LAW AND ECONOMICS
Economics 340
Prof. Zorina Khan
104 Hubbard Hall
725-3841; zkhan@bowdoin.edu
Law and economics is one of the most rapidly growing areas in the social sciences. The field applies the
concepts and empirical methods of economics to further our understanding of the legal system. This course
will explore the economic analysis of law and legal institutions, including the economics of torts, contracts,
property, crime, courts, and dispute resolution. The class will also focus on topics in law and economics such
as antitrust and regulation, corporations, the family, labour markets, product liability, and intellectual property.
Students will be introduced to online sources of information in law and will be required to apply economic
reasoning to analyze landmark lawsuits in each of these areas.
Prerequisites: Economics 255.
Grading:
Midterm (25), Final (30), Paper and short questions (30), Presentations and Class Participation (15). Students
are required to complete a paper, short questions, midterm, and final exam, and also to contribute to class
discussions. Several brief case analyses or other questions will be handed out during the semester as
homework. Make-up exams for the final exam are only possible in the event of a serious illness (yours), with a
written explanation that is presented within one week of the exam. No make-up is offered for the midterm; if
the midterm exam is waived because of a valid excuse, the entire weight will be transferred to the final exam. I
do not advise this unless you are a risk-taker. Class participation will be graded on the basis of the quality of
comments (not simply on the frequency), so please read all articles in advance of class.
The presentations and short questions are to be completed in teams of two. The paper should be an
original piece of research and not merely a literature survey. Choose one of the topics on the reading list; by
the sixth week of class submit six pages: a preliminary four page survey of the literature, and a two page
proposal. The proposal should state the problem that you plan to investigate, the evidence, and the method that
will be applied. You may use qualitative evidence, but the analysis should be logical and rigorous. The
completed research project should be between 10-15 pages in length -- please type, double-spaced, in 10 pt.
courier font. All graphs/exhibits should be clearly labelled, with notes and sources. Avoid the possibility of a
charge of plagiarism by citing the references for borrowed information (whether fully quoted or simply
paraphrased). I recommend footnotes in short form, with a complete bibliography at the end of the paper.
Many economists do not acknowledge that numeracy does not preclude being literate; don't make the same
error: consult a manual of style if necessary, and ensure that your paper is readable and comprehensible. I am
happy to comment on preliminary drafts, but these must be prepared well in advance of the due date.
OFFICE HOURS: Tuesday 4-5; Wed. 11-12, and by appointment.
USEFUL LEGAL RESOURCES:
General legal online resources [www.findlaw.com]
Encyclopaedia of Law and Economics [http://allserv.rug.ac.be/~gdegeest/tablebib.htm]
Data about lawsuits [http://teddy.law.cornell.edu:8090/questata.htm]; [http://www.uscourts.gov/]
An online text, Law=s Order [http://www.daviddfriedman.com/laws_order/index.shtml]
REQUIRED READINGS
* Starred articles indicate optional readings where you may rely on class notes if you wish.
1. Introduction
Richard A. Posner and Francesco Parisi, "Law and Economics: An Introduction," in Posner and Parisi (eds)
Law and Economics, Edward Elgar (1997).
"Critiques of the Economic Approach;" and Gary Becker, "The Economic Approach to Human Behavior;" in
Avery Katz (ed) Foundations of the Economic Approach to Law, Oxford University Press (1998).
*George Priest, "The Common Law Process and the Selection of Efficient Rules," v. 6 Journal of Legal Studies
(1977): 65.
*Robert Cooter and Daniel Rubinfeld, "Economic Analysis of Legal Disputes and Their Resolution," v. 27
Journal of Economic Literature (1989): 1067. [jstor]
2. Property
Ronald H Coase, "The Problem of Social Cost," v. 3 JLE (1960): 1.
Harold Demsetz, "When Does the Rule of Liability Matter?" v. 1 JLS (1972): 13.
*Steven Landsburg, AWhen Property is Theft@ (http://Slate.msn.com/Economics/97-08-02/Economics.asp)
*Guido Calabresi and A. Douglas Melamed, AProperty Rules, Liability Rules, and Inalienability: One View of
the Cathedral,@ 85 Harv. L. Rev. 1089 (1972).
[Cases: Fontainebleau Hotel v. Forty-Five Twenty-Five Inc., 114 So.2d 357 (Florida, 1959); Ploof v. Putnam,
81 Vt. 471, 71 A. 188 (Vt., 1908); Vincent v. Lake Erie Transport, 109 Minn. 456, 124 M.W. 221 (1910);
Moore v. Regents of UC, (CA 1988); Poletown v. City of Detroit, 410 Mich. 616 (1981); Boomer v. Atlantic
Cement (NY 1970); Columbus-America v. Atlantic Mutual Insurance Co., 974 F.2d 450 (1992) ]
3. Contract
*Benjamin Klein and Keith Leffler, "The Role of Market Forces in Assuring Contractual Performance," v. 89
Journal of Political Economy (1981): 615. [jstor]
*Lisa Bernstein, "Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry,"
v. 21 JLS (1992): 115.
