Law and Economics Notes

LAW AND ECONOMICS
ECONOMICS 4450/6450
OUTLINE OF NOTES
DAVID B. MUSTARD

Administration ------------------------------------------------- Mon. Aug. 17

2. Personal Introduction
    A. Education -Why study economics?
    B. Research
    C. Family
    D. Background/Interests
    E. Request

3. Classroom Dynamics
    A. I will ask you many questions in class.
    B. Students' Substantive Questions. Never hesitate to ask substantive questions about the material - either in class or during office hours. At the beginning of each class I will try to ask whether anyone has questions about the material from previous lectures or from the reading.
    C. Students' Administrative Questions. To allow me to help people most effectively with the substantive issues, if you have administrative questions, please go to 1) Syllabus; 2) Web site; 3) Classmates; 4) Me.
    D. Review Course Homepage.

4. How to do well
    A. Come to class
    B. Do reading as it is being covered in class
    C. Learn tools of economics - graphs, words and equations
    D. Use my class outlines on web site
    E. Talk to me before, rather than after exams
    F. Repetition--this is needed to excel in anything

5. Class website

6. Going to Law School
Tristan Mabry, " Economics Enjoys a Bull Run at Colleges - Once Perplexing Subject is a Top Major for Students ." by Wall Street Journal, Nov. 30, 1998.

7. Class roll

------------------------------------------------------------------- Wed. Aug. 19

1. Introduction to Law and Economics
    Readings:
     Chap. 1 "Introducing Law and Economics"
     Jessica E. Vascellaro, "The Hot Major for Undergrads is Economics." Wall Street Journal, Tues. July 5, 2005.

A. What is economics?
    1. Misconception
    2. Definition
    3. Principle/Theory
    4. Goal

B. What is Economic Analysis of Law?
Introduction: Two general ways of thinking about law and economics:
    1. How does law influence economic outcomes?
        a. Execution for armed robbers
        b. Regulations - Requiring features on goods (shut off bars on lawnmowers, job safety concerns)
    2. How does economics give insight into legal issues and concerns?
        a. Why do we get some laws and not others?
        b. Public choice theory

C. What is economic analysis of law good for? Why should you study it?
    1. Economics ties together diverse areas of law, providing a common theoretical structure. This is one attraction to legal scholars of the economic analysis of law.
    2. Law helps you understand economics: you learn about ideas by specific examples.
    3. The law is also useful to economists as a vast pool of interesting puzzles.
    4. Law provides a lot of data to test economics theories.

D. Development of Law and Economics
    1. History
    2. People
        a. Ronald Coase
        b. Gary Becker (Nobel-prize bio)
        c. Richard Posner
        See also Becker-Posner blog
        d. James Buchanan and Gordon Tullock
    3. Journals: Journal of Law and Economics (1958), Journal of Legal Studies (1972)

2. Legal Institutions
    Readings: Friedman -Intermezzo (pages 103-111)

Introduction

A. Characterization of Law: Common Law vs. Civil Law
See Table 1

------------------------------------------------ Fri. Aug. 21

B. Characterization of Case: Criminal vs. Civil

C. Legal Standards
    1. Preponderance of Evidence
    2. Beyond a reasonable doubt
    3. Clear and convincing

D. Structure of Courts:
    1. Trial Courts
    2. Appellate Courts
    3. Supreme Courts - US

E. Jurisdiction
    1. Federal (map)
        a. Matters specified in US Constitution or federal laws or treaties. Examples: sexual and racial discrimination, trademarks, patents.
        b. Cases to which the US is a party
        c. Diversity cases: NOTE: book is incorrect the correct value is $75,000.
    2. State
    Limited vs. General jurisdiction
    Slides

F. Legal Process
    1. Cause of Action
    2. Complaint
    3. Defendant
    4. Discovery
------------------------------------------------ Mon. Aug. 24
    5. Summary Judgment/Directed Verdict
    6. Verdict
    7. Appeal
    8. Stare Decisis

G. Economic Freedom
Readings:
"Legal Reform and Development." The Economist, Tues. June 5, 2008.

Herbert G. Grubel. 1998. "Economic Freedom and Human Welfare: Some Empirical Findings", Cato Journal, Vol. 18, No. 2 (Fall): 287-304.

