Economic Foundations of Law The third edition of Economic Foundations of Law introduces readers to the economic analysis of the major areas of the law: property law, torts, contracts, criminal law, civil procedure, corporation law and financial markets, taxation, and labor law No prior knowledge of law is required, but a prior course in the principles of microeconomics would be quite helpful The text opens with a review of the basic principles of price theory and an overview of the legal system, to ensure readers are equipped with the tools necessary for economic analysis of the law The third edition provides expanded or new coverage of key topics including intellectual property law, how the creation of new forms of property rights affects the conservation of species such as elephants and fish, controversies involving liability for medical malpractice and class actions, the transformation of personal injury litigation by the intervention of insurance companies as plaintiffs, how to predict the outcome of litigation with game theory, an economic analysis of the ownership and use of guns, bankruptcy law, and the economics of bank regulation Comprehensive and well-written, this text is a compelling introduction to law and economics that is accessible to both economics and law students Stephen J Spurr is a Professor of Economics at Wayne State University, USA He obtained his J.D from the University of Michigan Law School and a Ph.D in economics from the University of Chicago His primary research interests are in the areas of labor economics and economic analysis of law He has published many articles in highly ranked economics and law journals Taylor & Francis Taylor & Francis Group http:/taylorandfrancis.com Economic Foundations of Law Third Edition Stephen J Spurr ROUTLEDGE Routledge Taylor & Francis Group LONDON AND NEW YORK Third edition published 2019 by Routledge Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2019 Stephen J Spurr The right of Stephen J Spurr to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988 All rights reserved No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe First edition published by South Western College Publishers, Mason, OH, 2005 Second edition published by Routledge 2010 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Spurr, Stephen Josiah, 1944- author Title: Economic foundations of law / Steve Spurr Description: Third edition | Milton Park, Abingdon, Oxon; New York, NY: Routledge, 2019 | Includes bibliographical references and index Identifiers: LCCN 2018052524| ISBN 9780815375449 (hardback) | ISBN 9780815375463 (pbk.) | ISBN 9781351239783 (ebook) Subjects: LCSH: Law and economics Classification: LCC K487.E3 S685 2019 | DDC 343/.07 dc23 LC record available at https://lccn.loc.gov/2018052524 ISBN: 978-0-8153-7544-9 (hbk) ISBN: 978-0-8153-7546-3 (pbk) ISBN: 978-1-351-23978-3 (ebk) Typeset in Times New Roman by Servis Filmsetting Ltd, Stockport, Cheshire To Laura: my wife, who walked on in February 2010, and our granddaughter, who carries on her name Taylor & Francis Taylor & Francis Group http:/taylorandfrancis.com Contents List of figures List of tables Preface Acknowledgments Table of cases Principles of microeconomics (I) A basic principle: the fungibility of money Cost 2 Demand curves and supply curves The equilibrium of a competitive market 10 Price ceilings 11 The market for lawyers 13 The factor market 15 The effects of a tax 22 The effects of a subsidy 24 Elasticities 25 Income and substitution effects 31 Principles of microeconomics (II) Monopolies and cartels 34 Relation between marginal and average amounts 36 Cartels 37 Game theory and the prisoners’ dilemma 38 Rent-seeking behavior 40 Capital; human capital 41 The present value of future payments 41 Interest rates 44 Efficient capital markets 45 Externalities 46 Attitudes toward risk 46 Markets with incomplete information 47 Public goods 50 Appendix 2.1: Continuous compounding 52 xii xiv xv xxii xxiii 34 viii Contents Introduction to the legal system Litigation and the court system 55 Precedents and the common law 57 Different standards of proof 61 Quantifying the standard of proof 61 The U.S Constitution 63 The division of jurisdiction between federal and state courts 66 55 Property law Efficiency 70 Transaction costs 71 Bilateral monopoly 73 How disputes are decided by law 74 The Coase Theorem 76 Eminent domain 79 Self-assessment 80 How the entitlement should be protected 81 How to determine ownership of property 85 Intellectual property 89 69 Problems of incomplete property rights Inalienability 102 Problems when there are no property rights 107 Problems when property rights are divided 113 Problems when property rights are uncertain 118 Limits on the disposition of property at death 119 Appendix 5.1: When should a tree be harvested? 123 102 Informal creation of property rights Property rights in surfing 126 The Gold Rush 126 Sharecropping contracts 128 Whaling customs 129 The division of profits in law firms 130 The Shakers 131 126 The law of contracts The economic functions of the law of contracts 133 General rules of contract law 135 The common law of slavery 140 The controversy concerning standard form contracts 140 Unconscionability 143 Remedies for breach of contract 146 The lost-volume or expansible seller 150 Specific performance 152 Liquidated damages and penalties 154 133 Contents ix 8 Torts Negligence 158 Strict liability 159 The Learned Hand rule 161 The law of rescue 162 The collateral source rule 163 Comparative negligence 163 More on strict liability 164 Medical malpractice 167 Contribution 171 Damages 173 Subrogation 179 Subrogation and potential moral hazard of tort victims 180 The economics of subrogation 180 Moral hazard arising from abolition of the collateral source rule 181 A note on trial strategy: should the jury know about insurance? 