Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Economics in the Law Introduction Introduction • What is the study of economics and the law? • Why study economics and the law? • What is the purpose of the law? • What is socially efficient production? • What is a Pareto Optimum? Law and Economics Economic analysis of the law – The use of economics to study the effects of actual legal rules. (explanatory) – The use of economics to determine optimal, or most efficient, legal rules. (proactive) – Law and economics holds that law can guide people’s behavior into socially desirable channels. (normative) – We assume that individuals seek to inform themselves about what the law requires of them and then conform their behavior to the dictates of the law. – Some lawyers and economists believe that efficiency guides the evolution of the law Law and Economics Why study economics and the law? • An opportunity to apply economic analysis to the real world and real world problems • Economics often plays an important role in litigation • Economists and lawyers tend to think alike • Many undergraduates in economics go on to law school Law and Economics What is the purpose of the law? • To promote justice • To promote efficiency • Does it do either? We will concentrate on whether the law can be efficiency enhancing. • That means avoiding value judgments whenever possible. • Avoid questions of: – – – – Fairness Justice Social justice Inequality What is a socially efficient solution? • Maximizes joint profits (welfare), total output, or the size of the pie. • Does not necessarily maximize profits for any individual player • Jeremy Bentham proposed the “happiness principle” – The greatest good for the greatest number – Maximize social utility Pareto Optimum • Because interpersonal comparisons of utility are not possible, we may settle for a Pareto optimum. • Starts with given wealth distribution – Fairness of initial distribution is irrelevant • If a value enhancing exchange is possible, we are not at a Pareto optimum • Each distribution of wealth has a corresponding Pareto optimum • Does a Pareto Optimum maximize welfare? (only given the initial distribution and no interpersonal comparisons of utility ) The Jelly Bean Economy • Distribute a package containing 5 jelly beans to each child in class • Each package contains randomly selected flavors of jelly beans. • A few packages may have all licorice flavored beans or lemon flavored beans • Now allow the children to engage in trade Will this result in a Pareto Optimum? • Will each child end up with 5 jelly beans? • Will each child be equally happy with the final outcome? • Will some children feel they have made bad trades? • Will some children feel that the initial distribution was unfair? • Will any child be worse off after trading? Four Topical Areas • • • • Property Contracts Torts Criminal(not to be covered) Property • What is property? • What is an efficient allocation of property rights? • Does the assignment of property rights have an impact on efficiency? • How do penalties for violating property rights affect efficiency? • What is the Coase Theorem? Contracts • What are the essential properties of a contract? – Contracts involve mutual promises – Contracts promise future performance • Does contract law determine efficiency? • A broken promise breaches a contract. When is it efficient to breach? – What are the remedies for efficient breaches? • Morality versus efficiency in the enforcement of contracts. Torts (unintentional) • Tort law defines reciprocal obligations with regard to performance when contracts are not possible. • What is an unintentional tort? • Damages internalize externalities. • Efficient damage rules • Compensatory and punitive damages Criminal Law • When torts are not enough • Optimal deterrence • Optimal sentencing This is Not a Course in the Law • We are concerned with generalized legal rules that may differ by time period or jurisdiction. • We are concerned with hypothetical legal rules. • If you need to know the law, consult a lawyer. Common law versus civil law • Common law – Based on precedent, but may change over time – Attempts to incorporate changing mores and social values • Civil law – Based on codes established by government – Trumps common law