Econ 522
Economics of Law
Dan Quint
Fall 2009
Lecture 1
I’m Dan Quint, this is Econ 522, Economics
of Law
 Class website: http://www.ssc.wisc.edu/~dquint/econ522
 If you’re not yet registered, put your name and info on
yellow pad
 If you haven’t taken Econ 301, talk to me after class
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Some more logistics
 Teaching Assistant: Chao
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Sections on Fridays, starting next week
Questions about section – talk to Chao
 Office hours
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Me: Wednesdays, 1:30-3:30, other times by appointment
Chao: Mondays, 10-11 and 2:45-3:45
 Attending lecture (I recommend it)
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Grades
 Grades are based on
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occasional homeworks (probably 3 or 4) – 20% total
two midterms – 20% each
final exam – 40%
 Midterms tentatively scheduled for Oct 13 and Nov 5
 Final is December 17
 Please let me know EARLY if…
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you have an exam conflict, or
you’re a McBurney student and need special accommodations
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Readings
 Textbook: R. Cooter and T. Ulen, Law and
Economics
 Another book I like: D. Friedman, Law’s Order
 Additional readings (links on syllabus)
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Warning: THIS IS A HARD CLASS
 This class is really about how to think like an economist
 I see economics as a set of tools/a way to analyze
problems, not a collection of “right answers”
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Nothing you can memorize to do well if you don’t “get it”
 (Not trying to scare everyone off, I’d just rather say this
now than after the first midterm)
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What is
“Law and Economics”?
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What is Law and Economics?
 unsatisfying answer:
“thinking about the law like an economist”
 microeconomics is about how people respond to incentives
 we’ll be using microeconomics (including a little bit of game
theory) to analyze laws and legal systems
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the incentives they create
and the actions and outcomes they lead to
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How do economists look at the law
differently than lawyers?
 suppose something has happened
 when a lawyer sees the case, the “damage is already done”
 all that’s left is to assign blame, and maybe punish someone
or have someone give money to someone else

this is interesting to the people involved, but not interesting to
economists
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So what part of the law is interesting to
economists?
 before the incident happened, lots of decisions were made
 expectations/beliefs about what will happen after the fact
influence these decisions
 these decisions have an impact on outcomes
 and these decisions therefore affect how much value is
created (or destroyed) by society
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which is very interesting to economists
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So conceptually,
ECONOMISTS (us)
LAWYERS
the law
actions/
decisions
something
happens
litigation
outcome
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How economists think about the law
differently – example
You live in a state where the most severe criminal punishment
is life imprisonment. Someone proposes that since armed
robbery is a very serious crime, armed robbers should get a life
sentence.
A constitutional lawyer asks whether that is consistent with the
prohibition on cruel and unusual punishment. A legal
philosopher asks whether it is just.
An economist points out that if the punishments for armed
robbery and for armed robbery plus murder are the same, the
additional punishment for the murder is zero –
and asks whether you really want to make it in the interest of
robbers to murder their victims.
Friedman, Law’s Order, p. 8
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Of course, there’s a lot that leaves out
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Outline of the class
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Course outline…
 Property law
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what things can be owned?
what can (and can’t) owners do with their private property?
 Contract law
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what can and can’t we contract on?
what constitutes a legal contract?
what happens if one of us doesn’t live up to our end of a
contract?
what “default rules” stand in for terms we don’t specify?
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Course outline…
 Tort law
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who’s responsible for accidents? what do they owe?
 The legal process itself
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what is the goal of the legal system? how do we achieve it?
 Criminal law
 other topics if there’s time
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A bit of history
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A bit of history
 Two great Western legal traditions of the last millennium

Common Law

Civil Law
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The Common Law
 originated in 12th century England,
under King Henry II
 still the basis for legal system in many
English-speaking countries
 new laws enacted by legislature
 judges interpret law, relying heavily on precedent
 so common law rooted in common practices, except
where it’s been changed by legislation
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The Civil Law
 persists today in most of Western
Europe, Central and South America,
parts of Asia
 originated following French Revolution
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revolutionaries felt judges, like the king,
were “corrupt and worthless”
Napoleon commissioned a group of legal scholars to draft a new
set of laws – the Napoleonic Code
 less reliance on historical norms and precedents
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So to sum up…
Civil Law
Common Law

orig. 18th century France
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orig. 12th century England
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persists in Western Europe
and some other places