Optional Reading: James Gwartney, Randall Holcombe, and Robert Lawson, "The Scope of Government and the Wealth of Nations." Cato Journal, Vol. 18, No. 2 (Fall): 163-190.

    1. Indexes of Economic Freedom
        a. Heritage Foundation
        b. The Fraser Institute - Overview
        How is economic freedom calculated?
        Example of US
    2. Conventional Wisdom through the 1970s
        a. International Examples
        b. Domestic Examples
    3. What happened since the 1970s (esepcially since 1990)?
        a. International Evidence
        b. Domestic Evidence
    4. Empirical Studies
        a. Economic Freedom and Economic Growth
------------------------------------------------ Wed. Aug. 26
        b. Economic Freedom and Broader Measures of Human Welfare
   Slides
      c. What constitutes causal evidence?
        d. Economic Freedom and Political Freedom--See also M. Friedman and R. Friedman Free to Choose.
            1) What is political freedom? How is it measured?
                What nations are politically free?
------------------------------------------------ Fri. Aug. 28
            2) How does economic freedom affect political freedom?
            3) How does political freedom affect economic freedom?
        e. References on Economic Freedom and Outcomes

3. Market for Legal Services
Readings:
Chap. 2 "Tools for the Economic Analysis of Law" (This reviews material from intermediate micro).

Introduction

A. Economic objective of law
    minimize social costs
    1. Social cost
    2. Administration cost
    3. Error costs

B. Market for Legal Services
    1. Quantity control
    2. Price control
------------------------------------------------ Mon. Aug. 31
    3. Principal-Agent/Compensation--what is the optimal compensation?
        a) billable hours
        b) services performed
        c) contingency

C. What is the equilibrium number of complaints ?
# complaints = f(# injuries, filing cost, expected value of claim,...)

D. When does it pay to file a suit?
    1. Decision Rule
    2. Computing the expected values- Example

E. When does it pay to settle out of court? Why take it to trial?
    Example: See Table 2.
    Why the differences in expected value?
    Discovery/Compulsory pooling of information
------------------------------------------------ Wed. Sep 2

F. Loser-pays-all vs. US System (each-pays-its-own)

G. Bargaining (Unequal information and different bargaining costs)
    1. Nuisance Suit
    2. Defendant's optimal response
        a. Filtering
        b. Randomizing

4. Property Law

Introduction

A. What can and should be owned?
    Readings: Chapter 3 "Private Property and Public Goods"

    Introduction: What is property?

    1. Reasons for and against private property
        Reasons for property rights
            See Table 3.
            Investment vs. Rent-seeking
        Reasons against property rights (for commons)
    2. When does it pay to define and enforce property rights? When do we use commons instead of property rights?
------------------------------------------------ Fri. Sep 4
   In deciding whether to make something property consider two things: 1) How large are the costs of treating it as property? How easy is it to define boundaries, enforce rights and transact? 2) How large are the benefits of treating it as property? Or what are the costs of treating as a commons? How sensitive are producers and consumers to the incentive effects?
        Examples
        Solutions Table 4
    3. What conditions must be met for property rights to be established?
    4. Boundaries
        a. Real Property
           1) Pierson v. Post (Supreme Court of NY 1805)
       2) Can boundaries move?
         Stack Island: Louisiana v. Mississippi
           3) Adverse possession
------------------------------------------------ Wed. Sep 9
        b. Intellectual property
            1) Patents
            2) Copyrights
        c. Boundaries above and below the surface
            Air rights and underground reserves
            Hammonds v. Central Kentucky Natural Gas Co. (Court of Appeal of Kentucky, 1934)