[Cases: Salsbury v. Northwestern Bell, 221 N.W. 2d 609 (Iowa 1974); Campbell v. Wentz, 172 F.2d 80
(1948); Deitz v. Music Co. 453 N.E. 2d 1302 (1983); Union Oil Co. v. Oppen 501 F. 2d 558 (1974); Neri v.
Retail Marine Corp, 30 N.Y. 2d 393 (1972); United States v. Causby, 328 U.S. 256 (1946); Pitsenberger v.
Pitsenberger, 287 Md. 20 (1980); Stelmack v. Glen Alden Coal (1940); ProCD, Inc. v. Zeidenberg, 86 F.3d
1447 (7th Cir. 1996); Brower v.Gateway 2000, Inc., 246 A.D.2d 246, 676 N.Y.S.2d 569 (1998)(shrinkwrap
licence) ]
4. Torts
Robert Cooter and Thomas Ulen, "An Economic Theory of Tort Law," Law and Economics.
George Priest, "The Modern Expansion of Tort Liability," Journal of Economic Perspectives 5 (3) 1991: 31-50.
[jstor]
*W. Kip Viscusi, "The Dimensions of the Product Liability Crisis," v. 20 JLS (1991): 147.
[Cases: McMahon v. Bunn-O-Matic, 150 F.3d 65 (1998)(hot coffee); Palmer v. Liggett Group, 825 F.2d 620
(1987); Cipollone v. Liggett Group, 111 Sup. Ct. 1386 (1991); Escola v. Coca Cola, 24 C. 2d 453 (CA, 1944);
Scott v. Alpha Beta Company, 163 Cal. Rptr. 544 (1980); Murray v. Fairbanks Morse, 610 F.2d 149 (1979);
Perin v. Nelson; DAMAGES: Sherrod v. Berry, 629 F. Supp. 159 (1985); Sturm Ruger & Co v. Day, 594 P.
2d 38]
5. Crime and Punishment
Gary Becker, "Crime and Punishment: An Economic Approach," v. 76 JPE (1968): 169. [jstor]
Isaac Ehrlich, "The Deterrent Effect of Criminal Law Enforcement," JLS v. 1 (1972): 259.
*David Friedman, "Rational Criminals and Profit-Maximizing Police," in The Economics of Human
Behaviour, (eds) M Tommasi and K Ierulli:43-58.
[Death Penalty Information Center, a group that opposes the death penalty: www.essential.org/dpic/ ;
Gregg v. Georgia, Sup Ct 428 U.S. 153, 1976; McCleskey V. Kemp, 481 U.S. 279, 1987]
6. Law of Corporations
Frank H. Easterbrook and Daniel Fischel, "Limited Liability" (Chapter 2), The Economic Structure of
Corporate Law, Harvard University Press (1991).
Frank H. Easterbrook and Daniel Fischel, "Tender Offers" (Chapter 7), The Economic Structure of Corporate
Law, Harvard University Press (1991).
*Michael Jensen and William Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs and
Ownership Structure," v. 3 JFE (1976): 305.
[Shlensky v. Wrigley 237 N.E. 2d 776 1968; Smith v. van Gorkom; Paramount v. QVC, 1993; Edwards v.
Monogram 730 F. 2d 977 1984; United States v. Kayser-Roth 724 F. Supp. 15 (1989) [piercing
corporate veil]; MacAndrews and Forbes Holdings v. Revlon 501 A. 2d 1239 1985 [defensive measures by
managers]; Paramount v. Time 571 A. 2d. 1140 1990 (Sup. Ct. of Del.) (business judgement rule)]
7. Securities Law
Kenneth E. Scott, "Insider Trading: Rule 10b-5, Disclosure and Corporate Privacy," v. 9 JLS (1980).
*George J. Benston, "Required Disclosure and the Stock Market: An Evaluation of the Securities Exchange
Act of 1934," v. 63 AER (1973): 132. [jstor]
*Gregg Jarrell, "The Economic Effects of Federal Regulation of the Market for New Securities Issues," JLE 24
(Dec.) 1981: 613.
[Dirks v. SEC 463 US 646 1983; US v. Teicher (987 F. 2d 112 1993); United States v. David Carpenter
et al. 791 F. 2d 1024 1986; SEC v. Chiarella]
8. Copyright Law
W Landes and R Posner, "An Economic Analysis of Copyright Law," v. 18 JLS (1989): 325.
Stanley Besen and Leo J. Raskind, "An Introduction to the Law and Economics of Intellectual Property," JEP 5
(1) 1991: 3-27. [jstor]
[N.Y. Times Co. v. Tasini, 533 U.S. 483 (2001);Campbell v. Acuff-Rose Music, Inc. 29 U.S.P.Q.2d 1961
(1994); Napster v. Metallica, 2000; Vanna White v. Samsung Electronics; Diamond v. Chakrabarty, 447 U.S.
