Law & Legal Institutions Civil Law Legislatively enacted Inquisitorial process Common Law Based on social norms and precedent Adversarial process Use of.
Download
Report
Transcript Law & Legal Institutions Civil Law Legislatively enacted Inquisitorial process Common Law Based on social norms and precedent Adversarial process Use of.
Law & Legal Institutions
Civil Law
Legislatively enacted
Inquisitorial process
Common Law
Based on social norms and precedent
Adversarial process
Use of juries
Law & Legal Institutions
State Courts
Trial courts: “entry level” courts
Appellate courts
Supreme courts
Federal Courts
94 districts
13 appellate districts
US Supreme Court
Federal Jurisdiction:
• Federal questions
• Cases to which US is a party
• Diversity cases
Nature of a Legal Dispute
Parties
Plaintiff
Defendant
Burden of Proof
Civil cases: preponderance of evidence
Criminal cases: beyond a reasonable doubt
Verdict/Judgment
Appellate decisions
Affirm
Reverse
Remand
Evolution of Common Law
Butterfield v. Forrester, 11 East 60 (1809)
Contributory negligence
Davies v. Mann, 10 M&W 545 (1842)
Last clear chance doctrine
Riggs v. Palmer, 22 N.E. 188 (1889)
Can a murderer inherit from the person whom
he murdered?
Four Areas of Law
Property
Contract
Tort
Criminal
Property Law
Legal framework for allocating resources
and distributing wealth
Economic Goal: efficient resource allocation
Economic Theory of Property
Bargaining theory (game theory)
Public goods theory
Externalities theory
4 Questions
1.
2.
3.
4.
What things may be privately owned?
How are ownership rights established?
What can owners do with their property?
How are property rights protected?
Example 2 (p75)
Orbitcom, Inc., spent $125 million designing,
launching, and maintaining a satellite for the
transmission of business data between Europe and
the US. The satellite is positioned in a
geosynchronous orbit 25 miles above the Atlantic
Ocean. Recently a natural resource-monitoring
satellite belonging to the Windsong Corp. has
strayed so close to Orbitcom’s satellite that the
company’s transmissions have become unreliable.
As a result, Orbitcom has lost customers and has
sued Windsong for trespassing on Orbitcom’s right
to its geosynchronous orbit.
Smoke from BBQ
Economics of Bargaining
Peter owns a horse which he claims is worth $9,000 to
keep, and Mary covets the horse and decides she is willing
to pay $11,000 for it. Mary has $15,000 inheritance
income.
Non-cooperative outcome: no trade (threat values)
Cooperative outcome: trade at mutually agreed price
Value of Non-cooperative Outcome = $9000 + $15,000 = $24,000
Reasonable sale price = $10,000
Value of Cooperative Outcome = [10,000] + [11,000 + 5,000] = $26,000
Cooperative Surplus = $2,000
Coase Theorem
Ronald A. Coase, “The Problem of Social Cost,”
3 J. L. & Econ. 1 (1960)
Aunt Linda and the Nudist
Rifle River
Aunt Linda
$1500
Nudist
$1250
$1000
Judge rules in favor of Aunt Linda
Fence comes down
Judge rules in favor of Nudist
Fence comes down
(Linda pays Nudist)
2
rulings
A Theorem and a Corollary
Coase Theorem
If transactions costs are low enough, then private bargaining
will result in an efficient use of resources, regardless of the
legal assignment of property rights.
Corollary
When transactions costs are high enough to prevent
bargaining, the efficient use of resources will depend on
how property rights are assigned.
Search costs
Negotiation costs
Enforcement costs
Lubricate or Allocate?
Normative Coase Theorem
Structure the law so as to remove
impediments to private agreements
Prior appropriation: “first in time, first in right”
Water rights in western US
Homesteading Act
Normative Hobbes Theorem
Structure the law so as to minimize the harm
caused by failures in private agreements
Lubricate or Allocate?
Lawmaker tradeoff:
IC = information cost of the court in
determining who values a right the most
TC = transaction costs of private bargaining
Efficient courts would follow this rule:
If IC < TC allocate legal right to the party
who values it the most
If TC < IC strictly follow precedent
How are property rights protected?