182 Whether dangerous conduct should be controlled by tort law or regulation 182 No-fault automobile insurance 185 158 The economics of litigation An optimal judicial system 189 The standard of proof for a preliminary injunction 190 The economic model of litigation 190 Pre-trial discovery 191 Procedural rules which make litigation more efficient 191 Agency problems 192 Class actions 196 Potential benefits of class actions 199 Waivers of the right to participate in class actions 200 The English rule 201 Court delay 203 Expert witnesses 205 Determining the quality of a judge (or court) 206 Whether the common law is efficient 207 Rules of collateral estoppel 210 The jury 211 Juries in death penalty cases 215 Analyzing litigation with game theory 216 An example involving Rule 68 217 Deciding whether to file a lawsuit 217 The solution under the American rule 219 The solution under the English rule 219 An example with two players 220 An example of subrogation, with no injury if tortfeasor takes care 222 A Under the American rule 222 B Under the English rule 224 189 334 Notes 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 interest rate on U.S government obligations to discount damages based on pre-tax earnings, and make adjustments for the difference in tax treatment between earnings and interest on U.S obligations Similarly, forecasts of future medical expenses should take into account both inflation and expected changes in the real cost of medical treatment The Journal of Forensic Economics is entirely devoted to research on issues like this, involving the determination of damages For simplicity we are ignoring the possibility that he might have become disabled, but continued to live, during the period before his mandatory retirement age Viscusi (1993) The law generally provides that a requirement for punitive damages is that the defendant has acted in a reprehensible manner – egregiously, maliciously, or with reckless disregard for others – and many courts suggest that the amount of punitive damages should be greater the more reprehensible the defendant’s conduct has been; Polinsky and Shavell (1998), at 905 BMW of North America v Gore, 517 U.S 559 (1996), on remand 701 So 2nd 507, 31 Ala B Rep 2135 (Ala 1997) In re the Exxon Valdez, 270 F 3d 1215 (9th Cir 2001) Exxon Shipping Co et al v Baker (554 U.S 2008) See, e.g., Polinsky and Shavell (1998), and Hylton (1998) Compare the discussion of the plaintiffs’ lawyer “selling out the class” in class actions, in Chapter 9, on the economics of litigation Greenblatt (1997), Baron (1992) and Baron (1996) Greenblatt (1997), at 1338, citing Horn (1964), pp 13–14 The question whether a party is primarily or secondarily liable is determined by common law or statute Keeton and Widiss (1988), Sec 3.10 (a)(1) Greenblatt (1997), 1339 at n 10 Sykes (2001) and Polinsky and Shavell (2017) Another alternative would be to adopt a suggestion made by Becker and Stigler (1974), to assign ownership of the entire claim to the plaintiff’s lawyer Reinker and Rosenberg (2007), 264 at n Maurer v Thorpe, 95 N.M 286, 621 P 2d 503 (1980) Safeco Insurance Co of America v United States Fidelity & Guaranty Company, 101 N.M 148, 679 P 2d 816 (1984) See generally Note, Civil Procedure – Subrogation, 16 New Mexico Law Review 119–127 (Winter 1986) See the discussion of “Factors affecting the quality of law enforcement” in the chapter on criminal law To be precise, a loss in earnings for more than a year that is not compensated by other insurance O’Connell and Joost (1986) divide no-fault states into two groups: “add-on” states, in which no-fault benefits supplement the right to claim under tort law, and “no lawsuit” states, in which accident victims who receive no-fault benefits are barred from bringing a tort claim Gaudry (1988); Devlin (1988) 9 The economics of litigation 329 U.S 495 (1947) Kritzer (1990) found that individual litigants retain their lawyer on a contingency fee basis in around 87 percent of tort cases To gauge the magnitude of the distortion resulting from this problem of asymmetric information, Levitt and Syverson (2002) compared home sales made by real estate agents to sales by agents of their own homes They found that the homes owned by agents sold for about percent more than other houses, and remain on the market about ten days longer There is some evidence that referrals among lawyers are more common when the legal claim requires specialized knowledge, e.g., claims based on medical malpractice or products liability, or those arising under admiralty law In re General Motors Corporation Pick-up Truck Fuel Tank Products Liability Litigation, 55 F 3d 768 (3rd Cir 1995) In one class action approximately one million class members had the Notes 335 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 opportunity to obtain coupons worth several hundred dollars toward the purchase of a Ford vehicle, but only seventy-five individuals redeemed the coupons Helland and Klick (2007) In re Auction Houses Antitrust Litigation, 197 F.R.D 71 (S.D.N.Y 2000) Eisenberg and Miller (2004) 770 F Supp 2d 666 (S.D N.Y 2011), 954 F Supp 2d 282 (S.D N.Y 2013), and 804 F 3d 202 (2d Cir 2015) However, it could certainly be argued that reprinting a work that is out of print is fair use, since it would not adversely affect the economic interests of the owner of the protected work Note, Harvard Law Review (2012) They also cited research finding a positive correlation between industry concentration, as measured by market share, and pro-seller dispute resolution terms, including arbitration clauses See, e.g., Marotta-Wurgler (2008) Many statutes adopt the rule of indemnity half-way, in that the prevailing plaintiff, but not the prevailing defendant, may recover his legal fees from the losing party In this section we will assume the fee-shifting can go in either direction, not just for the benefit of the plaintiff Although the case of Jarndyce v Jarndyce is fictitious, Dickens, who was familiar with the Court of Chancery, noted that it was an accurate depiction of many lawsuits: “… everything set forth in these pages concerning the Court of Chancery is substantially true, and within the truth.