Law & Economics Vocabulary

Adverse posession elements

when a person in possession of land owned by someone else may acquire valid title to it

Foreseeable misuse

By contrast, there is a duty to warn against known risks of foreseeable misuse.

Holden v. Hardy (1898)

the Supreme Court ruled "states (Utah) may limit the number of hours workers are allowed to work in hazardous industries." miners state law

Paternalism

the policy or practice on the part of people in positions of authority of restricting the freedom and responsibilities of those subordinate to them in the subordinates' supposed best interest.

Contract Curve

the set of all Pareto-efficient bundles where the slope of both indifference curves (parties entering the transaction) are the same

stipulated damages

the sum agreed by the parties to be paid, on a breach of a contract, by the party violating his engagement to the other generally are court enforceable but not if they are viewed as unreasonably excessive, that is "penalties"

simultaneity exchange

trying to make an exchange in a state of nature as "simultaneous" as possible

West Coast Hotel v. Parrish (1937)

upheld a minimum wage law on the ground that a business is a social institution. ended the Lochner era women worked in hotel paid less than state mandated minimum wage. court reversed previous case that ruled out minimum wage regulation

Static efficiency

utilization of existing assets

Harm Principle

"The only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others." The consequences: (1) liberty of thought and expression; (2) liberty of tastes and pursuits; (3) liberty of combinations among individuals

unconscionability

2 types: procedural: defect in the bargaining process that makes it suspicious that it's not a full bargain for exchange. one may have more bargaining power than the other. substantive: the contract term is so unfair that it shocks the conscience if both types are in the contract, then maybe it is unconscionable. The court has incredible discretion once this is ruled to be true.

Poletown Neighborhood Council v. Detroit

5th: Dispute over eminent domain. General Motors planned a major plant to be built in Detroit to help stimulate the economy and help unemployment. The neighborhood argued against eminent domain. Outcome: GM victory, plant built. In 2004, this was case was overturned. Economic development no longer became legitimate reason for eminent domain law.

stare decisis

A Latin phrase meaning "let the decision stand." Most cases reaching appellate courts are settled on this principle.

Attractive Nuisance

A dangerous place, condition, or object that is particularly attractive to children

Endangered Species Act of 1973

A law requiring the federal government to protect all species listed as endangered.

Common Law

A legal system based on custom and court rulings Doesn't require Parliament or legislature

Kaldor-Hicks improvement

Aggregate win > aggregate loss, so that size of pie increases Theoretically, could redistribute the pie so that everyone is better off, but this is not mandated. All Pareto improvements are Kaldor-Hicks improvements but not vice versa (Hicks) losers should not be able to bribe winners to prevent the switch

Radical Markets by Eric Posner and Glen Whale

All property should be subject to wealth tax. Assets should be declared price. Whatever price they name is available for anyone to purchase your asset for

Berman v Parker (1954)

Allowed to redevelop land of department store that was not blighted in blighted area in D.C.

Specific Performance

An equitable remedy requiring the breaching party to perform as promised under the contract; usually granted only when money damages would be an inadequate remedy and the subject matter of the contract is unique (for example, real property). might require courts to monitor contractual behavior carefully, which is not the court's comparative advantage

Mechanism design, Myerson and Satterthwaite (1983)

Buyer and seller each have private information When we try to introduce people into a bargaining situation, bargaining is not fully optimal. The asset will not always end up in the hands of the party that values it most highly 100% of the time. Imperfect information is enough to prevent full on optimality.

moral rights

Artists want right to have their work attributed to them and not held up to ridicule

Palsgraf v. Long Island Railroad

Background: Man tried to board train with fireworks, RR attendants attempted to help him onto trail, but the package was dropped and the fireworks exploded, causing Palsgraf to be injured. Palsgraf sued RR for negligence I: Foreseeability, negligence R: Must suggest causation - foreseeability A: RR hadn't been negligent toward her because her injury was not forseeable C: Palsgraf's complaint was dismissed

Friederich Hayek: "The Use of Knowledge in Society" (1945)

Central allocation of goods is difficult because everyone locally has some bits of knowledge about cost and demand. Knowledge cannot be statistically aggregated and sent to central authority Central planner will allocate goods with bad information. Price mechanism competitive markets provide information that allows people at their local market to make decisions that are more or less correct. Even if locally people don't know everything that is happening either.

Richard Posner

Common law systems allow rules to develop in ways that make rules inefficient. If a law is inefficient, it will likely bring more disputes that eventually overturn this inefficiency. Contract law supports this argument. If you don't like the common law rule, you can override it in your contract.

