econ 141 test 1

List three types of copyrighted material.

1) books, 2) plays, 3) music, 4) dance, 5) movies and pictures but NOT ideas.

three examples where fair use is allowed.

1) teach, 2) news reporting, 3) parody, 4) critical comment.

List the rules of fair use

1) the nature of the work borrowed; 2) the amount you borrowed; 3) something that doesn't change the original work's value in the marketplace (commercial impact).

4 Qs for property law:

1. How are ownership rights established? 2. What can be privately owned? 3. What may owners do with their property 4. What are the remedies for violation of PR?

justifications for property rights? List each of the six reasons discussed in class

1. Incentives to work 2. Incentives to maintain and improve things 3. Incentives to transfer things 4. Avoidance of dispute and of efforts to protect or to take things 5. Protection against risk and uncertainty (liability, acts of God) 6.Achievement of a desired distribution of wealth

How did Friedman's Homestead Act of 1862 change payoffs?

A return on the land, but less than before the Homestead Act was passed.

What is the public domain?

A work in the public domain is free for anyone to use. After copyright expires, copyrighted work moves into the public domain

Who was counted, historically in the Homestead Act of 1862?

American settlers

Summarize Friedman's case for freedom of contract

As long as there exists a change in the terms of our deal that would produce net benefits, there is a way of making that change that benefits both of us. Hence we would expect rational bargainers to come up with contract terms that maximize the net gain. If our objective is economic efficiency, that is both an attractive outcome and an argument for enforcing contracts as written.

Haggling over the price is an ex of..

BARGAINING

Collecting the monthly payments for the purchase of the car is an ex of..

ENFORCING

The buyer asking the seller questions about the car's ignition system is an ex of..

ENFORCING

A plane fails to take off and strands all its passengers in the airport overnight. is an ex of a...

Expectation Damages

What are some attributes of intellectual property that make it different from other kinds of property?

For a patent, an idea must be novel, nonobvious, and useful. For a copyright, a work must have been expressed in a tangible medium (fixation), and it must be original from the claimant/shows a modicum of creativity

How long does copyright last in the United States?

For individuals, it is currently a lifetime plus 70 years. For a company, copyright lasts over 100 years.

Suppose that a railroad runs beside a field in which commercial crops are grown. The railroad is powered by a steam locomotive that spews hot cinders out of its smokestack. From time to time those cinders land on the crops nearest to the track and burn them to the ground. Assume that each year, the farmer whose crops are burned loses $3000 in profits, and that the annual cost to the railroad of installing and maintaining a sparkarrester that would prevent any damage to the crops is $1750. Does it matter to the efficient use of the farmer's land or to the efficient operation of the railroad whether the law protects the farmer from invasion by sparks or allows the railroad to emit sparks without liability? Why or why not?

It does not matter to the efficient use of the farmer's land or the railroad operation whether the law protects the farmer or the railroad if there are zero transaction costs because the parties can negotiate for the socially optimal outcome. If there are positive transaction costs, the property right should be assigned to the least cost avoider

If the plaintiff is more averse to risk than his or her lawyer, would this fact incline the client to prefer a contingency fee or an hourly fee?

It would incline them to prefer a contingency fee, which would mean they wouldn't pay anything unless they won.

In Chapter 10 of Law's Order, Friedman discusses homesteading. Name the legislative act which Friedman describes in the book and explain how the change in the law changed

Legislation: Homestead Act of 1862

You outbid me at the auction is an ex of a...

MARKETS

How might these two types of property rights conflict with each other?

May be complete or incomplete (partial)

List each example of the emergence of property rights which Demsetz gives in "Toward a Theory of Property Rights".

Montagnes in Quebec - beavers and the fur trade Southwest Native American tribes - herd animals

My building blocks your sunlight is an ex of a...

NEGATIVE EXTERNALITY

Noise lowers the sale value of my house is an ex of a...

NEGATIVE EXTERNALITY

Space trash falls out of orbit is an ex of a...

NEGATIVE EXTERNALITY

A political caucus agrees to deliver votes on an upcoming bill, but in the end, they come up one vote short is an ex of a...

No legal remedy

Who is allowed to use the copyrighted work?