… At the present moment [in August 1853] there is a suit before the Court which was commenced nearly twenty years ago; in which from thirty to forty counsel have been known to appear at one time; in which costs have been incurred to the amount of seventy thousand pounds; which is a friendly suit; and which is (I am assured) no closer to its termination now then when it was begun” Dickens (1951) Studdert et al (2006) Frye v United States, 293 F 1013 (D.C Cir 1923) 509 U.S 579 (1993) This argument was made by Ellickson (1989) to explain the general adherence by whalers to whaling customs Implicit in Posner’s analysis is the assumption that the determination of the law by the Supreme Court is more accurate than that of a Circuit Court This assumption is probably reasonable, given that (1) the Supreme Court has at its disposal all the materials that were available to the Circuit Court, plus the benefit of its own research; (2) the law clerks for the Supreme Court Justices are of very high quality; and (3) it is likely that the best analysis of the nine Supreme Court Justices who hear a case is better than the best analysis of the three Circuit Court judges who would normally decide a case We might also consider the dictum of Justice Robert H Jackson, who noted that “… we are not final because we are infallible We know that we are infallible only because we are final.” Rubin himself has essentially abandoned his previous argument, contending that common law and statutory law were both efficient in the nineteenth century, but that by the early twentieth century each had become inefficient The reason for the change was the emergence of professional interest groups, who sought to make the law maximize their own private benefits; Rubin (1982) Levine (1999) and Levine, Loayza, and Beck (1999) Or someone in “privity” with the party, i.e someone who is deemed to be closely related to the party James, Sec 7.4, at 241 James, Sec 7.2, 238–239 The Sixth Amendment provides the right in criminal prosecutions, and the Seventh Amendment provides the right in civil cases where the amount in controversy exceeds $20 Williams v Florida, 399 U.S 78 (1970) (six-member juries in state criminal cases), and Colgrove v Battin, 413 U.S 149 (1973) (federal civil cases) 399 U.S 78, 101 (1970) A federal grand jury, by statute, may not have fewer than sixteen nor more than twenty-three persons However, the Supreme Court has placed some restrictions on the right to use peremptory challenges In Batson v Kentucky (1986), the Court held that prosecutors could not use peremptory challenges to exclude persons on the basis of their race, and in James E Bowman v T Bowman 336 Notes 30 31 32 33 34 35 (1994), the Court held that peremptory challenges could not be used to exclude potential jurors on the basis of their sex This rule applies if the crime is punishable by imprisonment for more than one year However, if the crime is punishable by death, each side is entitled to twenty peremptory challenges Rule 24, Federal Rules of Criminal Procedure (1997) These decisions were Apodaca v Oregon, 406 U.S 404 (1972) (ten-to-two guilty verdict allowed); Johnson v Louisiana, 406 U.S 356 (1972) (nine-to-three verdict allowed); and Burch v Louisiana, 441 U.S 130 (1979) (five-to-one verdict not constitutional) In some states the jury makes a recommendation concerning the death penalty to the judge, who subsequently decides the sentence Witherspoon v Illinois, 391 U.S 510 (1968) From survey data, Kadane concluded that group a3 was approximately 11.3 percent of the entire population, but that group a2 (those who would always vote for the death penalty) amounted to only percent I am grateful to Ram Orzach, a specialist in game theory, for help in preparing this section; however, he is not responsible for any possible errors 10 Criminal law For simplicity we are assuming there is a cost to the offender only if he is convicted In reality, once he is charged with a crime, he must bear the cost of the criminal proceeding, including the expense of a lawyer, whether or not he is ultimately convicted The stigma is based on the inference that the individual has committed a serious crime, not the fact that he has been in prison It should be noted that the offender’s loss of income resulting from the stigma may not be inefficient, assuming the conviction was justified It is not necessarily inefficient for an embezzler to find diminished opportunities in the banking industry, nor for the sex offender to find few openings in child care It is clear that the major impetus for these laws was the murder on July 29, 1994, of Megan Kanka, a seven-year-old girl who lived in New Jersey Megan was brutally raped and murdered by a neighbor of the Kanka family, a convicted sex offender who lived across the street See Teichman (2004) One state legislature has acted to thwart strategy (1) by enacting a statute that requires registration if the defendant was initially charged with an offense for which registration was required, if he was subsequently convicted of a different offense “arising out of the same set of circumstances.” One possible consequence is that in some cases, judges or juries who believe that the sanctions are excessive will simply refuse to convict defendants See Teichman (2004) There are, however, two countervailing considerations that may affect the criminal’s behavior: he may believe that the probability of being apprehended is greater if he also commits murder, holding other things constant, and he may have some regard for the welfare of his victim Another criticism is that Wolpin, who acknowledged the limitations of his data, did not consider the possibility that the average prison sentence for homicide might have declined over the same period that execution rates declined; Polinsky (1978) 428 U.S 153 (1976) Ayres and Waldfogel argue that this potential objective of bail is not relevant to their study, since (1) under the law in effect at the time, judges were not supposed to consider the possibility of pretrial crime as a factor in setting bail, and (2) if, notwithstanding the law, a judge was concerned about this possibility, he would presumably set a bail bond high enough to prevent the defendant from making bail However their sample included only defendants who were released on bail More