Categories of animals

Companion animals Research animals Food or farmed animals Working animals Wild animals (including endangered species) Captive animals

Lochner v. New York (1905)

Declared unconstitutional a New York act limiting the working hours of bakers due to a denial of the 14th Amendment rights started the Lochner era were economic regulation came before the Supreme Court

Liberty of Contract

Defined as being within the liberties protected by the due-process clause of the Fourteenth Amendment; when it came to labor laws, this translated into an employee's "liberty" to contract for work under the most oppressive conditions without interference from the state.

"All economic institutions are better than they seem"

Don't judge economic institutions on allocation, but what kinds of trades are possible from there to improve the efficiency of the outcome. If it's easy to trade away from inefficiency that institution presented, then it's a good institution. If not, then maybe not such a good institution.

Yoram Barzel "The Formation of Rights"

Economic efficiency driving whether things are left in public or private, not just about the legal side. Property rights are continually being created or abandoned, are not all or nothing. Example: Restaurants don't usually charge for seats that are closer to the window or for long periods of stay. Some may not charge extra for condiments. Are the good seats in the theatre purposely "underpriced"? There's a policing issue. If they charge extra for nicer seats, they will have to police the fancier seats for the people who paid for them. If you slightly underprice the highly desirable seats, more people will be interested in buying the tickets and are likely to police the high price area themselves.

28 hour law of 1873

First federal law protecting animals against cruel or abusive treatment While transporting animals to slaughter, can't keep them from food and water for more than 24 hours Save for chickens and turkeys

R.H. Coase, "The Nature of the Firm" (1937)

First well known paper that attempts to answer questions like: Why are firms the size that they are? A lot of economic behavior occurs within firm, not just in markets. Why do they buy some stuff outside and make other stuff in-house? Should we make it or buy it? Why isn't the entire economy one big firm?

Pierson v. Post (1805)

Fox is chased by hunters. Interloper kills fox and makes off with the carcass. Who is the legitimate owner?

Farm Animals: The Five Freedoms

Freedom from Hunger and Thirst Freedom from Discomfort Freedom from Pain, Injury, or Disease Freedom to Express Normal Behavior Freedom from Fear and Distress

Hawaii Housing Authority v Midkiff (1984)

Government allowed to take over land possessed by a dozen people that owned 70% of the island

Hadley v Baxendale (1854)

Hadley enlisted shipping company Baxendale job to deliver broken crankshaft to a repairman. Baxendale dawdled on delivery, causing the repaired crankshaft to arrive back at the mill too late. Court elected to protect only reasonable, foreseeable reliance, which was not the case with the mill's closure. The Hadley limitation on the protection of reliance may overcome the socially excessive reliance result that comes with a full return reliance protection via the expectation measure

tragedy of the anti-commons

If assets has a lot of owners but not open access. Need their approval to use it in some new way. Too many veto holders, if you need unanimity, it can cause assets to be underused. Altogether, sum demand compensation of veto players can outweigh the social surplus of the project.

liability rule

If somebody uses your property right without your permission, they have to pay you an amount that is determined by court. It's not a crime for somebody to take and use your property if there's a liability in place. Don't like depending on liability rules, precisely because the amount required to pay is determined by the court. When compensation is determined by court, the number can discourage infringements that are Pareto improvements or encourage infringements that aren't Pareto improvements.

eminent domain

If the government needs to assemble all this land for a road. It can coercively take from the various landowners. Not give them a veto. So prevent tragedy of the anticommons.

Coase Theorem

If transaction costs are 0, Pareto efficient outcomes are achieved. If 0 transaction costs, then the hypothetical compensation in K-H could be realized into a Pareto improvement.

Coase Corrollary

If transaction costs are 0, resource allocation is independent of the distribution of property rights. Requires income effects to be 0 -change in wealth brought about by distribution of property does not change your marginal willingness to trade off the goods in question Though resource allocation is unaffected, the individual payoffs will vary based on the initial assignment of rights

substantive due process

In the 5th and 14th Amendment Constitutional requirement that governments act reasonably and that the substance of the laws themselves be fair and reasonable; limits what a government may do. not just about the process of law but the substance of the law lives on in abortion, privacy, same-sex marriage

Statutory law/ civil law tradition

Law passed by the U.S. Congress or state legislatures

Tort Law

Law that deals with harm to a person or a person's property. aims to provide incentives for appropriate care (hence deterring excessively risky activity) and at compensating accident victims

Is it better to have a common law or civil law system?