Only the copyright owner has the right to use their work. It's forbidden to use a copyright work without permission granted by the copyright work and anyone who threatens copyright has broken the law.

Bees pollinate your apple trees is an ex of a...

POSITIVE EXTERNALITY

A lighthouse warns ships about rocks is an ex of a...

PUBLIC GOODS

Buffy Summers spends her summers slaying vampires is an ex of a...

PUBLIC GOODS

Why is it efficient to limit the duration of patents and copyrights, whereas real property rights endure almost forever?

Patents and copyrights are set up to stimulate innovation in new and often abstract ideas (technology, art, music, etc.) as the idea can be easy to duplicate without compensation back to the original creator. However, we want to encourage the spreading of ideas (which also build on each other) and therefore limits are placed the time creators can collect royalties on the IP. Real property rights usually endure forever because the product of real property is tangible and not reproducible at zero (or close to zero) cost, and the cost of limiting rights in real property (discouraging investment in real property) exceeds the benefits of reallocation of property or its dividends.

what is the the rational choice model?

People are rational (they have aims and take steps to meet those aims)

explain the assumptions behind the rational choice model.

People can adjust their behavior in response to changing rules, costs, and benefits

What goes into this bundle?

Property rights at a given place, time, contingency, e.g. renting and subletting

A ship fails to come into port, and the distributor is left without goods to take to market is an ex of a...

Reliance Damages

A tech company is hired to develop a new security system for a client and the contract specifies they will be paid half now, half when the product is delivered - but the product is never delivered. is an ex of a...

Restitution Damages

iA family trying to adopt a child has paid all the fees associated with the adoption, but the adoption agency refuses to complete the adoption (assume there is nothing shady going on with the family). s an ex of a...

Restitution Damages

. Purchasing an advertisement in the "classified" section of the newspaper is an ex of..

SEARCHING

Purchasing a newspaper to obtain the "classified" section is an ex of..

SEARCHING

Taking time off from work for the buyer and seller to meet is an ex of...

SEARCHING

At Time 0, Kara pays for Sam's promise to deliver ships at Time 2. Sam then renounces the contract at Time 1. Perfect substitutes for Sam's ships exist in the market. A futures contract at Time 1 for a substitute ship costs 110. Kara, however, does not buy a substitute at Time 1 and instead waits until Time 2 and purchases a substitute on the spot market, which turns out to cost 125. Kara then sues for expectation damages of 125, and Sam responds that expectation damages equal 110. The court must decide which level of damages to apply. Explain why the choice between these two damage remedies matters little to the future behavior of parties like Kara and Sam.

The amount which Sam must pay Kara ($110 or $125) would not influence the behavior or incentives of future parties as long as some damages are paid.

How did Friedman's Homestead Act of 1862 change future homesteading?

The effect of the Homestead Act was to wipe out, in costs of premature farming (around 1870 instead of 1890) a large part of the land value of the United States. In other words, the Homestead Act encouraged overproduction and too much settlement by dropping the land value price to zero.

Suppose that a writer completes a novel at age 40, which is then covered by copyright. At an interest rate of 10 percent, the present value of $1 paid after 105 years equals much less than 5 cents. What does this fact suggest about whether the efficient duration of copyright is longer or shorter than currently provided by law? Can you suggest an alternative system to incentivize novel writing? Is one necessary?

The efficient duration of copyright is shorter than currently provided by law. Alternatives to incentivize novel writing could include private awards (e.g. from the Pulitzer Prize), patrons (as in the Renaissance), trademarks (infinite credit but not a monopoly), and possibly others.

Under a contingency fee, the plaintiff bears none of the lawyer's costs of a trial. Consequently, the plaintiff can take a hard position in bargaining over a settlement. Explain why the plaintiff's lawyer might also benefit from this commitment to hard bargaining.

The plaintiff's lawyer benefits from larger awards

When the patent expired on a drug named "Librium" (a sedative that was the forerunner of Valium), its price dropped from $15 to $1. Explain why this drop in price occurred. Relate your explanation to the problem of efficient incentives for creating and transmitting an idea.