persists in U.S., U.K., other
English-speaking countries
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based on “ancient sources
and pure reason” (group of
scholars with blank slate)
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based on existing practices
and social norms
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arguments focus on legal
precedents, and why
particulars of past cases
make them relevant to
current case

legal arguments appeal
directly to interpretation of
the law itself, and to
commentary which clarifies
its meaning
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Whaling
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A nice example of how the common law
responds to local norms and practices
 Question: who owns a dead whale?
 1700s-1800s – whales hunted for
oil, bone, other valuable products
 a captured whale could be worth 3-4 times a typical
family’s yearly income
 conflicts would sometimes arise over ownership
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What’s the problem?
It frequently happens that when several ships are cruising in
company, a whale may be struck by one vessel, then escape,
and be finally killed and captured by another vessel….
[Or] after a weary and perilous chase and capture of a whale,
the body may get loose from the ship by reason of a violent
storm;
and drifting far away to leeward, be retaken by a second
whaler, who, in a calm, snugly tows it alongside, without risk of
life or line.
Thus the most vexatious and violent disputes would often arise
between the fishermen…
- Melville, Moby Dick
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Robert Ellickson (1989), A Hypothesis of WealthMaximizing Norms: Evidence from the Whaling Industry
 Examines 12 British and American court rulings where
ownership of a dead whale was contested
 In each case, the local whaling industry had established
norms which were well-suited to that environment
 And in each case, the common-law court ruled in
accordance with the existing norms
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One norm: “fast fish/loose fish”
 Discussed in Moby Dick
 Established by British whalers in Greenland fishery
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Prey were right whales – relatively slow and docile
Hunting was done by harpoon attached to whaling boat by rope
 A harpooned whale attached to a boat was a “fast fish”
and belonged to the boat it was attached to
 If the whale broke free, or had not yet been harpooned, it
was a “loose fish” and other ships were free to pursue it
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A different norm: “iron holds the whale”
 The rule in fisheries where sperm whales were hunted
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sperm whales swim faster, dive deeper, fight harder
hunted with harpoons attached to “drogues”
sperm whales swim in schools
 The rule that developed: “iron holds the whale”
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if you harpoon a whale first, you own it…
…as long as you remain in “fresh pursuit”
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Clear tradeoff between the two rules
 “Iron holds the whale” is more complicated
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What if a whale is found with multiple harpoons in it?
What constitutes “fresh pursuit”?
 “Fast fish/loose fish” is a simpler, “bright-line” rule
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Less ambiguity, should lead to fewer disputes
But wouldn’t work well with sperm whales
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Too dangerous to hunt sperm whales with harpoons tied to boat
Wasteful to let rest of a school swim away while trying to secure first
whale
 Tradeoff between simpler rule versus better incentives
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A third norm developed where finback whales
were hunted
 Finbacks are extremely fast swimmers
 19th-century whalers hunted them with “bomb lances”
 Dead finbacks would sink, wash up on shore days later
 Norm developed that original killer and the finder of the
whale would split it

Ghen v Rich (1881)
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Conclusions from Ellickson
 Ellickson’s emphasis: in each location, norms developed
which were well-suited to that environment
 My point: in each case, the judge ruled according to the
local custom
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So that’s whaling law
 To connect it to more modern concerns…
 Brian Gray (UC Hastings) wrote a legal brief using same
principles to determine ownership of a souvenir baseball
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Ownership of Barry Bonds’ 73rd home run ball was disputed
Alex Popov had the ball in his glove first, but lost it in the scrum
Patrick Hayashi ended up with the ball, both wanted it
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Gray’s legal brief captures essence of
common law:
“Simply put, the Court should adopt a rule of first possession for
baseballs that recognizes the longstanding customs and practices of
baseball fans who for more than seventy years have competed to catch
and gain title to baseballs that leave the field of play…
With these principles in mind, the Court should define the law of first
possession of baseballs… by answering two questions:
First, what is the custom, practice, and understanding of baseball
fans about first possession and title to baseballs that enter the stands?
Second, should the rules as practiced in the stands be modified to
minimize the risk of violence, misconduct, and tortious behavior?”
(in the end, ball was sold for $450,000, proceeds were split 50/50)
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So that’s a bit of law
 Next week, we’ll do some economics
 If you’re not registered, make sure your name’s on the
yellow pad
 If you haven’t taken Econ 301 (or equivalent), please come
talk to me
 Have a good weekend, see you Tuesday
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