Presentation on theme: "Law & Legal Institutions"— Presentation transcript:
1 Law & Legal Institutions Civil LawLegislatively enactedInquisitorial processCommon LawBased on social norms and precedentAdversarial processUse of juries
2 Law & Legal Institutions State CourtsTrial courts: “entry level” courtsAppellate courtsSupreme courtsFederal Courts94 districts13 appellate districtsUS Supreme CourtFederal Jurisdiction:Federal questionsCases to which US is a partyDiversity cases
3 Nature of a Legal Dispute PartiesPlaintiffDefendantBurden of ProofCivil cases: preponderance of evidenceCriminal cases: beyond a reasonable doubtVerdict/JudgmentAppellate decisionsAffirmReverseRemand
4 Evolution of Common Law Butterfield v. Forrester, 11 East 60 (1809)Contributory negligenceDavies v. Mann, 10 M&W 545 (1842)Last clear chance doctrineRiggs v. Palmer, 22 N.E. 188 (1889)Can a murderer inherit from the person whom he murdered?
6 Property LawLegal framework for allocating resources and distributing wealthEconomic Goal: efficient resource allocationEconomic Theory of PropertyBargaining theory (game theory)Public goods theoryExternalities theory
7 4 Questions What things may be privately owned? How are ownership rights established?What can owners do with their property?How are property rights protected?
8 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.
10 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 tradeCooperative outcome: trade at mutually agreed price(threat values)Value of Non-cooperative Outcome = $ $15,000 = $24,000Reasonable sale price = $10,000Value of Cooperative Outcome = [10,000] + [11, ,000] = $26,000Cooperative Surplus = $2,000
11 Coase TheoremRonald A. Coase, “The Problem of Social Cost,” 3 J. L. & Econ. 1 (1960)
12 Aunt Linda and the Nudist Rifle RiverAunt LindaNudist$1500$1250$1000Judge rules in favor of Aunt LindaJudge rules in favor of NudistFence comes down2rulingsFence comes down(Linda pays Nudist)
13 A Theorem and a Corollary Coase TheoremIf transactions costs are low enough, then private bargaining will result in an efficient use of resources, regardless of the legal assignment of property rights.CorollaryWhen transactions costs are high enough to prevent bargaining, the efficient use of resources will depend on how property rights are assigned.Search costsNegotiation costsEnforcement costs
14 Lubricate or Allocate? Normative Coase Theorem Structure the law so as to remove impediments to private agreementsNormative Hobbes TheoremStructure the law so as to minimize the harm caused by failures in private agreementsPrior appropriation: “first in time, first in right”Water rights in western USHomesteading Act
15 Lubricate or Allocate? Lawmaker tradeoff: IC = information cost of the court in determining who values a right the mostTC = transaction costs of private bargainingEfficient courts would follow this rule:If IC < TC allocate legal right to the party who values it the mostIf TC < IC strictly follow precedent
16 How are property rights protected? Remedies for violations:Damages (legal)compensatory money payment“backward-looking”Injunctions (equitable)an order to perform or refrain from an action“forward-looking”Torts or contractsProperty
17 FlexMag v. Neighbors Neighbors FlexMag No Wall Wall No Insulation 2000, 5002000, 700FlexMagInsulation1600, 8001600, 700FlexMag has D.S.: No InsulationNeighbors don’t have D.S.
18 Non-Cooperative Outcome FlexMag v. NeighborsNon-Cooperative OutcomeCooperativeOutcomeFlexMagNeighborsSurplus1. Polluter’s Rights20007002. Neighbors’ right to damages170080020018009003. Neighbors’ right to injunction16003001750950Normative Hobbes: only rule 1 is efficientCoase Theorem: choice of rule doesn’t matter
19 Calabresi and Melamed (1972) If TC are low, then injunctions are efficientFor private badsIf TC are high, then damages are efficientFor public badsTwo qualifications:High TCAward injunctions if relative valuations knownAward damages if absolute valuation knownLow TCAward injunction when plaintiff can estimate defendant’s compliance costs more readily thanthe defendant can estimate the plaintiff’s damages
20 What can be privately owned? Private goods: rival and excludablePublic goods: non-rival and non-excludableConclusion:Private goods should be privately ownedPublic goods should be publicly ownedFree rider problem
21 What may owners do with their property? Externality exception to maximum liberty doctrine
22 What Can Be Privately Owned? Information EconomicsHow is information different from other goods?It’s (usually) a public goodUnder-provision remediesGovernment supply or subsidyCharitable contributionTrade secrets protection (contract law)Intellectual property lawPatentsCopyrightsTrademarksWeather Forecasting?
23 Patent Law Legal monopoly rights for 20 years Non-obvious Number of Patents Issued per year in USLegal monopoly rights for 20 yearsNon-obviousPractical utilityNot commercialized 1 year prior to application
24 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:The pioneerThe developerEqual rights to bothNeither of them12345
25 Patent Law: BreadthBroad: encourages fast, duplicative fundamental researchNarrow: encourages slower, complementary developmental researchR&D is a “joint product”Unified R&D efforts?What would Coase say?Little stand-alone valueLarge stand-alone value
26 Patent Law: Duration Tradeoff: innovation v. dissemination $ MC One size fits all?MBD*durationGermany: petty patentsBusiness methods?Orphan drugsPrizes?
27 CopyrightPrevents unauthorized copying of the products of expressive activityBreadthFair useSony Betamax case: “time-shifting” vs “archiving”DurationLife of artist + 70 yearsWhy limit duration?Tracing costs existWhy has duration increased?Copying costs have fallen
28 “Droit de suite” Is resale of art the same as reproduction of art? France requires a resale royalty be paid to original artist (or heirs)California requires resale royalty by paid to artist (while living)Pt = $ 1,000Pt+n = $10,000
29 Trademarks Signal of product quality Duration of TM left to owner Tradenames that have become generic?
30 Anti-commons?Common property is subject to the “tragedy of the commons”Corrective: assign private property rightsExcessive ownership rightsLeads to under-useDNA patents and the public domain?Open source computing
31 When should unowned resources become owned? Privatize when cost of administering boundaries is less than cost of congestion
32 How are Property Rights Established? OilHammonds v. Central Kentucky Natural Gas Co (1934)
33 How are Property Rights Established? Fugitive PropertyFirst possession: property doesn’t belong to anyone until someone extracts itTied ownership: fugitive property is tied to something else that is easier to establish
35 How are Property Rights Established? Fugitive PropertyFirst possession: property doesn’t belong to anyone until someone extracts itSimple to administerEncourages inefficient pre-emptive investmentsTied ownership: fugitive property is tied to something else that is easier to establishCostly to administerEncourages efficient use of resource
37 What can be done to prove ownership? Paper titles for carsDeeds for propertyBrandingLivery of seisinStolen goods?US: thief can not give good titleBuyers bear risk of verificationEurope: thief can give good titleOriginal owners bear risk of verificationLiability should fall on those who can bear the risk at lowest cost