The price fell as there was no longer a monopoly on the drug and with generic alternatives, the price fell to the competitive level. The initial patent, however, allowed for monopoly prices to reward innovation and incentivize future innovation.

What do we mean by a "bundle of rights" with respect to property?

The right to use, the right to transfer, the right to transform, the right to destroy, the right to expand, the right to not transfer, etc. (The right to use stuff as well as the right to stop others from using your stuff)

What is fair use?

There are limitations on copyright, known as fair use. Copyright may be broken - you can borrow a small amount of a copyrighted work

Contingency fees are common for the plaintiff's lawyer in America, but not for the defendant's lawyer. Under a contingency fee contract, the defendant would pay a fixed amount to a lawyer at the beginning of the legal process and the lawyer would receive a fraction of the trial judgment. Are the incentive effects of contingency fees the same for the plaintiff's lawyer and the defendant's lawyer?

They are not the same; the defendant does not want to pay anything and so minimizing costs leads to hourly/fixed rates instead of contingency fees

How did Friedman's Homestead Act of 1862 change incentives?

Too much farming too early.

What is copyright?

a permanently fixed original work in some form that can be seen or heard.

In the famous case of Taylor v. Caldwell, the plaintiff Taylor, leased the defendant's concert hall for four nights at 100 pounds sterling to be paid to Caldwell after each performance. Shortly after the first performance, the concert hall was destroyed by fire. Taylor sued Caldwell for breach of contract and asked the court to award him as damages the expenses he incurred in preparation for the last three performances. The defendant sought to be excused from performing on the ground that it was literally impossible for him to perform the contract after the fire. a. What factors enable one party to prevent a risk better than another? b. What factors enable one party to insure against a risk better than another? c. Do these factors tend to converge or diverge, or is their association merely coincidental? d. How would you decide this case in light of economic analysis?

a. Caldwell is better able to prevent fires, and Taylor is better able to prevent expenses for future performances. b.Caldwell can purchase fire insurance which covers expectation damages, and Taylor and Caldwell could have included a damages clause for this in their contract. c. The factors tend to converge. d. Answers may vary, but the approach using expectation damages or reliance damages would require Caldwell to compensate Taylor for expenses and lost earnings.

. Kate pays $10,000 to New Orleans grain dealer Juliet in exchange for Juliet's promise to deliver grain to Kate's London office on October 7. As a result of signing this contract, Kate decides not to sign a similar contract with another dealer for $10,500. Juliet contracts with shipping company Widmore, Inc. to transport the grain. Kate agrees to resell the grain on arrival in London for $11,000 to another party. Kate pays $100 in advance (nonrefundable) as docking and unloading fees for the ship's projected arrival in London. The ship begins taking water several days out of New Orleans and returns to port. Inspection reveals that the grain is badly damaged by salt water, and Kate sells it as cattle fodder for $500. Kate then purchases the same quantity of grain for delivery on October 7 at a price of $12,000. a. How would you measure expectation damages for Juliet's breach of contract with Kate? b. How would you measure reliance damages?

a. Expectation damages = V - P = $11,000 - $500 = $10,500 b. Reliance damages = R = $100 for the nonrefundable docking and unloading fees

Rank the following six transactions from lowest to highest transaction costs.

a. Getting married. b. Buying a starfruit. c. Acquiring an easement to run a gas line across your neighbor's property. d. Selling a Burger King franchise. e. Going to college. f. Purchasing a warranty for a new car. g. Purchasing a warranty for an old car.

What are the four conditions for squatter's rights?

a. Occupancy of the land is open b. Occupancy is without the permission of the true owner c. The true owner makes no protest d. The land is occupied continuously for X years (often 10 years)

Consider the right to smoke or to be free from smoke in the following situations. In which situations do you think that transaction costs are so high that they preclude private bargains, and in which cases do you think that transaction costs are low enough for private bargains to occur?

a. Smoking in a private residence. b. Smoking in a public area, such as a shopping mall, an indoor arena or concert hall, or an outdoor stadium. c. Smoking in hotel rooms. d. Smoking on commercial airline flights.