precisely, the bond dealer will be liable if the defendant cannot be found for six months, and in that case will be liable for the amount of the bond × the forfeiture rate, which in Connecticut was 55 percent of the bond 10 Note, however, that the defendant’s decision whether to flee would be affected if the collateral obtained from the defendant increases with the amount of the bond In this case the defendant would have less incentive to flee as the bond increases, since he would lose more collateral 11 Here we assume for the sake of exposition that the forfeiture rate is 100 percent The results not depend on this assumption 12 A technical note: the authors allow for the fact that judges might want to make the expected probability of flight different for different crimes They estimate a regression in which the dependent Notes 337 13 14 15 16 17 18 19 20 21 variable is the log of the bond rate, and the independent variables are the severity of the crime, the type of the crime, and the characteristics (race and sex) of the defendant On the economic theory of incapacitation, i.e imposing sanctions such as imprisonment that prevent offenders from being able to harm others, see Shavell (1987) McCormick and Tollison (1984) found that the addition of a third official in college basketball – a 50 percent increase in the number of enforcers – reduced the number of fouls committed by players by 34 percent Roe v Wade, 410 U.S 113 (1973) The Court held that the due process clause of the Fourteenth Amendment protected against state action on the right to privacy, including a woman’s right to terminate her pregnancy Carter and Jansen (1995) Ibid In a study of public law enforcement, Wilson (1983) found that one consequence of increasing evening police patrols in New York City subways was an increase in subway robberies during the day There may already be a subsidy, if police departments purchase the equipment needed to trace the vehicles that have Lojack installed Hsu and Feuer (2018) There is a tort of malicious prosecution, but for almost all cases its requirements are too onerous to be satisfied by a potential plaintiff The elements of the tort include malice, a lack of probable cause for the prosecution, and successful termination in favor of the accused Moreover, officers of the state such as prosecuting attorneys may have an absolute immunity Harper, James and Gray (1986), Sec 4.1, 4.3 11 Corporations and financial markets A general partnership has only general partners A limited partnership has limited partners, whose liability is limited, and must have at least one general partner, whose liability is unlimited Often, however, the general partner is a corporation Whether the partnership is general or limited, the management decisions are made only by its general partners Consider also the potential liability of the shareholders of the Union Carbide Corporation if there were no rule of limited liability On December 3, 1984, more than 3,000 people in Bhopal, in central India, were killed when a deadly gas was released from a storage tank at a Union Carbide plant The tank released 40 tons of methyl isocyanate gas, killing those who inhaled it while they slept Thousands more subsequently died from the aftereffects New York Times, July 7, 2008, p. 1 The “par value” of a security is the dollar value shown on its certificate Because payment of the dividend is not a strict legal obligation, the law considers preferred stock to be an equity security Smith (1776) It may be difficult to determine the scope of the relevant industry Also, if an industry is declining, the best managerial decision might be to leave it and enter another industry Bebchuk et al (2001), pp 73–76 Jensen and Meckling (1976) These statements are now available on the SEC web site 10 The amendments also extended the coverage of the Act, by applying it to “exchange offers,” which are tenders offers in which some or all of the consideration is stock or bonds of the acquiring corporation (The original statute had applied only to cash tender offers.) 11 Indeed, Bebchuk (1982) argues that there is a net benefit to stockholders from this regulation, since they receive higher premiums, and the increased costs to bidders not significantly reduce the number of takeovers However, most researchers support the position of Jarrell and Bradley summarized above, that there is a net loss to shareholders resulting from the decline in takeovers and the protection of inefficient entrenched management See, e.g., Schumann (1988); Jarrell et al (1988); Shleifer and Vishny (1991) 12 537 F 3d 728 (7th Cir 2008) 13 The Supreme Court subsequently reversed the seventh circuit and remanded the case for further consideration, 559 U.S 335 (2010) The Court took a middle ground in the dispute, stating on one 338 Notes 14 15 16 17 18 19 20 21 22 hand that “Courts could compare fees charged to different types of clients, but on the other hand “the Investment Company Act of 1940 did not necessarily ensure fee parity between mutual funds and institutional clients.” The Court concluded that “for liability, an adviser’s fee had to be so disproportionately large that it bore no reasonable resemblance to the services rendered,” and “the standard for fiduciary breach under [the federal statute] did not call for judicial second-guessing of informed board decisions.” Another possible benefit of incorporations is an increase in demand for the services of the state’s lawyers See, e.g., Manne (1966); Carlton and Fischel (1983) Carlton and Fischel (1983) Kronman (1978) Corporations with more than $10 million of assets and at least one outstanding class of securities that is held by more than 500 shareholders of record are subject to special regulation under the Federal Securities Exchange Act of 1934 The regulations under this statute require the corporation to register that class of shares with the SEC and periodically make public disclosure of financial information This section closely follows McCoy (2008) In the U.S under current law, a debtor can stop foreclosure by filing under Chapter 13, but not by filing under Chapter These