see generally Gould, 1973; Priest and Klein, 1984). Statistical

methods generally assume random events, while litigation selects unique

events non-randomly, and substantive law generally attaches significance to

unique events rather than mean outcomes, though it has been argued that

this may be inefficient in some settings (see Kaplow and Shavell, 1996).

However, where the substantive law effectively requires all events to be

random as to some variable (as perhaps in alleged discrimination in jury

selection, employment, or the like), or states a standard related to mean

outcomes rather than unique non-random events, then the case for admission

of statistical findings is stronger.

 

6. Burdens of Proof, Presumptions, and Accuracy

 

The debate noted in the previous subsection also embraces questions

concerning the evaluation whether a body of evidence meets specified

standards of proof, which tend to be stated in terms suggesting probabilistic

analysis, as in ‘more probable than not’ (the ‘preponderance’ standard

applicable in most civil cases), ‘clear and convincing evidence’ (a higher

standard for certain civil cases such as fraud that may have external effects

on reputation), and ‘beyond a reasonable doubt’ (the highest standard,

applied in criminal cases). (See the sources cited above and Lombardero

(1996), which considers joint probability determinations.) Strictly speaking,

this debate has limited significance to the law of evidence or the law of

procedure, especially in jury cases, because the sufficiency of evidence to

meet a particular standard is evaluated legally through the rule of

‘substantial evidence’, which essentially asks whether a jury rationally could

accept the evidence as sufficient - a highly deferential rule that insulates all

but the most egregious factual errors from review by trial or appellate

judges, thus minimizing the law’s concern with factual accuracy in

particular cases.

 

In contrast, the selection of standards of proof is considered a legal

question, which from the economic perspective appears to rest upon whether

error costs are symmetrical, with the higher standards predicated on the

assumption that false positive errors are more costly than false negative

errors in certain settings (see Kaplow, 1994; Kaplow and Shavell, 1994;

Posner, 1992, p. 553). However, error costs may also depend upon factors

other than the standard of proof (see Davis, 1994, arguing that both the

parameters of the underlying population and characteristics of fact-finding

technology may affect the optimal standard of proof).

 

Distinguishable from the standard or quality of proof is the selection of

which party bears the burden of proof in terms of both ultimate persuasion

and initial production of evidence (see Rubinfeld and Sappington, 1987;

Miceli, 1990; Hay and Spier, 1997; Sanchirico, 1997b). The casting of the

burden of proof may affect both error costs and direct costs. The general rule

of casting the burdens of both production and persuasion upon plaintiffs may

operate to reduce direct costs by providing an incentive to avoid litigation in

the first instance (see Posner, 1992), and may operate within the litigation to

reduce incentives for strategic behavior by forcing plaintiffs to internalize

more of the direct cost of obtaining the transfer payment they seek, though

the advent of compelled pre-trial discovery from the adversary tends to

re-introduce both strategic behavior and moral hazard problems (see, for

example, Cooter and Rubinfeld, 1994; Easterbrook, 1989). Even aside from

discovery procedures, casting the burden of production on the party bearing

relatively higher costs of production may increase both direct and error

costs.

 

Presumptions, under the standard analysis (see FRE 301-302), operate to

shift the burden of production rather than persuasion, usually by allowing

the party bearing the burden to substitute proof of a different ‘basic fact’ for

direct proof of the ‘presumed fact’ required by substantive law (see Epstein,

1973). From an economic perspective, presumptions would appear to be

based upon both a high factual correlation between the basic and presumed

facts, coupled with a disparity in the costs of producing evidence of the two

facts, at least in some circumstances.

 

7. Knowledge, Opinion and Expert Testimony

 

The ‘reliability’ rules of admissibility also can operate on both error costs

and direct costs (see Gross, 1987), though they also may have effects on

information supply and in some instances may be influenced by the interest

in policing strategic behaviors by litigants. The basic reliability rules of

‘competency’ and ‘authentication’ require that witness testimony be

confined to ‘facts’ based upon the witness’s first-hand ‘knowledge’

(personal sense impression) as distinguished from ‘opinion’, and that

documents be shown to be authentic before their contents may be considered.

In both instances, the evidence is required to meet a threshold ‘quality’

standard before it is admitted to consideration. Thus, these rules can operate

both on error costs (assuming that the legal standard of quality is positively

related to accuracy) and on direct costs, by channeling the litigants’ efforts

away from lower quality evidence and toward higher quality evidence, thus

increasing the productivity of the parties’ expenditures at trial and reducing

strategic behaviors consisting of introducing ‘low quality’ evidence that

imposes rebuttal costs on the adverse litigant (see Posner, 1992, pp.

564-566).

 

The most significant of these rules is the requirement that witness

testimony be based upon first-hand knowledge (FRE 602) and its negative

correlative in the rule generally excluding non-expert opinion (FRE 701).

One economic explanation for these rules is that they embody the economic

logic of specialization within the institutional setting of trial, by separating

raw information inputs from the inferential function performed by the trier

of fact (see Parker, 1995), thus arguably reducing both error costs (if juries

and judges are more accurate in drawing conclusions than witnesses) and

direct costs, to the extent that litigants are prevented from introducing the

‘lower quality’ second-hand information or witness conclusions.

