The Economic Approach to Law

by Miceli, Thomas J.

• ISBN13: 9780804746557
• ISBN10: 0804746559
• Format: Hardcover
• Copyright: 2003-11-11
• Publisher: Stanford Univ Pr

Summary

In recent decades, the economic approach to law has developed into a mainstream field of study for both legal scholars and economists. This book provides a textbook treatment of the subject, primarily directed toward undergraduate economics students. It presumes a basic familiarity with economic principles, but little knowledge of the law. An effort is made to show both how economic principles can explain the actual structure of the law, and how they can help to make the law more efficient. The book emphasizes unifying themes and methodologies rather than an exhaustive coverage of legal topics. To that end, the scope of analysis is limited to the basic common law areas of torts, contracts, and property, as well as the legal process and criminal law. The hope is that after reading the book, students can apply the basic principles to other areas of law.

Author Biography

Thomas J. Miceli is professor of economics at the University of Connecticut.

Table of Contents

List of Tables and Figures	p. xv
Preface	p. xix
Introductory Concepts	p. 1
What is Law and Economics?	p. 1
Positive and Normative Analysis	p. 2
Is Efficiency a Valid Norm for Evaluating Law?	p. 3
Efficiency Concepts	p. 4
Pareto Efficiency	p. 4
Potential Pareto Efficiency, or Kaldor-Hicks Efficiency	p. 5
Consensual Versus Nonconsensual Exchange	p. 6
The Coase Theorem	p. 7
The Law in "Law and Economics"	p. 10
The Nature of the Common Law	p. 10
The Court System in the United States	p. 11
Conclusion	p. 12
Discussion Questions	p. 12
Problems	p. 13
Review of Microeconomics	p. 15
The Theory of the Consumer and Market Demand	p. 16
The Theory of the Firm and Market Supply	p. 20
Market Equilibrium	p. 23
Perfect Competition	p. 23
Monopoly	p. 25
Oligopoly and Game Theory	p. 27
Welfare Economics	p. 30
Welfare Theorems	p. 30
Market Failure	p. 31
Uncertainty and Imperfect Information	p. 32
Choice Under Uncertainty and Insurance	p. 32
Moral Hazard	p. 34
Adverse Selection	p. 36
An Economic Model of Tort Law	p. 38
What Is a Tort?	p. 38
The Social Function of Tort Law	p. 39
Elements of a Tort Claim	p. 39
Cause-in-Fact	p. 40
Proximate Cause	p. 41
Liability Rules	p. 41
An Economic Model of Accidents: The Model of Precaution	p. 42
The Unilateral Care Model	p. 42
Social Optimum	p. 43
Actual Care Choice by the Injurer	p. 43
Comparison of Strict Liability and Negligence	p. 45
Bilateral Care Model	p. 46
No Liability and Strict Liability	p. 47
Negligence	p. 48
The Hand Rule	p. 48
The Reasonable-Person Standard	p. 50
Contributory Negligence	p. 52
Negligence with Contributory Negligence	p. 53
Strict Liability with Contributory Negligence	p. 54
Further Topics	p. 55
Sequential Care Accidents	p. 55
The Injurer Moves First	p. 55
The Victim Moves First	p. 56
Last Clear Chance	p. 56
Comparative Negligence	p. 57
Causation and Liability	p. 59
Cause-in-Fact	p. 59
Proximate Cause	p. 61
Res Ipsa Loquitur	p. 63
Uncertainty over Causation	p. 64
Activity Levels	p. 66
Punitive Damages	p. 68
The Judgment-Proof Problem	p. 70
The Impact of Liability Insurance	p. 71
Litigation Costs	p. 72
Legal Error	p. 73
The Statute of Limitations for Tort Suits	p. 74
Intentional Torts	p. 74
Valuing Human Life and Safety	p. 75
Conclusion	p. 77
Discussion Questions	p. 77
Problems	p. 78
Applying the Economic Model of Tort Law	p. 80
Products Liability	p. 80
A Brief History of Products Liability Law	p. 82
An Economic Model of Products Liability	p. 84
Equilibrium Price and Output for a Dangerous Product	p. 85