B. Public Goods
    1. Definition
        Table 5
    2. Examples
    3. Market Failure
    4. Solutions

C. Protection and Remedies
    Introduction
     1. Liability Rule/Damages
     2. Property Rule/Injunction
     3. Both
     4. Relative Benefits (Damages vs. Injunctions)
     5. Efficiency
         a. Transactions Costs are high
         b. Transactions Costs are low
         Calabresi and Melamed Rule
------------------------------------------------ Fri. Sep 11
   6. Changes in transactions costs, costs of enforcement and monitoring
        Introduction
        a. Technology
        b. Strategies
            1) Pursue violators
            2) Pursue sellers

D. Externalities
    Readings: Chapter 4 "Externalities"
    1. Definition
    2. Examples
    3. Market Failure
    4. Solutions

E. Government Restrictions on Property and Takings
    Readings: Chapter 6 "Government Takings and Compensation"

    1. Eminent Domain/Takings - 5th Amendment of the US Constitution
        a. Conditions
        b. Holdout
        c. Tax Distortions
------------------------------------------------ Mon. Sep 14
        d. Government incentive
        e. Cases
             1. Poletown Neighborhood Council v. City of Detroit (1981/2003)
               Case 1
                Case 2
                Case 3
            2. Kelo v. City of New London, CT (USSC 2005)
        See also: Active Liberty: Interpreting Our Democratic Constitution by Stephen Breyer.
        A Matter of Interpretation: Federal Courts and the Law by Antonin Scalia.
        f. Responses to Kelo.
    2. Zoning
    3. Regulations
------------------------------------------------ Wed. Sep 16
MIDTERM #1
------------------------------------------------ Fri. Sep 18
    4. Covenants
    5. Water
    6. Creation of property rights - can lead to rent seeking
        a. Homesteading
        b. Patent races

5. Coase Theorem
Readings: Chapter 5 "The Coase Theorem"
Thomas W. Hazlett, " Looking for Results: Interview with Nobel laureate Ronald Coase on rights, resources, and regulation ," Reason Magazine.

A. Coase Theorem
    1. Transactions Costs
    2. Efficiency
    3. Example of business that strives to reduce transactions costs or "friction". See the first 1:40 of the video.

B. Examples
    Table 6 - Coase Theorem
------------------------------------------------ Mon. Sep 21
C. Overview of Coase
    1. Fundamental change in thinking
    2. Coase's view of regulation
    3. How does Coase think government should be involved in economy?
    4. New Institutional Economics
D. When does it make sense to apply Coase?
E. Efficiency vs. Justice

6. Regulation and Public Choice
    Readings:
    Chapter 7 "'Price' Regulation"

A. What is regulation?

B. When May Regulation increase social welfare? The following are necessary but not sufficient reasons for increasing efficiency with government involvement.
    1. Public good - Table 5
        a. non-rival
        b. non-excludable
        c. free rider
    2. Externalities
        a. Positive
        b. Negative
    3. non-competitive market structures - Table 7
    4. Information asymmetry
        2001 Nobel Prize winners
------------------------------------------------ Wed. Sep 23

C. Costs and Benefits of Regulation
    1. Benefits
        a. Concentrated
        b. Obvious
        b. Do they reduce economic inefficiencies? When can they make people better off?

    2. Costs
        a. Dispersed
        b. Hidden
        b. Unintended consequences
        Estimates of total costs of complying with US federal government regulations (not state) vary from $200-$700 billion per year (in 1997 $), or about $800- $2700 annually per person.