Looks like a common law system to be able. Better at spurring economic growth. Feature of common law, slightly improved protections for individual property owners. Their property will not be put at risk from government behavior

Preventing Animal Cruelty and Torture Act (2019)

Makes some types of animal abuse federal felonies

fair use exception

Material can be reproduced for criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research 4 part test: nature of the work being copied, nature of fair use, to what extent does copy undermine the market prospects of the original work Don't need the permission of the author. Borrowing likely would have been approved by the copyright holder but would have required a costly transaction

Williams v. Walker-Thomas Furniture Co.

Ms. Williams was a customer. Store offered credit and make payments on installment plan. Over several years, Williams had bought $1200 worth of goods. Williams was not a wealthy person. She had paid back over $1000 of the goods. She had less than $200 credit when she bought something new. Bought the stereo, was given the store credit. Defaulted on the consumer loan. Walker-Thomas wanted to take back the stereo and everything she had purchased from them in the past couple of years. Clause in the contract was cross-collateralization. Until balance is 0, you don't outright own anything. Paid 80% of each of them, all can serve as collateral against the balance. Sent case back to the trial court. Introduced the question: was there an opp for the parties to draft things differently? doesn't seem like a fair bargain of exchange.

Butterfield v Forrester (1890)

Plaintiff (victim) leaves a public house at dusk on horseback. Homeowner (injurer) negligently leaves pole across part of the road. Man on horse "riding violently" crashes into the pole and is harmed. Despite the defendant's negligence, no damages are awarded to plaintiff. "Contributory Negligence is a complete bar to recovery" If the victim has also been negligent, then injurer no longer has to pay. Case shows us a situation in which injurer and victim don't make their choice simultaneously but in sequence. Guy on the horse knows what injurer has already done, and so continues to deliberately act negligently. So the contributory negligence exists to restore strong incentives for the victim to take adequate care.

Davies v Mann (1842)

Plaintiff (victim) ties up donkey near a road. This appears to be contributory negligence. Three-horse wagon travelling at "a smartish pace" hits and kills the donkey. Despite the contributory negligence, the victim wins: the party having the "last clear chance" to avoid the accident should take that chance. The victim was negligent first, and the wagon owners should have been careful second.

Core

Point on the contract curve where everyone settles, so that they are at least well off as they were before

Harold Demsetz "Toward a Theory of Property Rights"

Private property rights evolve when they economically dominate leaving them in the public domain.

Favre on "Living Property"

Proposal: Animals should constitute a new form of property, one that in some sense lies between the status of a table and a family member. "Living property" would have its interests protected directly and more robustly, in the tort system, for example, or in divorce proceedings. Now, animal cruelty is a criminal violation, requiring charges by a public prosecutor and without animals themselves directly benefiting from court judgements. Humans could bring private suits against animal owners on behalf of the animal, were Favre's proposal adopted.

Humane Slaughter Act (1958, 1973)

Requires animals to be stunned before slaughter

U.S. v. Caroll Towing Co.

Someone accidentally released a barge from the public pier that was leased by the United States that sank. US sued the company. Was the US negligent in taking care of itself of securing its own barge? Judge Learned Hand's rule: failure to take a precaution will results in liability if, for that precaution x<pA, where x = amt of precaution, p = prob of accident, and A = cost of accident Legal standard of care: cost of precaution should be less than expected cost of accident

diminution of value test

test to see if declaring a property ineligible for development requires fair compensation for the owner

Strict Liability

The legal responsibility for damage or injury even if you are not negligent

Favre Five Legal Rights for "Living Property"

The right not to be put to or bred for prohibited use The right not to be unnecessarily harmed The right for adequate support for physical and mental health The right for adequate living space The right to "be properly owned"

Droit de suite

The right to follow a work so owners will continue to receive royalties from all works sold

Peter Singer on Animal Liberation

There's no good reason that sentient animals are not given equal consideration to humans. Conditions necessarily should be the same to humans. Consideration of their concern should have equal weight to humans.

Unilateral Breach Timeline

Time 0: Contract form Time 1: Reliance expenditure R made Time 2: Seller's cost C revealed Time 3: Seller chooses to comply or to breach; if compliance, buyer pays contracted price P; if breach, seller pays damages D

Kelo v City of New London (2005)

UlSupreme Court case decision where Suzette Kelo refused eminent domain of her property. The New London Development Corporation wanted to redevelop land to build factory and campus. Raised the question: is economic development a "public use" such that property can be taken via eminent domain to promote economic development? Ultimately 5-4 decision because the New London plan served a public purpose, which led many people across the political spectrum to be upset. State legislature changed rules to make it harder for governments to take private property.