Care Choices by Manufacturers and Consumers	p. 88
Consumer Perceptions of Risk	p. 89
A Note on Custom as a Defense	p. 91
Recent Trends	p. 92
Evidence on the Impact of Products Liability Laws	p. 92
Concluding Remarks	p. 93
Workplace Accidents	p. 93
Respondeat Superior	p. 94
Accidents in which the Victim Is an Employee	p. 94
Workers' Compensation Laws	p. 95
Liability for Environmental Damages	p. 96
Characteristics of Environmental Accidents	p. 97
Multiple Victims	p. 97
Causal Uncertainty	p. 98
Superfund	p. 100
Case Study: Asbestos	p. 102
Medical Malpractice	p. 103
Customary Practice and Informed Consent	p. 105
Do Physicians Practice Defensive Medicine?	p. 105
Conclusion	p. 106
Discussion Questions	p. 106
Problems	p. 107
The Economics of Contract Law I: The Elements of a Valid Contract	p. 109
Contracts and Efficient Exchange	p. 109
The Elements of a Valid Contract	p. 112
Reasons for Invalidating Contracts	p. 113
Mental Incapacity or Incompetence	p. 114
Coercion or Duress	p. 114
Mistake and the Duty to Disclose Private Information	p. 116
Purely Distributive Information	p. 118
Socially Valuable Information	p. 121
Casual Versus Deliberate Acquisition of Information	p. 122
Disclosure of Unfavorable Information	p. 123
Unconscionability	p. 124
Conclusion	p. 125
Discussion Questions	p. 126
Problems	p. 126
The Economics of Contract Law II: Remedies for Breach	p. 128
The Efficient Breach Model	p. 129
Money Damages and Efficient Breach	p. 130
Incentives for Efficient Reliance	p. 133
Mitigation of Damages	p. 137
Impossibility and Related Excuses	p. 138
Efficient Risk Sharing	p. 139
Commercial Impracticability	p. 142
Specific Performance	p. 144
Transaction Costs	p. 145
Subjective Value and Efficient Breach	p. 146
The Value of Consent	p. 147
Self-Enforcement of Contracts	p. 149
Liquidated Damage Clauses	p. 149
Product Warranties*	p. 150
Express Warranties	p. 151
Implied Warranties	p. 153
Long-Term Contracts*	p. 154
Conclusion	p. 157
Discussion Questions	p. 158
Problems	p. 158
The Economics of Property Law: Fundamentals	p. 161
The Nature and Function of Property Rights	p. 162
The Definition of Property Rights	p. 162
Property Rights and Incentives	p. 163
The Emergency of Property Rights	p. 164
Enforcement of Property Rights	p. 166
Fundamentals of the Economics of Property Law	p. 167
The Coase Theorem	p. 168
The Assignment of Rights and the Distribution of Wealth	p. 171
Examples of the Coase Theorem	p. 172
The Role of Transaction Costs	p. 175
Enforcement of Property Rights	p. 176
Property Rules and Liability Rules	p. 176
The Choice Between Property Rules and Liability Rules	p. 177
Trespass and Nuisance	p. 179
The General Transaction Structure	p. 181
Consensual Transfers of Property	p. 185
The Legal Protection of Ownership	p. 185
Should the Law Protect the Possessor or the Claimant? An Analysis of Land Title Systems*	p. 187
Land Title Systems: Recording Versus Registration	p. 187
Land Title Systems in the United States	p. 190
Title Protection and Economic Development	p. 191
Limited and Divided Ownership	p. 192
Leasing	p. 192
The Lease: A Contract or Conveyance?	p. 193
Mitigation in Leases	p. 194
The Law of Waste	p. 194
Sharecropping	p. 196
Private Versus Group Ownership	p. 197
The Optimal Scale of Ownership	p. 197
Public Goods	p. 198
The Anticommons Problem and the Right to Partition*	p. 199
Time-Limited Property Rights: Intellectual Property	p. 199
Patents	p. 200
Copyrights	p. 202
Conclusion	p. 203
Discussion Questions	p. 204
Problems	p. 204
Involuntary Transfers and Regulation of Property	p. 207
Involuntary Transfers and Restrictions on Transfers Between Private Parties	p. 208
Adverse Possession	p. 208