D. Regulation History
    Interstate Commerce Commission (1887)
    Currently there are over 50 federal agencies (ICC, FDA, EPA, Nuclear Regulatory Commission, FTC, NLRB, Federal Reserve, FDIC) - over every sector of the economy.
    Recent decrease in regulation in some areas and increases in other areas
------------------------------------------------ Fri. Sep 25
E. Views of Regulation
    1. Public-interest
    2. Special interest
    3. Capture
        Example Mississippi gambling (New York Times article)
    4. Baptists v. Bootleggers
        Reading: Bruce Yandle, " Bootleggers and Baptists in Retrospect," Regulation vol. 22, no. 3 (1999).
    5. Public Choice
        Reading: James Buchanan, "Public Choice: Politics Without Romance," Policy vol. 19, no. 3 (Spring 2003).
        Optional Reading: Lott, John R. Jr. 2009. "States Hit Hardest by Recession Get Least Stimulus Money." July 19.
    6. Rent Seeking
    Economic Rent: economic profit from unique resources (skill, monopoly rights or special favors).
        Example of Unocal, Ben Lieberman, "Regulatory Mousetraps", 1 April 2003, Tech Central Station.
    Reading: Jonathan H. Adler, "Rent-Seeking Behind the Green Curtain," Regulation vol. 19, no. 4 (1996).
        Examples

F. Purposes of Regulations
    Introduction
    1. Protect the environment
    2. Reduce economic inefficiencies that may result from monopolies, oligopolies or imperfect information of consumers
    3. Increase fairness (as some perceive it) or redistribute income
    4. Protect people from making bad decisions
    5. Improve products
    6. Set rules for the use of common resources

G. Analysis/Examples

    1. Analyze with supply and demand curves
    2. Some possible questions to ask:
        Is there a market failure?
        Who benefits from the regulation?
        Who is hurt by the regulation?
        How does this regulation affect relative prices?
        How do people/firms/agencies respond?
        Do regulations accomplish their goals?
        Are there unintended consequences?

    1. Infant Airline Seats: Government proposal
    2. Corporate Average Fuel Economy (CAFE) Standards
        Readings: Kazman, Sam, " Uncle Sam's Killer Cars ," New York Post, March 10, 2002.
------------------------------------------------ Mon. Sep 28

    3. Minimum and Living Wages
    4. Higher cost gasoline in urban areas
    5. FDA Drug Regulations
    6. WalMart in Maryland
    7. Cash for Clunkers
8. HOPE Scholarship
    9. Markets for organs--quantity regulation
        a) Trends - figures
        b) Solutions
           1) current system
            2) markets
            3) Lifesharers
            4) Mandated choice; opt-out; and others. Thaler, Richard. "Opting In vs. Opting Out." 2009. New York Times, Sep. 26. (courtesy of John Dixon)

7. Intellectual Property
    Readings:
    Chapter 8 "Intellectual Property"

Introduction

"To promote the Progress of Science and useful Arts,
by securing for limited Times to Authors and Inventors
the exclusive Right to their respective Writings and Discoveries."
US Constitution, Article I, Section 8.

A. Copyrights
    1. History
    2. Content
        a. Detective Comics Inc. v. Bruns Publications
        b. Lotus v. Borland
------------------------------------------------ Wed. Sep 30
    3. Strength/originality
    4. Length
    5. How obtained
    6. Elements
    7. Affirmative Defenses
    8. Penalty/Punishment
    9. Examples
       a. Sony v. Universal Studios, Inc. (1984)
       b. Napster
          1) Analogue
          2) Digital
          3) Transport technology
------------------------------------------------ Fri. Oct 2
          4) Napster facts
          5) Subsequent cases
             Metro-Goldwyn-Mayer Studios (MGM) v. Grokster

B. Patents
Introduction
    a. Rate of technological change has outpaced most predictions
    In the mid 19th century Henry L. Ellsworth, United States Commissioner of Patents, commented on the proposed construction of a new buildling for the U.S. Patent Office. He thought that a new building should not be too large or expensive because, “the advancement of the arts from year to year taxes our credulity and seems to presage the arrival of that period when further improvements must end.”
    In 1899, Charles H. Duell, commissioner of the U.S. Office of Patents, pronounced, "Everything that can be invented has been invented."
    Role of technology over time - quotes
    b. New policy debate about role of patents