5th Amendment to the US Constitution "Nor shall private property be taken for public use, without just compensation"

What if the government does something that partially undermines the value of your property? If your land development creates a public nuisance, then government legislation does not take away your land value. You should not have been allowed to develop your land in this way to begin with. Otherwise, if it completely undermines your value, have strong case for government to owe you just compensation But problems of just compensation can actually incentivize people to overdevelop to have development insured against risk of eminent domain "just compensation" Sometimes governments do purposely pay small premium over market price A lot of the property's value stems from your personal development investments but also from the surrounding area . Government could remove public investments that protect the value of your property. This can make the holdout problem a risky position.

Bentham on Animals

What quality is required before animals "count" in calculating overall well-being? Jeremy Bentham answers in the form of a series of questions: "The question is not, Can they reason? Nor, Can they talk? But, Can they suffer?"

nuisance test

test to see if development of property would actually pose a greater nuisance than benefit to society

injunction

a judicial order that restrains a person from beginning or continuing an action threatening or invading the legal right of another, or that compels a person to carry out a certain act, e.g., to make restitution to an injured party.

cooling-off period

a specified period of time within which a consumer can back out of an agreement to buy something

trademark

a symbol, word, or words legally registered or established by use as representing a company or product. reduces consumer search costs and rewards high-quality firms with word of mouth. can provide strong incentives for firms to produce high and consistent quality owner must keep the mark active in commerce and prevent competitors from using the mark (different from copyright) can lose trademark if it becomes so connected to your product it becomes generic (yoyo, xerox, Google)

Self-regarding actions

actions that affect only oneself; society shouldn't force you to change that self-regarding

ex post

after the fact

Triparte

all policies consist of three components: (1) standards of behavior, (2) how much enforcement around (3) punishment

Pareto Improvement

an action that makes at least one person better off, and harms no one

direct public or private subsidy

basic research is not patentable, so subsidize some research

ex ante

before the fact

intellectual property

boost dynamic efficiency at the at cost of static efficiency We want to improve incentives to invent new stuff, but it does so at the cost of optimally allocating existing ideas.

Expectation damages

breacher must put the breached in the same position achieved under a complied contract

Contributory Negligence

establishes a second standard of care, this one for the victim. the contributory negligence exists to restore strong incentives for the victim to take adequate care in non-simultaneous cases, such as in Butterfield v Forrester

Alternatives to patents

first mover advantage, direct public of private subsidy, prizes

non-exclusive

hard to allow only one person to use it

quasi-hyperbolic discounting

has an additional present bias, such that every delayed utility counts even less from the point of view of today

hostage v collateral

hostage only holds value to the breacher, whereas collateral has market value that can provide better protection than hostage

Negligence rule

if injurer was negligent, as ruled by court, then injurer must pay for the damages. otherwise the victim bears the cost of damages establishes a legal standard of care

Property rule

if you want to infringe upon or use my property right, you have to receive my permission or purchase that right. If property right is protected by property rule, then enforcement operates through laws against theft and by injunctions forces people to get permission before they use your property right In property rule protection, there is voluntary exchange that is mutually beneficial, hence a Pareto improvement. Do property rules when transaction costs are low. Otherwise, do liability rule.

Dynamic efficiency

increasing the size of the pie over time

Johnansson-Stenman (2018)

indicates that most people think animals should have some degree of intrinsic standing, and that we understand animal welfare sufficiently to incorporate it into our decision-making calculus

first-mover advantage

invent it first and profit immensely before someone copies it

union

merging of parties so that they have the same preferences

Unilateral care

only one of the parties has the opportunity to make a choice on how much safety to invest in the injurer

choice architect

organizes context in which people make decisions

Tragedy of the Commons

overuse of a public assets so that is is less valuable than if prudently managed e.g. overfishing suggests you are in a high transaction cost environment

Pigouian Tax

perfectly encapsulates the cost of negative externalities created by firm focused on identifying the bad actor Coase Thm on the other hand sees the externality as symmetric

Dibs

provides dynamic efficiency but undermines static efficiency

Reliance damage measure

put breached in pre-contract position, before reliance expenditures were made

hands-tying

put your reputation on the line, possible blacklistiing automatically enforces itself

Animals Welfare Act (1965)

sets min care standards for research animals, pets, and bred animals

Comparative negligence

when both parties are negligent, the damages can be split your share of damages should increase with the extent your negligence compared with the "total" negligence most jurisdictions in the US have moved away from contributory negligence towards comparative negligence there is no obvious efficiency gain from a comparative negligence regime relative to standard negligence or defense of contributory negligence

Non-rival

when someone else's use doesn't diminish the usability of a good

judgement proof

when the defendant does not have sufficient money or other assets to pay the judgement; can't pay for their misdeeds