The Mistaken Improver Problem*	p. 210
Inheritance Rules	p. 213
Primogeniture	p. 213
The Rule Against Perpetuities	p. 214
Government Acquisition of Property Under Eminent Domain	p. 214
The Eminent Domain Clause	p. 215
Public Use and the Scope of the Takings Power	p. 215
The Meaning of Just Compensation	p. 219
Case Study on the Determination of Just Compensation: "The Assassin's Bequest"	p. 221
Eminent Domain and Land Use Incentives	p. 222
The No-Compensation Result	p. 222
Arguments Against the No-Compensation Result	p. 224
Government Regulation of Property	p. 225
The Compensation Question	p. 226
Tests for Compensation	p. 226
An Economic Model of Regulatory Takings	p. 229
Implications of the Efficient Compensation Rule	p. 232
Investment-Backed Expectations: Does the Market Eliminate the Need for Compensation?*	p. 234
Regulation Versus the Common Law	p. 235
Conclusion	p. 238
Discussion Questions	p. 239
Problems	p. 239
The Economics of Dispute Resolution	p. 242
The Litigation Process	p. 243
Why Do Trials Occur?	p. 245
The Differing Perceptions, or Optimism Model	p. 246
The Asymmetric Information Model	p. 248
The Social Versus Private Incentive to Sue	p. 250
Procedural Rules and Litigation Costs	p. 252
Discovery	p. 252
The English Versus American Rule	p. 253
The English Rule and Settlement	p. 253
The English Rule and the Incentive to File Suit	p. 255
Evidence on the Impact of the English Rule	p. 256
Rule 68	p. 257
Contingent Fees	p. 259
The Benefits of Contingent Fees	p. 259
Contingent Fees and Settlement	p. 261
Do Contingent Fees Promote Frivolous Suits?	p. 261
Frivolous Suits	p. 262
Court Delay	p. 264
Alternative Dispute Resolution	p. 265
Evolution of the Law	p. 266
Selection of Disputes for Trial	p. 267
Is the Common Law Efficient?	p. 268
Empirical Evidence on Legal Change	p. 270
Judicial Decision Making and Legal Change	p. 271
Decision by Precedent	p. 271
An Economic Model of Precedent	p. 271
Precedents as a Stock of Knowledge	p. 274
Procedural Responses to Legal Errors	p. 274
The Standard of Proof	p. 274
Appeals as a Means of Error Correction	p. 276
What Do Judges Maximize?	p. 277
Judicial Self-Interest and the Law	p. 278
Pragmatism and the Economic Approach to Law	p. 278
Conclusion	p. 280
Discussion Questions	p. 280
Problems	p. 281
The Economics of Crime	p. 283
Distinguishing Crimes and Torts	p. 284
Crimes Are Intentional	p. 284
Other Reasons for Public Enforcement	p. 284
Examples of Private Enforcement	p. 286
Property Rules, Liability Rules, and Criminal Sanctions	p. 287
The Economic Model of Crime	p. 288
The Offender's Decision to Commit a Crime and the Supply of Offenses	p. 289
Optimal Punishment	p. 290
The Optimal Fine	p. 291
Gain Versus Harm-Based Fines	p. 291
Fines and Imprisonment	p. 292
Prison, Probation, and Parole	p. 294
The Probability of Apprehension Is Variable	p. 295
Why Are Fines Not Equal to Offenders' Wealth?	p. 297
Repeat Offenders	p. 301
Empirical Evidence on the Economic Model of Crime	p. 302
The Death Penalty	p. 303
Economics of the Death Penalty	p. 304
Constitutional Issues	p. 305
The Bail System	p. 305
Private Protection	p. 307
Plea Bargaining	p. 308
Economic Models of Plea Bargaining	p. 309
Plea Bargaining and Deterrence	p. 311
A Comparative Perspective	p. 312
Topics	p. 313
Crime and the Business Cycle	p. 313
Gun Laws and Crime	p. 315
Primitive Law Enforcement	p. 317
Some Constitutional Issues	p. 318
Free Speech	p. 318
The Rule Against Self-Incrimination	p. 320
The Right of Privacy	p. 321
Conclusion	p. 323
Discussion Questions	p. 324
Problems	p. 325
Answers to In-Chapter Exercises	p. 327
Notes	p. 337
Works Cited	p. 355
Index	p. 375
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