examples are from White (2007) They are Belgium, Canada, France, Italy, Japan, the Netherlands, Sweden, Germany, the United Kingdom and the United States 12 Taxation 10 11 12 13 14 The highest marginal rate of estate tax was 40 percent in the year 2018 Bakija and Slemrod (2004) Conway and Rork (2006) The marital deduction was formerly subject to a ceiling of one half of the decedent’s “adjusted gross estate.” This ceiling was eliminated for estates of persons dying after 1981 To be precise, this tax has a component, known as the medicare or hospital insurance portion, which as of 2018 applies to all wages, without any limitation on the amount However, only this portion of the tax applies to wages beyond $128,700 The example is fictitious, but these were the marginal contribution rates in effect in 2018 It should be noted that the link between retirement contributions and benefits has been preserved in some countries For example, in Chile a worker may choose to have between 10 percent and 20 percent of his pretax income deposited in a fund, the earnings on which are not subject to income tax The fund is earmarked for the worker who contributed to it, and is distributed to him upon his retirement OECD Factbook (2015–2016) Blau et al (1998) Former spouses who were divorced after at least ten years of marriage are entitled to the same benefits A spouse may obtain a survivor’s benefit based on her spouse’s death, regardless of whether she has previously elected to receive a spouse benefit, or a benefit based on her own earnings Brien et al (2000) The astute reader may question why, in this example, an individual’s consumption is the same under a consumption tax as it is under an income tax, given that the whole point of a consumption tax is to increase saving, by reducing consumption This is a valid criticism, but does not detract from the point of the example We have made the assumption for convenience in exposition Tax law changes constantly, and this section should not be viewed as a guide for determining one’s deduction for depreciation under current U.S tax law Rather, our purpose is to show the economic effects of some depreciation rules that have often been used One could argue that the Bears would be better off building their own stadium, since they would then own the stadium outright rather than have only the right to use it under a lease agreement However the lease could be written in a way that would confer all the important advantages of ownership on the Bears For example the Bears could be granted a long-term lease, perhaps with an option to buy the stadium at the expiration of the lease Notes 339 13 Labor law However, in some states, such as California, covenants not to compete are not enforced Strictly speaking, all the salary profiles being compared should have the same discounted present value – the value determined by competition in the labor market Any firm that offered a salary profile with a lower present value would be unable to attract any workers, and any firm that offered a profile with a higher present value would be overpaying, and thus would make less profit than other firms We ignore this point for convenience of exposition “Ruling gives health care a chance to evolve,” Robert H Frank, New York Times, July 1, 2012, at BU 1,6 Economic News Release, U.S Bureau of Labor Statistics, June 21, 2018 Glossary A technical detail: if the supply curve is for the short run, we must also add to this area any fixed cost to obtain total cost Here we assume for simplicity that the random variable is discrete Index Note: Page numbers in bold type refer to tables Page numbers in italic type refer to figures Page numbers followed by ‘n’ refer to notes i.e 332n8/5 refers to note in chapter abortion 105–107, 153, 242–243 acceptance of contract 135–136 accidents: avoidance 85, 158–159, 161–166; motor 185–186 accommodation, reasonable 309 add-on clauses 146 additur procedure 179, 316 adoption procedures 105–107, 331n5/8&9 “adverse possession” doctrine 87–88 adverse selection 49, 131, 167, 213, 316 advertising 41, 143 affirmative defense 159, 170, 316, 332n8/5 agency problems 192–199 agreements, oral 134, 144 American Law and Economics Association (ALEA) xviii “American rule” on litigation 201–202, 202, 218–219, 218, 222, 223 American Society of Composers, Authors, and Publishers (ASCAP) 72–73, 92, 95, 199 Americans with Disabilities Act (ADA, 1990) 297, 309–310 ammunition, regulation 255–256 appeal procedures 57 arbitrage 276, 316 arbitrage condition 289–291 Articles of Confederation 55, 63–64 assigned risk pools 186 “attorney work product” doctrine xx, 316 auction, reverse 198, 211 Australian Law and Economics Association (AustLEA) xviii Authors Guild v Google (2015) 199 authors and publishers, conflict between 113–114, 114 average cost 316 average tax rate 316 Ayres, Ian: and Donohue, John 252; and Levitt, Steven 248–249; and Waldfogel, Joel xvii, 238–239, 336n10/8 babies, market for 105–107 bail 238–239, 336n10/8 “bandwagon” goods 46 bank: investments and runs 271–272; regulation 275–277 bankruptcy 273 bankruptcy law 272–275, 338n11/20 Barro, Robert 282 Basel Committee on Banking Supervision 276–277 Basel I Accord 276 Basel II Accord 276 Batman (film) 115 Bausch & Lomb 98 Beard, Charles, Beard hypothesis 63–64 Beccaria, Cesare B 230 Becker, Gary S 91, 230, 248; and Stigler, George J xvii, 256–257 Bentham, Jeremy 230 Berkowitz, Jeremy, and White, Michelle 274 Bhopal 337n11/2 Bibas, Steven A 86 Bill of Rights (US, 1791) 64–65, 67–68, 212, 216 black markets 12, 104, 106–107, 110–112, 245–246, 247, 248, 256 Black’s Law Dictionary xvi Bleak House (Dickens) 203 Block, Richard, and Stieber, Jack 39–40 blocking patents 93 “bona fide purchaser rule” 85, 316 bonds, municipal 293–294 Book Rights Registry 199 Bork, Robert xix bounties 257, 270 Bowe, John 72 Index 341 breach of contract 133, 146–150 breach of promise 153 Breyer, Stephen xix bribery 77, 257 Brinig, Margaret 153 Broadcast Music Incorporated (BMI) 72–73, 92, 199 broadcasting rights 70, 96 burden of proof 55, 61–62, 159, 190, 206 burglaries, “hot” 250–251 Bushel, Edward 212 