    1. Defintion-objectives
    2. Who obtains?
    3. Process to obtain
        Types: utility (new invention), design (create an original design of a product), plant (discover or invent a new plant)
    4. Elements
------------------------------------------------ Mon. Oct 5
    Class canceled--Hannah arrives!
------------------------------------------------ Wed. Oct 7
    5. Boundary decision
    6. Length
    7. Patents assign monopoly rights - See Table 5
        Economic Application: pharmaceutical industry
    8. Infringement
        a. Claim interpretation/bounds
        b. Direct infringement (composition)
        c. Doctrine of equivalents (methods, functions, results)
    9. Affirmative Defenses
        a. Equitable Defenses
        b. Experimental Use
------------------------------------------------ Fri. Oct 9
    10. Remedies
        a. Injunctions
        b. Damages
    11. Examples
Summary

C. Trademarks
    Introduction

    Definition: The term trademark includes any work, name, symbol, or device, or any combination thereof –
    1) used by a person, or
    2) which a person has a bona fide intention to use in commerce
and applies to register on the principal register established by this Sct, to identify and distinguish his or her good, including a unique product, from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown.
    Lanham Act Section 45, 15 U.S.C. Section 1127.

    1. Objective
    2. History
    3. Benefits
    4. Types
        a. Arbitrary
        b. Fanciful
        c. Suggestive
        d. Descriptive
------------------------------------------------ Mon. Oct 12
    5. Length of protection
    6. How obtained
    7. Elements
    8. Test--likelihood of consumer confusion
        a. The similarity in the overall impression created by the two marks (look, phonetic similarities, underlying meanings)
        b. The similarities of the goods and services involved (including an examination of the marketing channels for the goods)
        c. The strength of the plaintiff's mark
        d. Any evidence of actual consumer confusion.
        e. The intent of the defendant in adopting its mark.
        f. The physical proximity of the goods in the retail marketplace.
        g. The degree of care likely to be exercised by the consumer.
        h. The likelihood of expansion of the product lines.
        Not all tests are created equal!
     9. Defenses
        a. Functionality
        b. Abandonment
            1) Disuse of mark
            2) Name
------------------------------------------------ Wed. Oct 16
        c. Generic
        d. Parody
    10. Remedies
        a. Injunctions
        b. Damages
    11. Case Study- Slickcraft v. Sleekcraft
    12. Extensions
        a. Soviet Union
        b. Buildings: Chrysler, Longaberger, and Rock and Roll Hall of Fame.
------------------------------------------------ Fri. Oct 16
    13. Collective marks
    14. Advertising
        a. How does advertising affect prices?
            History
        b. Simple or search characteristics
        c. Experience characteristics
        d. Signalling
        e. Related examples
            1) Tobacco settlement
            2) Campaign finance reform

D. Trade Secret Law
          "'Trade Secret' means information, including a formula, pattern, compilation, program, device, method, technique or process that: 1) derives independent economic value, actual or potential from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; 2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." - (Uniform Trade Secrets Act)
    1. Law
    2. Remedies
        a. Injunction
        b. Damages
        c. 3rd party
    3. Puzzles
        a. Why are trade secrets not, like patented inventions, treated as property?
        b. If trade secrets are not patentable, then why are they protected at all?

Domain Names

------------------------------------------------ Mon. Oct 19
    MIDTERM #2
------------------------------------------------ Wed. Oct 21
8. Tort Law
    Readings:
    Chapter 13 "Torts: The Economics of Liability Rules"
    Chapter 14 "Compensatory Damages"
    Overlawyered.com
    Andy Miller, " Grady makes $15 million bet: Huge malpractice deductible reflects squeeze ,"
Atlanta Journal Constitution, 7 October 2002

A. Introduction
    1. Definition
    2. Types of torts
    3. Differs from criminal law
    4. Differs from contract and property law

B. Traditional Theory of Torts requires 3 elements
    1. Harm
        a. What is harm?
        b. Goal - perfectly correct harm
        c. Tangible
        d. Intangible
        e. Wrongful
        f. Probabilistic
    2. Breach of duty/Negligence
        a. Binary vs. Continuous
        b. Standard
        c. What makes care reasonable?
3. Causation
        a. "Cause-in-fact" / But-for
        b. Proximate cause
        c. Coincidental causation
      d. Dual causation
        e. Probabilistic injury
------------------------------------------------ Fri. Oct 23
C. Cases
    Palsgraff v. Long Island Railroad Co. (1928)
    Others