 

The rules permitting expert testimony (see FRE 702-705), generally cast

in the form of opinion, may be based upon the similar logic that experts,

within their fields of professional specialization, may possess a comparative

advantage over juries and judges in drawing conclusions from the available

data (see Parker, 1995). However, the standards defining the permitted scope

of expert testimony have been controversial. By the logic of permitting

expert testimony, neither judges not juries are well-equipped to evaluate

when it actually provides a comparative advantage in fact-finding, and so

there has been a tendency to look toward external standards of ‘general

acceptance’ in the expert’s field. These rules in turn have been criticized as

permitting strategic behavior by parties within the litigation (see Elliott,

1989) and as encouraging rent-seeking behaviors by both litigants and

testifying experts (Parker, 1995), and recently have been modified by the US

Supreme Court in Daubert v. Merrell Dow Pharmaceuticals, to place more

emphasis on internalized admissibility standards and adversarial testing of

scientific expert testimony.

 

An alternative to exclusive reliance upon adversarial presentation is

provided by the court’s authority to appoint its own ‘neutral’ expert (FRE

706). However, Froeb and Kobayashi (1993, 1996) have shown theoretically

that the court-appointed expert does not reduce either direct or error costs

from the alternative of competitive and selective presentation by adverse

parties, even if the fact-finder is both naive and biased. Furthermore, their

analysis suppresses considerations of public-choice problems or agency costs

in the judge or expert, which would tend to strengthen their results in the

direction of favoring adversarial presentation. Their assumption of

symmetrical access in the parties does not appear to be a severe limitation in

the context of expert opinion testimony, which by definition does not rest

upon private factual information and is supplied in an explicit competitive

labor market.

 

8. The Hearsay Rule

 

Like the other ‘reliability’ rules, the rule against hearsay evidence (an

out-of-court statement offered to prove the truth of the matter asserted by the

statement) (see FRE 801-802) appears designed to reduce by direct and error

costs by preferring in-court testimony (presumably of higher quality, see

Tribe, 1974, for a legal treatment of quality issues) to the secondary

‘hearsay’ evidence, and by requiring the proponent of the evidence to bear

the higher cost of producing the higher quality of evidence. The status of the

hearsay rule as a rule of preference rather than a rule of absolute exclusion is

indicated by the many exceptions to the general rule (FRE 803-807) and

important categories of defined non-hearsay statements (FRE 801(d)),

notably including statements by adverse litigants, former testimony, business

or governmental records, and spontaneous declarations, among others.

 

However, the rationale of the basic rule has been criticized by Friedman

(1992), who argues that the cost of producing the higher-quality non-hearsay

evidence should be placed upon the opposing party, in order to reduce

strategic uses of hearsay objections to exclude evidence having some net

probative value (see also Kaplow, 1980). This analysis assumes that hearsay

evidence passing the relevancy balancing test of FRE 403 will contribute

positively to accuracy, and that the proponent is not uniquely advantaged

over the opponent in the cost of producing the non-hearsay evidence, and

does not address strategic behaviors by proponents under this alternative

regime, or consider possible effects on external supply.

 

9. Evidentiary Privileges

 

The law of evidentiary privileges explicitly incurs some measure of direct

and error costs within litigation fact-finding in order to achieve the

‘extrinsic’ benefit of encouraging information production by securing

property rights against compelled disclosure of information generated in the

course of specified relationships or activities. The protected activities

traditionally included confidential communications between attorney and

client, physician or psychotherapist and patient, priest and penitent, law

enforcement officers and informants, and between spouses, as well as trade

secrets and government secrets. Recent legislation in some US jurisdictions

has extended such protection to news reports and their sources and a wide of

counseling relationships. More broadly conceived, this category of rules

might be thought to include the constitutional privilege against

self-incrimination and the exclusionary rule applied to evidence obtained

through illegal search and seizure by the government, though those topics

conventionally are treated as part of the law of criminal procedure (see

Chapter 7500 of this volume).

 

Within the law and economics literature, only the attorney-client

privilege and the related ‘work product’ doctrine (protecting against

compelled disclosure of litigation inputs by lawyers and litigants) have

received extensive consideration. These rules may have differing and more

complex characteristics than the other types of privilege, which are most

conceived as having only negative influences on the cost and accuracy of

litigation fact-finding, to be balanced against positive external benefits

widely diffused throughout the society. In contrast with that simpler

analysis, both the attorney-client privilege and the work product doctrine

may operate to improve the quality of legal representation, and in that way

reduce both error costs and direct costs within litigation, in addition to

whatever external benefits (or costs) ensue (see Allen et al., 1990; Bundy

and Elhauge, 1991; Kobayashi, Parker and Ribstein, 1996).

 

Suppressing these possible internal benefits to the litigation process

itself, a series of papers by Shavell (1988) and Kaplow and Shavell (1989,

1990) questions the social desirability of protecting the confidentiality of

legal advice in a variety of settings. The Kaplow-Shavell analysis is

criticized by Allen et al. (1990), on the ground that it overlooks the

constructive role of confidential client communications in assisting lawyers’

development of alternative legal grounds for the litigant’s case, which might

not be discovered and developed in the absence of the privilege. They

advance a similar analysis of the work product doctrine as enabling lawyers

to overcome a ‘joint production’ problem (that is, that lawyers’ investment

may produce both positive and negative information regarding the client),

extending the previous work by Easterbrook (1981) treating the work

product doctrine as a species of intellectual property protection.

 


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