businesses, franchised 301 Calabresi, G xviii; and Melamed, A 74 Caldwell, Steven, et al 281 “callable” stock 263 Canadian Law and Economics Association (CLEA) xviii capital 18–22, 41, 58, 261–262, 265, 275–277, 285, 292–294, 307, 316, 328n1/4, see also human capital capital markets 45–46, 319 capital punishment see death penalty cartels 37–38, 38, 119, 317; of political power 65–66 catch share program 112–113 cause of action 55, 317 “certainty-equivalent” amounts 47 certiorari, grant of 60–61 challenge for cause 213–214, 317 charitable contributions, tax relief on 286–287 Cheung, Steven 128 Chicago Bears 294 Chiricos, Theodore 230 choice variables 232, 317 Christian Scientists 49 cigarette smuggling 246–248 civil actions 55, 61–62 Civil Rights Act (1964) 201 class actions 196–199, 317, 335n9/5; potential benefits 199–200; waivers of right to participate 200–201 Clean Air Act (1963) 96, 201 clear and convincing evidence standard of proof 61, 190 Clotfelter, Charles 286–287 Coase, Ronald xx, 69, 77, 82, 141–142 Coase Theorem 69, 76–79, 83–85, 102, 117, 141, 164, 318 Coca-Cola Company 262 “collateral benefit” (or “collateral source”) rule 163, 179, 185, 317; abolition 181–182 “collateral estoppel” doctrine 210–211 common law 57–59, 113, 116–117, 120–122, 140, 158–160, 162–163, 317; efficiency of 207–210 “common stock” of corporations 262–263 “community property” states 122, 317 “comparable worth” doctrine 297, 313 comparative negligence 163–164, 317, 333n8/18–20 compensating differentials in wages 10, 306, 317 compensation for managers, contingent 265 compensation of property owners 80–81 competition, perfect 34, 36–37, 328n2/1 composition agreement 273 compound interest 52–53, 328n2/7 “compulsory unitization” statutes 116 “concealed-carry” laws (US) 251–252 condemnation 317 conflict of interest 196; between authors and publishers 113–114, 114 consent: informed 168, 333n8/23; presumed 104–105 consideration, legal requirement of 135 Constitution see United States Constitution consumer surplus 7, 104, 317–318 consumption taxes 284–286, 338n12/12 contingent compensation for managers 265 contingent fees for lawyers 169, 192–196, 318 contract: acceptance 135–136; of adhesion xvii; breach 133, 146–150; definition 133; implied 136, 162–163; land allotment 127–128; offer 135–136; penalty clauses 154; “sharing” 127–128; standard form 140–143 contract law 133–154; economic functions 133–135; general rules 135–140; “impossibility” doctrine 138–140; “impracticability” doctrine 138–140 contracting mistakes 136–138 “contribution, right of” 171–173 contributory negligence 159–160, 318 Convention on the International Trade of Endangered Species (CITES) 111 Cook, Philip, and Ludwig, Jens 251, 253 “cooling off” period 144 Copyright Act (1976) 96 Copyright Clearance Center 92 copyright protection 92–96, 199, 318 Corbin, Arthur L 133 Coronado, Julia Lynn, et al 281 corporations 261–277; characteristics 261–262; “common stock” 262–263; conflict among shareholders 270–271; conflict between managers and stockholders 264–267; “preferred stock” 262–263 corruption 256–257 cost: average 316; economic concept 2–4, 318; fixed 320; housing 292–293; marginal 322; opportunity 3–5, 175, 232–235 cost-benefit analysis 136, 143, 251 costs: judicial systems 189–190; sunk 3, 325; training 298–301; transaction 71–73, 76–79, 81, 84, 91, 94–96, 325; variable 326 342 Index courts: federal 56–57, 66–68, 329n3/3; proceedings delays 203–205, see also United States Supreme Court covenants not to compete 297–298, 300–301, 339n13/1 crime: deterrence 233–236, 240–241; opportunity cost 232–235; organized 256; policies 248–249; rate 240–242, 242–243 criminal behavior: determinants 240–243; economic model 230–232, 234, 243, 248; incidence 30–31; markets for 243–248; prevention 230–231 criminal justice system 236 criminal law 55, 61–62, 230–258 cross-price elasticities 29, 318 “cruel and unusual” punishments 216, 233, 235, 241 curtesy, rights of 122, 318 cy pres doctrine 119–120 damages 147–154, 163–164, 173–179, 189–190, 197–199, 208, 222; mitigation 150; punitive 177–179, 232, 323, 334n8/35 dangerous activities, deterrence 185–186 dangerous conduct 182–184 Danzon, Patricia 181–182, 195 Daubert v Merrell Dow Pharmaceuticals (1993) 206 “dead hand” situations 102, 119–120 death penalty 215–216, 234–236 death tax 279–280 default risk 45 defense, affirmative 159, 170, 316, 332n8/5 defensive medicine 167, 170 defined contribution and defined benefit pension plans 310–312 delays in court proceedings 203–205 DeLeire, Thomas, and Levy, Helen 176 demand curves 7–9, 8, 13, 13, 23–24, 26, 26, 28, 31, 34–38, 46–47, 50–51, 51, 318 depletion 288–292 deposit insurance 271–272 depreciation 287–288, 338n12/13 derivative works, intellectual property protection for 93, 95–96 destructibility of contingent remainders 121 deterrence: of crime 233–236, 240–241; of dangerous activities 185–186 Detroit, city of 80, 119–120 Dickens, Charles 203, 335n9/14 dicta see obiter dicta diethylstilbestrol (DES) 184 diminishing marginal product law 15–16, 294, 305, 319 disabled persons: employment 308–310; public accommodations for 310 disclosure in contracting 136–138 discovery, pre-trial process of 56, 191, 319 discrimination: law enforcement 236–239; work 313 Disney Corporation 78 dispute resolution by law 74–75 diversity jurisdiction 66 divorce law xix Dodd, Peter, and Leftwich, Richard 269 Donohue, John: and Ayres, Ian 252; et al 243, 252; and Levitt, Steven xvii, 242 dower, right of 122, 319 drugs, illegal market in 243–245, 244–246 Duggan, Mark 251 E I du Pont de Nemours & Co 38 earnings, loss of 173–174, 333n8/28&29, 334n8/30 easement 319 Easterbrook, Frank xviii–xix, 267–268; et al xvii economic analysis of law xv–xvi, xvi–xix Economic Analysis of Law (Posner) xx economic growth 209–210 economies and diseconomies of scale 5–7, 5, 80, 311, 319 efficiency: of capital markets 45–46, 319; of common law 207–210; economic concept xvii, 70–71, 319 Ehrlich, Isaac 230, 234–235 EIG (estate, inheritance, and gift) taxes 280 Eisenberg, Theodore, et al 201 elasticities 8–9, 25–31, 319–320 elephant populations 109–110, 110–112, 331n5/13 