D. Optimal market for accidents/torts?
    1. Goal: minimize the social cost of accidents
            SC=wx+p(x)A
    p(x) = probability of an accident is a decreasing function of the care or precaution (x) one takes.
    A = monetary value of the harm from the accident
    w = cost per unit of precaution

    2. Rule: Efficient if the marginal social cost = marginal social benefit.
    Efficient when the decision maker(s) internalize the marginal costs and marginal benefits of their actions.
   3. Ford Pinto
        a. Summary
        b. The calculation: Table 8
        c. Value of life estimates

------------------------------------------------ Mon. Oct 26
E. Liability
     Table 8.2 (Cooter and Ulen) shows how things break down by type of liability rule
    1. Unilateral Rules
        a. No Liability
        b. Strict Liability (with perfect compensation)--only two elements
    2. Bilaterial rules
        a. Negligence with perfect compensation
        b. Contributory Negligence
        c. Strict liability with contributory negligence
        d. Comparative Negligence
        c. Joint and several liability
    Table 9

------------------------------------------------ Wed. Oct 28

Go over Midterm #2

F. Setting the Standards--how do lawmakers decide on a rule?
    1. The Hand Rule
    2. Statutory
    3. Social customs/mores - common law
    4. Public choice

------------------------------------------------ Mon. Nov 2

G. Compensatory Damages
    Readings: Chapter 14 "Compensatory Damages"
    1. Goal
    2. Types
       a. Property Damage
            1) Real property
            2) Personal property
       b. Lost Income and Lost Value of Services
       c. Personal Injuries
       d. Hedonic Losses
       e. Impact on Indirect Parties

H. Punitive Damages
    Readings: Chapter 15 "Punitive Damages"
    1. Under what conditions are they awarded?
    2. Who should receive the money?
    3. History
4. Why do they exist?
    5. Policy
    6. Academic research
    Optional Reading: Eaton, Thomas, David B. Mustard, and Susette Talarico. "The Effect of Seeking Punitive Damages on the Processing of Tort Claims." Journal of Legal Studies. Vol. 34, No. 2 (June): 343-370.

I. Class action
    1. What is a class action tort?
    2. Why do we allow class actions?

------------------------------------------------ Wed. Nov 4
9. Risk and Uncertainty
     Readings:
     Friedman -Chapters 6
    A. Making decisions under uncertainty
        - Maximizing expected utility instead of utility
        1. Expected payoff
        2. Risk/spread/uncertainty
    B. Preferences for risk
        1. Risk averse
        2. Risk neutral
        3. Risk loving
    C. Dealing with Risk
        1. Contracts-see below
        2. Insurance
            a. Risk premium
------------------------------------------------ Fri. Nov 6
            b. Moral Hazard
                1) Externality
                2) Insurance company responses
            c. Adverse selection
            d. Information assymetries
    D. Examples
        See Cases link--case #6
    E. Can extend risk aversion to other areas
        1. Years of life
        2. Risky activities
        3. Management compensation policies

10. Contract Law
Readings:
    Chapter 9 "The Economic Functions of Contract Law"
    Chapter 11 "Contract Law and Distributive Issues"

A. Introduction
    1. What is a contract?
    2. Why have contract law? Why do we want contracts to be enforceable?
        - For many trades we need no contracts.