Here is a timeline for breach of contract that leads to litigation. On Jan. 1, Albus contracts to deliver a widget to Remus on June 1 at a price of $2 to be paid on delivery. On April 1, Albus renounces the contract. At that time, Remus can buy a widget for immediate delivery for $3, or Remus can contract with Minerva to deliver a widget on June 1 at a price of $3.25. Remus does not buy a widget for immediate delivery or contract for future delivery. On June 1, Remus's suit against Albus succeeds. The court finds that Albus breached the contract on April 1. The court wants to give Remus perfect expectation damages. On June 1, Remus can buy a widget for $4. a. Should the court give damages of $1.25, $2, $3, $3.25, $4, or $5? Why? b. Should the award depend on whether Remus bought a widget on April 1, or signed a contract with Minerva on April 1, or bought a widget on June 1?

a. Under expectation damages, the court should make Remus as if the contract had never been breached, and so should award expectation damages of $2 so Remus can buy the widget with no consumer surplus loss. Expectation damages = V - P = $4 - $2 = $2, which with the original $2 B can buy the widget at the new price of $4. b. No. The award depends only on making Remus whole as if the contract had been completed.

When would we exspect PR to emerge?

benefits outweigh costs of instituting and maintaining PR

Commonalities of tragedy of commons and anticommons

both involve mis-use of a resource and a market failure due to poor property rights

List and define the two major types of property rights discussed in class.

continuous or discontinuous possessory rights and rights of transfer

Incentives to maintain and improve things def

i. Avoid the problem of the commons ii. When individuals hold possessory rights in durable things, they will have an incentive to improve assets and benefit themselves

Incentives to transfer things def

i. Fosters the beneficial transfer of assets ii. the ability to trade enhances social welfare indirectly by allowing the most efficient use of methods of production (leading to specialization) iii. relies on a right to transfer and not just the possessory right

Avoidance of dispute and of efforts to protect or to take things def

i. Minimizes the costs associated with disputes about who can use (or not use) something ii. In the absence of property rights, individuals will find it rational (and valuable) to devote existing resources and effort to taking assets from others (either in the wild, e.g. unclaimed assets like the buffalo, leading to the problem of the commons, or in civilization, where assets are already claimed but not protected by property rights)

Protection against risk and uncertainty (liability, acts of God) def

i. Protects against theft ii. Allows for insurance and risk-sharing

Summarize Friedman's case against freedom of contract

incentives may not be aligned to make efficient contracts, and there may be limits on what prices can be set in the contract (e.g. rent control) There are costs imposed on third parties who are left out of the contracting process. People may also not be rational (in which case we could claim they were not competent and the contract not be upheld).

information of repetitive value def:

information that is useful for producing multiple units of things, e.g. the words of a book, the design of a new device (protected by patent, copyright, and trade secret law)

How might changing the parties who are counted in a social welfare analysis change the homestead act of 1862?

it can change what the socially optimal decision is. "The homesteader spends resources in order that he, rather than the next possible claimant, will end up possessing a particular piece of land. In each case actors are competing with each other to get something valuable that already exists and, in the process, spending resources roughly equal to the value of what they are getting."

Differences of tragedy of commons and anticommons

one involves overutilization due to no ability to exclude; the other involves underutilization due to too much exclusion

what are the 3 types of property rules:

property rule, liability rule, and inalienable entitlement

property rule def

protect a property right so yuou can only be parted from it voluntarily

information that possesses value as a label def:

signifies characteristics of a good or service, e.g. logos, product packaging and brand names (protected by trademark law)

define property possessory rights

the right to do stuff with your stuff and not let other people do stuff with your stuff

define property rights of transfer

the right to transfer your stuff and rights to do stuff to said stuff to another person, who may then transfer the stuff in turn

Incentives to work explanation

the socially optimal outcome is achievable under property rights where each individual has rights in his own output, and social welfare will be maximized i. Avoid too much work (worried about risk) ii. Avoid too little work (to just steal)

define Tragedy of the anticommons

too many owners of a single good who all exercise potential exclusion rights

define tragedy of the commons

too many users of a single good none of whom can exercise potential exclusion rights

inalienable entitlement def:

you got to keep it. Nobody can take it from you

liability rule def:

you own th eproperty right, but someone else can take the right if they compensate you