Ellickson, Robert 129 eminent domain, power of 69, 79–80, 320 employment: of disabled persons 308–310; protection laws 303–310 Employment Cost Index 174 endangered species 109–110 endogenous variables 235, 320 “English rule” on litigation 201–203, 202, 219, 220, 224–225, 224 entrepreneurial activities 210 Epstein, Richard 144, 168 equilibrium 320; in competitive markets 10–13, 11, 34, 35; in monopoly situations 36 error-correction strategy 60 estates, life 116–118, 322 European Association of Law and Economics (EALE) xviii evidence, preponderance of 61, 190 exogenous variables 320 “expansible” seller problem 150–152 expected value 47, 320 expert witnesses 205–206 extensive margin 9–10, 12–15, 167, 170–171, 181, 185, 203, 205–206, 237, 242, 320 Index 343 externalities 46, 66, 76–78, 82–84, 320; from crime policies 248–249; internalization of 77–78 Exxon Valdez 177–178 factor markets 15–22 factors of production 15, 20–23, 321 “fair use” doctrine 94–95, 320 fairness of criminal justice system 236 “fast fish” rule 129 fatal injury, damages for 175–177 Federal Communications Commission (FCC) 70 federal courts, US 56–57, 66–68, 329n3/3 Federal Employers’ Liability Act (1908) 174 Federal Radio Commission 70 Federal Reserve Bank 275 Federal Rules of Civil Procedure, Rule 68 56, 217 fees for lawyers 169, 192–196, 318 “fellow servant” rule 165, 320, 333n8/8 film production 115–116 fines 232–233 firearms: ammunition regulation 255–256; changing the design of 255; gun buyback programs 254; gun ownership and use 249–251; laws restricting access to 252–253; personalized guns 255; proposed tax on 253–254; regulation of ammunition 255–256; secondary market 252 Firearms Owners Identification Card 252 Fisher Body Company 73 Fisher, Irving 329n2/10 fisheries problem 107–109, 126; catch share program 112–113 fixed costs 320 fixtures, doctrine of 331n5/18 “floating rate” stock 263 flypaper effect “forced share” statutes 122–123, 326 “foreseeability”, legal requirement of 149–150 forum selection clause 142–143 franchised businesses 301 free-rider problem xx, 69, 74, 79, 91, 113, 131, 143, 320 Freeman, Richard 230 “frustration of purpose” doctrine 138–139 fungible goods game theory 38–40; analyzing litigation with 216–225 Garner, James 115 gatekeeping 206 General Motors 73, 80 generic names for products 99 gift tax 279–280 Gilson, Ronald J., and Mnookin, Robert H 130 Ginsburg, Douglas xviii Goetz, Charles J., and Scott, Robert E 154 Gold Rush 126–128 Goldberg, Victor 141 Goldman, Lee 143 goods: “bandwagon” 46; “inferior” 29–30, 321; “normal” 29–30, 322; public 50–51, 51, 323, 329n2/12; “snob” 46; “superior” 29 Google 199–200 grand juries 213, 335n9/28 “greenmail” tactic 267 Gregg v Georgia (1976) 235–236 Gropp, Reint, et al 274 Gruber, Jonathan 163 Guggenheim Museum 85, 330n4/22 gun buyback programs 254 Gun Control Act (1968) 252–253 guns see firearms Hadley v Baxendale (1854) 149 Harberger, Arnold xv, 80–81 hazardous activities, regulation 182–184 hazardous working conditions 305–308 hearsay 320–321 heirs 121, 321 Hickman v Taylor (1947) xx, 192 Hicks, J.R 71 “holder in due course” doctrine xvii–xviii, 133, 145–146, 145 holding 321 holdout problem 69, 73–74, 79–80, 84, 96, 116, 271, 273, 321 Holmes, Oliver Wendell xv Honda 98 Hong Kong 276 “hot” burglaries 250–251 hours of work 305 household services, lost value of 174–175 housing: costs 292–293; subsidies 292–293, 293 Hsiang, Solomon, and Sekar, Nitin 110–112 human capital xix, 41, 59, 298–301, 321 human organs, market for 102–105 juries 214 IBM 91 Iizuka, Toshiaki 182 implied contracts 136, 162–163 “impossibility” doctrine in contract law 138–140 “impracticability” doctrine in contract law 138–140 imprisonment, costs and alternatives to 232–233, 241–242 inalienability, rule of 102–107 income effect 31–32, 174, 287, 321 income elasticities 29–30, 321 incorporation, state of 261, 268–269 indemnity, rule of (or “English rule”) 201–203, 202, 219, 220, 224–225, 224 344 Index indictments 213 Individual Retirement Account 284 inelastic supply and demand 26–29, 321 “inferior” goods 29–30, 321 inflation 44–45 informational requirements 148–149 informed consent 168, 333n8/23 injunctions 75, 83–84, 190, 321 insider trading 232, 269–270 installment sales 145–146 insurance 48–49, 154, 163, 166–167, 180–182, 185–186, 193, 274; deposit 271–272 intellectual property protection 89–99 intensive margin 9–10, 13, 15, 167, 170–171, 181, 185, 203, 205, 237, 242, 321 interest, remainder 116–117, 121, 323 interest payments, tax relief on 284 interest rates 44–45; compound interest 52–53, 328n2/7; on municipal bonds 293–294; “nominal” and “real” 44 Internal Revenue Service (IRS) 257 inventory, holding of 328n1/4 “inverse condemnation” 80 investment advisers, compensation of 267–268 involuntary bankruptcy 273 Ippolito, Richard 311 “iron-holds-the-whale” rule 129 irreparable harm 190 isocost lines 21–22, 21 isoquants 20–22, 20 Jackson, Robert H 335n9/19 Johany, A.D 119 “joint and several” liability 169–171, 321–322 joint tenancy 113, 122, 322 joint ventures 292 Jolls, Christine 310 Jones v Harris Associates (2008) 267–268 Joskow, Paul 140 journals specializing in law and economics 327n0/5 “judicial notice” doctrine 191–192 judicial systems 189–190, 206–207 juries 211–215; composition 212–214; in death penalty cases 215–216; decision-making by 214–215; grand 213, 335n9/28; historical evolution 211–212; 214 jurisdiction: federal and state courts division 66–68; “shall-issue” 251 Kadane, Joseph 215–216, 336n9/34 Kaldor, Nicholas 71, 285 Kalist, David E., and Molinari, Noelle A 242–243 Kenya 109 Kessler, Daniel, and Levitt, Steven 241, 254 key money 12 Kim, H Youn 6–7 Klevorick, Alvin, and Rothschild, Michael 215 Klick, Jonathan, and Stratmann, Thomas 182 Knowles, John, Persico, Nicola and Todd, Petra 237 Koppel, Ted 243 Kozinski, Alex xix Kraft Foods 98 Kronman, Anthony 137, 152, 270 La Porta, Rafael, et al 209 labor, organized 305–306 labor law 297–314 Laidlaw v Organ (1817) 137 land: allotment contracts 127–128; registration 87–88; transfer 121; US recording systems 87, 88–89 Landes, Elizabeth M., and Posner, Richard A 93, 105 