B. Non-contract enforcement mechanisms
    1. Reputational penalty
        What is a reputational penalty?
        Example 1: House builder
        Example 2: Department store refunds
        Example 3: Orthodox Jews in NY diamond trade
    2. Bonds
    3. Hostages
------------------------------------------------ Wed. Nov 11
C. Purpose of Contracts
    One purpose of contract law is to promote cooperation by converting situations with noncooperative solutions to situations with cooperative solutions.
    Tables 10a and 10b

D. Elements of a Contract
    “Otho would have been Bilbo’s heir, but for the adoption of Frodo. He read the will carefully and snorted. It was, unfortunately, very clear and correct (according to the legal customs of hobbits, which demand among other things, seven signatures of witnesses in red ink).”      - J.R.R Tolkien, The Fellowship of the Ring
    1. Offer
    2. Acceptance
    3. Consideration
    Case examples

E. Possible Defenses/When might courts not enforce contracts
    Readings: EEOC v. Waffle House
    1. Third party effects - think of it as an externality
    2. Incompetent parties
    3. Duress/Undue Influence
        a. Duress
------------------------------------------------ Fri. Nov 13
        b. Semi Duress (Necessity)
        c. Contracts of adhesion
4. Parties we believe incompetent because we are sure those terms cannot be in their interest (much weaker exception)
        a. Consumer repossession agreements
        b. Higher interest loans for some people
        c. Unreasonable penalty clause. But there may be good reasons for inclusion:
           1) May be the best solution to adverse selection
           2) May compensate for the risk of judgement-proof breach
           3) May reflect distrust of the court's ability to correctly measure damages.
           4) Private version of a property rule, which makes sense when transaction costs are low and/or courts are expensive or incompetent.
    5. Fraud
    6. Others: impossibility, frustration of purpose, mutual mistake about the facts, mutual mistake about the identity, unilateral mistake, duty to disclose, procedural unconscionability.

E. Potential Problems
    1. Fine print problem
    2. One sided contracts - should the offer of a reward be enforceable?
        Broadnax v. Ledbetter, 99 S.W. 1111 (Tex. 1907)
        Glover v. Jewish War Veterans of US 68 A.2d 233 (1949)
    3. Zero-sided contracts
        Cotnam v. Wisdom, 104 S.W. 164 (Ark. 1907)
------------------------------------------------ Mon. Nov 16
            MIDTERM #3
------------------------------------------------ Wed. Nov 18

F. Penalties
   1. Specific Performance
    2. Expectation damages
    3. Reliance damages
        One purpose of contract law is to secure optimal reliance
        over reliance, under reliance and optimal reliance
    4. Liquidated damages

G. Why do we need laws about contracts?
    Why not just enforce the contract, letting the parties define all the rules?
    1. Courts know better
    2. Parties have different bargaining power (monopoly buyer or seller)
    3. One must still decide whether a contract exists and what its terms are
    4. Parties cannot specify all possible alternatives

H. Arguments for freedom of contract
    1. Efficiency
    2. Parties have the most information
    3. Can respond quickly and usually relatively easily to changes.

I. Court enforcement of contracts (“filling in the gaps”)
    1. How should courts rule?
        a. We want efficient ruling
        b. Predicts what parties would have agreed to
        c. Gaps reduce costs
    2. Who should bear risks? How do we efficiently allocate risk?
        a. Factors to consider in allocating risk
        b. Examples
           1) Drunk driver
           2) Photographer
           3) Building a home
        Summary
------------------------------------------------ Fri. Nov 20
      3. Breach of contract
        Question 1: When will contracts be breached?
        Question 2: When is it justified to breach a contract?
            Example 1: Great Depression
            Example 2: Business deal
        a. Objective of efficient performance and efficient breach
           One purpose of contract law is to secure optimal commitment to performing/breaching
        b. Coase Theorem -
            1) No enforceable contract - will we get an inefficient breach? Table 7a
            2) Will an enforceable contract always be fulfilled? Table 7b

J. Long Term Contracts:
1. Why do they exist?

    2. What is the optimal form of a marriage contract-what are the optimal rules for breach?
        a. No separation/Divorce
        b. Easy separation/divorce
        c. Are there externalities in divorce?

