ECONOMIC ANALYSIS OF THE LAW
Winter 2014 – Dr. George B. Y.
Course Description:
This course introduces the concepts of law & economics. Over the last forty years, economics has
become one of the most important tools for those who want to understand the effect legal rules have
on the way people behave. Having understood the economic intuitions, students will be able to
explain the consequences of different legal rules, to assess which legal rules are economically
efficient, and to predict which legal rules will be promulgated.
The topics covered in this course include the Coase theorem, the choice between property and
liability rules, the allocative effects of alternative liability rules (e.g., strict liability versus negligence);
the determination of damages for breach of contract; the economics of legal procedure; etc.
No prior acquaintance with economics or calculus is assumed; the relevant economic concepts are
developed through an examination of particular legal applications. Students need not be afraid of
excessive math in the course - math will be minimal and very simple. Law & economics is not about
drawing graphs or solving equations, it is about learning the underlying intuitions and a new and
exciting way too look at the world.
Teaching Methodology:
The class will be based on the Socratic Method of teaching legal concepts which is extensively
employed in the top US law schools. My goal in class would be to force students to arrive at the core
economic intuitions by themselves through a dialog that guides their thinking. This would ensure a
deeper understanding of the subject and would also teach students to apply their intuitions, rather
then memorize.
Reading: The basic text will be Richard Posner’s Economics Analysis of Law (9th ed.). It will be in the
library by the beginning of the course. For further background reading, I recommend Steven Shavell’s
Foundations of Economic Analysis of Law (for law and economics), Gregory Mankiw’s Principle of
Economics (for basic microeconomics), and Baird, Gertner and Picker’s Game Theory and the Law.
Grading:
Grades will be based on a 5-6 hour final examination and to some extent (up to 5%) – on class
participation. The exam will be open-book written take-home exam. The class will be graded on a
curve. Three points will be taken off students attending less than 75% of the classes.
Outline and Reading:
I.
II.
Introduction (Ch. 1, all §§, pp. 3-27. Ch. 2, all §§, pp. 29-35.)
Property law (Ch. 3, §§ 3.1-3.4, pp. 39-61. Ch. 3, §§ 3.5-3.9, pp. 61-86. Ch. 3, §§ 3.10-3.16,
pp. 86-114.)
a. The Coase Theorem
b. Costs and Benefits of Property Rights o Establishing Property Rights
c. Scope of Property Rights
d. Protection of Property Rights
ПРОЕКТ
III.
IV.
V.
VI.
VII.
VIII.
IX.
e. Intellectual Property
Contract law (Ch. 4, §§ 4.1-4.9, pp. 115-149. Ch. 4, §§ 4.10-4.15, pp. 149-170.)
a. Contract Formation
b. Defenses to Contractual Obligation o Contract Interpretation
c. Performance or Efficient Breach?
d. Damages v. Specific Performance
Tort law (Ch. 6, §§ 6.1-6.9, pp. 213-243. Ch. 6, §§ 6.10-6.17, pp. 243-272.)
a. Social Cost of Accidents
b. Incentives for Precautions, Negligence and Hand Formula
c. Tort Law under Uncertainty
d. Medical Malpractice
e. Product Liability
f. Tort Law Damages
Criminal law (Ch. 6, skim § 6.15, pp. 265-267 (review intentional torts), read Ch. 7, §§
7.1-7.2, pp. 273-87. Ch. 7, §§ 7.3-7.12, pp. 287-314.)
a. Why Tort Law is Not Enough
b. Rational Crime and Deterrence
c. Optimal Amount of Crime Deterrence: Above Zero?
d. Death Penalty, Drugs, and Handgun Control
Civil and criminal procedure (Ch. 21, §§ 21.1-21.9, pp. 757-775. Ch. 21, §§ 21.10-21.19,
pp. 775-808. Ch. 22, all §§, pp. 819-840.)
a. Economic Goals of Legal Procedure
b. Costs of Errors
c. Settlements
Theory of the firm (Posner, Ch. 14, §§ 14.1-14.5, pp. 529-551, and §§ 14.7-14.12, pp.
553-568.)
a. Nature of the Firm
b. Outsourcing
c. Modigliani-Miller Theorem
Behavioral law & economics (to be assigned later)
a. Nature of Morality
b. Cultural Cognition
c. Happiness
d. “Libertarian” Paternalism
Public Choice (to be assigned later)
a. Basic Paradoxes of Public Choice
b. Interest Groups and Rent-Seeking
c. Legislation and Statutory Interpretation
2