Remedies for violations:
Damages (legal)
Torts or contracts
compensatory money payment
“backward-looking”
Injunctions (equitable)
Property
an order to perform or refrain from an action
“forward-looking”
FlexMag v. Neighbors
Neighbors
No
Insulation
No Wall
Wall
2000, 500
2000, 700
1600, 800
1600, 700
FlexMag
Insulation
FlexMag has D.S.: No Insulation
Neighbors don’t have D.S.
FlexMag v. Neighbors
Non-Cooperative
Outcome
Cooperative
Outcome
FlexMag
Neighbors
Surplus
FlexMag
Neighbors
2000
700
0
2000
700
2. Neighbors’
right to
damages
1700
800
200
1800
900
3. Neighbors’
right to
injunction
1600
800
300
1750
950
1. Polluter’s
Rights
Normative Hobbes: only rule 1 is efficient
Coase Theorem: choice of rule doesn’t matter
Calabresi and Melamed (1972)
If TC are low, then injunctions are efficient
For private bads
If TC are high, then damages are efficient
For public bads
What can be privately owned?
Private goods: rival and excludable
Public goods: non-rival and non-excludable
Free rider problem
Conclusion:
Private goods should be privately owned
Public goods should be publicly owned
What may owners do with their
property?
Externality exception to maximum liberty
doctrine
What Can Be Privately Owned?
Information Economics
How is information different from other goods?
It’s (usually) a public good
Under-provision remedies
Government supply or subsidy
Charitable contribution
Trade secrets protection (contract law)
Intellectual property law
Patents
Copyrights
Trademarks
Weather Forecasting?
Patent Law
Legal monopoly
rights for 20 years
Number of Patents Issued per year in US
Non-obvious
Practical utility
Not commercialized 1 year prior to application
Suppose that an investment of $100,000 in research yields a
pioneering invention that has no commercial value. A
subsequent investment of $50,000 in development yields an
improvement to the pioneering invention that has commercial
value of $1 million. An efficient patent law would grant the
patent to:
a)
b)
c)
d)
The pioneer
The developer
Equal rights to both
Neither of them
Patent Law: Breadth
Broad: encourages fast, duplicative
fundamental research
Little stand-alone value
Narrow: encourages slower,
complementary developmental research
Large stand-alone value
R&D is a “joint product”
Unified R&D efforts?
What would Coase say?
Patent Law: Duration
Tradeoff: innovation v. dissemination
$
MC
One size fits all?
MB
D*
duration
Germany: petty patents
Business methods?
Orphan drugs
Prizes?
Copyright
Prevents unauthorized copying of the
products of expressive activity
Breadth
Fair use
Sony Betamax case: “time-shifting” vs “archiving”
Duration
Life of artist + 70 years
Why limit duration?
Tracing costs exist
Why has duration increased?
Copying costs have fallen
“Droit de suite”
Is resale of art the same as
reproduction of art?
Pt = $ 1,000
Pt+n = $10,000
France requires a resale
royalty be paid to original
artist (or heirs)
California requires resale
royalty by paid to artist
(while living)
Trademarks
Signal of product quality
Duration of TM left to owner
Tradenames that have become generic?
Anti-commons?
Common property is subject to the
“tragedy of the commons”
Corrective: assign private property rights
Excessive ownership rights
Leads to under-use
DNA patents and the public domain?
Open source computing
When should unowned resources
become owned?
Privatize when cost of
administering boundaries is
less than cost of congestion
How are Property Rights Established?
Oil
Hammonds v. Central Kentucky Natural Gas Co (1934)
How are Property Rights Established?
Fugitive Property
First possession: property doesn’t belong to
anyone until someone extracts it
Tied ownership: fugitive property is tied to
something else that is easier to establish
How are Property Rights Established?
Oil
How are Property Rights Established?
Fugitive Property
First possession: property doesn’t belong to
anyone until someone extracts it
Simple to administer
Encourages inefficient pre-emptive investments
Tied ownership: fugitive property is tied to
something else that is easier to establish
Costly to administer
Encourages efficient use of resource
Stack Island
thalweg
Louisiana
Mississippi
What can be done to prove ownership?
Paper titles for cars
Deeds for property
Branding
Livery of seisin
Stolen goods?
US: thief can not give good title
Buyers bear risk of verification
Europe: thief can give good title
Original owners bear risk of verification
Liability should fall on those who can bear the risk at lowest cost