3. Why has the actual contract changed over time, and with what consequences?

------------------------------------------------ Mon. Nov 30

Summary - Purposes of contract law
    1) Enable/facilitate productive cooperation that could otherwise not occur
    2) Secure the optimal commitment to performing
    3) Secure optimal reliance
    4) Minimize transaction costs of negotiating contracts by supplying efficient default terms
    5) Correct market failures by regulating the terms of the contracts
    6) Foster enduring relationships that solve the problem of cooperation with less reliance on contracts

12. Economics of Antitrust
    Readings: none

    The Microsoft Case
    What are the primary allegations against Microsoft?
    Why do some believe that Microsoft is a monopoly?
    "Unfair competition" vs. Evidence of harm to consumers
    Potential for harm vs. Actual harm
    Focus on avoiding market dominance
    Predatory Pricing
    National Resident Matching Program

13. Securities Law - Basic v. Levinson - Fraud on the Market
    Readings: Jennings-packet
                    Soderquist-packet (Available from Beljean's bookstore Nov. 25)
14. Criminal Law
    Readings:
     Chapter 18 "Why Criminalize?"
     Chapter 19 "The Rational Criminal"
     Chapter 20 "Efficient Levels of Deterrence"
     Landsburg - Landsburg - Justice Priced to Sell

A. Introduction
Becker
Federalization of criminal law

B. The market for crime
        1. Supply
        2. Demand
            a) Derived demand
            b) Who demands?
        3. Equilibrium
        4. Comparative Statics
        5. Application

C. Tort/Crime Distinction
        1. Enforcement
        2. Victim
        3. Standard of proof

D. Why have Criminal law? Why don't we just use tort law?

E. What is the optimal level of crime?
        1. Benefits of reducing crime
        2. Costs of reducing crime
        3. How can we change probabilities and punishments to make lowering crime more socially efficient?
        4. What is the relationship between cost per offense and probability and punishment?
        5. Market for drugs

F. Efficient Crimes

F. Private vs. Public deterrence

G. What Has Happened to Crime?
        1. How do we measure crime?
            a. FBI - Uniform Crime Reports
            b. Bureau of Justice Statistics - National Victimization Survey - See BJS
        2. Crime over time
        3. Composition of crime
        4. Crime across regions - Table 8
        5. Crime across countries

H. Guns and Violence - Quiz "Guns - Just the Facts! "
        1. Current city suits
        2. Ownership and Crime
            a. Over time
            b. Across groups of people
            c. Across nations
        3. Accidents
        4. Suicide
        5. Concealed weapons
            a. Laws - Florida
            b. Violations by license holders

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End of Class--Nothing will be covered beyond this point
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I. Discrimination
1. Arrests
2. Sentencing

H. Bargaining Terminology (Equal information and bargaining costs)
    Introduction
    1. Threat Value
    2. Non-cooperative Value
    3. Cooperative Surplus
    4. Reasonable Outcome
    5. Expected judgment

Summary
Reasonable settlement: the expected judgment at trial when: a) the plaintiff and defendant have the same expectations about the trial, and b) the plaintiff and defendant bear the same transactions costs to resolve the dispute.

No class in exchange for the extra time as jurors in the law school (See Sylabus)

15. Common Law: Efficiency and Freedom
Readings: Landsburg " Judge Not: It's Time to Knock the Stuffing Out of Judicial Featherbedding ."
Friedman -Chap. 19 (pages 297-308)

A. Is the Common Law Efficient?
    Two assumptions
    1. Selective litigation
    2. Efficiency is not negatively correlated to the probability of a law's surviving such a test.
        Is Efficiency a Judicial Motive?

B. Freedom and the Law

Common vs. Statutory law
"The very idea that the law might not be identified with legislation seems odd both to students of law and to laymen. Legislation appears today to be a quick, rational, and far-reaching remedy against every kind of evil or inconvenience, as compared with judicial decisions, the settlement of disputes by private arbiters, conventions, customs, and similar kinds of spontaneous adjustments on the part of individuals.”
- Bruno Leoni, "Common Perception of Law"

Fox Butterfield, " Gun Maker Found Liable in Shooting Accident ," New York Times, April 23, 2003 A. Definition