303 (1980); Basic Books et al. v. Kinko's 758 F. Supp. 1522 (1991) ]
9. Family and Labour
E Landes and R Posner, "The Economics of the Baby Shortage," v. 7 JLS (1978): 323.
John Donohue III, "Prohibiting Sex Discrimination in the Workplace: An Economic Perspective," v. 56
U. Chicago Law Review (1989): 137. [lexis]
*Margaret F. Brinig, "Rings and Promises," v. 6 JLEO (1990): 203.
[Cases: In Re. Baby M., 537 A. 2d 1227 (1988); UAW v. Johnson controls, 886 F.2d 871(1989) (gender
discrimination); Griggs v. Duke Power Co.; AFSCME v. State of Washington, 770 F.2d 1401 (1985);
Kolstadt v. American Dental Assoc. 139 F. 3d 958 (1998); Namenwirth v. Board of Regents, 769 F.
2d 1235 (1985) (tenure)]
CLASS SCHEDULE
Sept
Oct.
Nov.
Nov
Dec.
Dec.
5
10
12
17
19
24
26
1
3
8
10
11-15
17
22
24
29
31
5
7
12
14
19
21
26
27-Dec. 2
3
5
10
Introduction
A
Property
Seminar
[Computer Resources Class: Meet in H-L]
Contract
A
Seminar
Tort
"
Seminar
FALL VACATION
Crime and Punishment
"
Seminar
Moot Court
MIDTERM EXAM
Law of Corporations
Seminar
Securities Law
Seminar
Copyright Law
A
Seminar
THANKSGIVING HOLIDAY
Family and Labour
Seminar
Moot Court
Dec. 12-15
Reading Period
Dec. 16-21
Final Exams
READING CASES
I. Assess the case in factual legal terms:
Identify the plaintiffs, defendants, court
What were the main issues being disputed?
What were the arguments of the plaintiff and of the defendant?
What was the decision of the court and the reasons for the decision?
II. Assess the case in terms of economic issues:
Identify the key economic issues and concepts: e.g. what were the property rights
involved; was the assessment of damages rational?
Was there any evidence of market failure?
Was the decision in the case efficient?
Relate to general economic theories of the law (e.g. Ellickson, Coase, Horowitz)
With which models of law and economics was the decision in/consistent?
SUGGESTIONS FOR RESEARCH TOPICS
You are likely to produce a superior research paper if you choose a topic that you personally find stimulating.
Please feel free to come to talk about potential projects early in the semester. The following are only intended
as a preliminary guide to your own ideas:
METHOD
*Compare and economically analyse legal doctrines or cases over time/topic
*Economic analysis of legal procedure, rule or issue
*Empirical study
TOPICS
Technology and Law
Defensive measures against corporate takeovers
Piercing the corporate veil
Economics of capital punishment
Economics of copyright on the internet
The impact of environmental law on innovation
Corporate fraud and monitoring mechanisms
White collar crime
The economic consequences of media coverage of crimes
Economics of personal bankruptcy
Signalling and insider trading
Are social norms relevant to law and economics?
Industrial distribution of trade secrets litigation
Law and economics in Eastern Europe
Plagiarism and the economics of intellectual property
Is the war on drugs economically efficient?
Should the United States export its laws to LDCs?
The law and economics of the market for academic journals
Legal innovations of the 21st Century
Does the Anew economy@ warrant new legal rules?
Economic analysis of the U.S. Constitution
The economics of the Rehnquist Court
GUIDELINES FOR ECON 340 CLASS PARTICIPATION
1. Please raise your hand before making a comment. This allows everyone to have an equal chance to be heard,
rather than the "first one out of the box" (the fastest draw in the West was not necessarily the best draw!). Grades
will depend on the QUALITY of the contributions made, not on the frequency or rapidity of
response.
2. The first objective of participation is learning. Please listen carefully to the comments of the student who is
speaking, and realize that we can learn from every comment. This is especially true of comments with which we
disagree. Agreement is not an end in itself: in fact, disagreement is more likely to be the start of the learning
process. Consider WHY you disagreed: was it because of the logic of the argument? because of a
misunderstanding? did the speaker misuse economic theory -- if so, which particular aspect? was the statement
factually incorrect?
3. Economic analysis should be objective, and resolved through the use of logic and evidence rather than personal
convictions. Realize that it *might* be possible that it is your position that is not supported by reason or evidence,
so be open to other views and prepared to change your mind.
4. We will be considering a number of sensitive issues. Respect the beliefs of others, especially when they differ
from your beliefs. We will all benefit if our class is a comfortable place for the free exchange of ideas without
prejudice or the fear of (even if playful) ridicule.
5. Please be patient and supportive during presentations, and provide constructive comments that will serve to
improve the final product.
6. Be efficient in the use of class time: make your point, then yield to others.
7. Everyone in class has a right and an obligation to be active in discussions and should be prepared to respond if
called upon. It is fine to pass if you=re not prepared at that particular moment but if this occurs frequently this will
be grounds for a lower grade in terms of class participation.
In sum, effective class participation is the source of significant positive externalities. This class will work
only if we all do!