Landes, William M., and Posner, Richard A 55, 58–59, 165, 183 landlords’ interests 118 Lanham Act (1946) 97–98, 331n4/37 “last clear chance” doctrine 159, 162, 164, 166, 322, 333n8/20 law enforcement: benefits 240–243; evaluating the system 236–239; factors affecting quality 256–257; “public” and “private” 257–258 law firms, division of profits 130–131 law of large numbers 5–6 lawsuits, decision to file 217–219 lawyers: fees 40, 59, 130–131, 166–167, 169, 192–199, 205; human capital of 41; market for 13–15; and moral hazard 48 Lazear, Edward P 304 “lead counsel” role 198 Leamer, Edward E 235 “Learned Hand” rule 158, 161–162, 165–166, 183, 189 “learning-by-doing” leases, oil 114–116 Leftwich, Richard, and Dodd, Peter 269 legal markets, case against 110–112 Lego (company) 99 Leigh, Andrew, and Neill, Christine 254 leisure time 31–32, 328n1/16 Lemley, Mark A 90 lessors 114–115, 322 Leubsdorf, John 190 Levitt, Steven 30–31, 240–242, 254; and Ayres, Ian 248–249; and Donohue, John xvii, 242; and Kessler, Daniel 241, 254 Levmore, Saul 81 Levy, Helen, and DeLeire, Thomas 176 liability: “joint and several” 169–171, 321–322; limited 261, 337n11/2; products 165–167; rules of 75, 79, 81, 96, 331n4/34; strict Index 345 159–161, 164–167; vicarious 160, 326, 333n8/8 license agreements for playing music 72 life, value of 176–177 life estates and life tenants 116–118, 322 limited liability 261, 337n11/2 Lin, Emily, and White, Michelle 274 liquidated damages clause 147, 150, 154 litigation 55–57; “American rule” on 201–202, 202, 218–219, 218, 222, 223; analyzing with game theory 216–225; economic model of 189–225; efficiency of 191–192; “English rule” on 201–203, 202, 219, 220, 224–225, 224 Lojack device 30, 248–249, 249, 337n10/19 “lost-volume” sellers 150–152 Lott, John R Jr 236, 251; and Mustard, David B 250–252 Lubell, Jules and Rachel 85 Ludwig, Jens, and Cook, Philip 251, 253 Macaulay v Schroeder Publishing Co (1974) 144 MacDonald’s 301 McManus, Walter R 235 Mahoney, Paul G 209 majority shareholders 270–271 majority verdicts 214–215 managers, compensation of 264–265 mandated choice 104–105 Manning, Richard L 166 marginal cost 322 marginal product 15–16, 322; of labor 19–20 marginal revenue 16–17, 322; product 17–18, 298, 300, 309–310, 312, 322 marginal tax rate 279, 281, 285–286, 322 marital deduction 280, 338n12/4 marital property rights 122; widows’ 122–123, 280 market information, incompleteness 47–49 markets: for babies 105–107; capital 45–46, 319; competitive 10–13, 11, 34, 35; for criminal behavior 243–248; factor 15–22; firearms 252; legal 110–112, see also black markets Marshall, Justice 235 mediation 56–57, 329n3/1&2 medical malpractice 167–171, 181–182, 196, 203 medicine, defensive 167, 170 Megan’s Laws 233–236, 336n10/3 Melamed, A., and Calabresi, G 74 Michigan Education Association 48 Michigan Supreme Court 80, 330n4/17 minimum wages 301–303, 302–303 mistakes: contracting 136–138; Type and Type 61–62 mitigation of damages 150 Mnookin, Robert H., and Gilson, Ronald J 130 Molinari, Noelle A., and Kalist, David E 242–243 money, nature of 1–2 monopoly 34–38, 36; bilateral 73–74, 84, 93, 113, 117, 294; of government power 64–66; situations 36 Montesquieu, Charles de Secondat 230 moral hazard 47–48, 81, 88, 108, 118, 154, 173, 180–182, 271–272, 322 motor accidents 185–186 Moynihan, Daniel P 255–256 Mulligan, Casey 294 municipal bonds 293–294 murder, penalties for 232, 234–235 Murphy, Kevin M., et al 210 Murray, John E 131 music playing license agreements 72 music publishing industry 72, 144–145 Mustard, David B., and Lott, John R Jr 250–252 mutual funds 267–268, 338n11/13 mutual mistakes in contracting 138 Nader, Ralph 141, 269 Nash equilibrium 39, 217, 221–222, 322 National Firearms Act (1934) 252–253 National Organ Transplant Act (1984) 103 National Rifle Association (NRA) 255 negligence 158–168, 180–181, 183–186, 189; comparative 163–164, 317, 333n8/18–20; contributory 159–160, 318 Neill, Christine, and Leigh, Andrew 254 Neilson, William, and Winter, Harold 214 network externalities 46 New Mexico Supreme Court 182 New York Court of Appeals xix, xix–xx, 85 New York State Bar Association 49 “no fault” principle 167, 185–186, 334n8/53 nonproliferation treaty xvi “normal” goods 29–30, 322 “notice” statute 88 “notice-race” statute 88–89 nuisance claims 322 obiter dicta 58, 319 O’Brien v O’Brien (1985) xix–xx Occam, William of 327n0/3 Occupational Safety and Health Act (1970) 305 Occupational Safety and Health Administration (OSHA) 305–308, 307 offer in compromise 56 offer of contract 135–136 Oi, Walter 6, 183–184 oil: exploration 288–289, 291–292; leases 114–116; prices 118–119 opportunistic behavior 47, 73, 118, 273, 275, 300 opportunity cost 3–5, 175; of crime 232–235 346 Index oral agreements 134, 144 organ donation 103–105 Organization of Petroleum Exporting Countries (OPEC) 118–119 organized crime 256 organized labor 305–306 “original ownership” rule 85 ownership registration 85–89 oyster stocks 107–109, 331n5/10 Palmer, Jan 61 Palsgraf v Long Island Railroad (1928) 161 parameters 322–323 Pareto optimality 70–71, 76 Pareto, Vilfredo 330n4/4 parodies 94–95 “parol evidence” rule 144, 323 Passell, Peter, and Taylor, John 235 patents: blocking 93; protection 90–93, 96, 323, 331n4/34 pay, severance 303–305 payments: interest 284; present value of future 41–44 payroll tax 280–283 Peltzman, Sam xv, 142 penalties, “shaming” 275 penalty clauses in contracts 154 Penn, William 212 pensions 310–312 peremptory challenge 213–214, 323, 335–336n9/29&30 perfect competition 34, 36–37, 328n2/1 Perloff, Jeffrey M 29 perpetuities 120–121 Persico, Nicola, Todd, Petra and Knowles, John 237 personalized guns 255 pharmaceutical companies 197 Pigou, A.C 76 Pigovian tax 77, 83 PIKE poaching index 111 plaintiff shopping 198 Ploof v Putnam (1908) 162 “poison pill” provisions 267 policing 240; corruption 256–257 Polinsky, A Mitchell xx; and Shavell, Steven 166, 178 political power, cartels 65–66 pollution 72, 82–84 Polygram 115 Posner, Richard A xix–xx, 66, 93, 118, 142, 203, 205–207, 268–270, 280, 335n9/19; and Landes, Elizabeth M 93, 105; and Landes, William M 55, 58–59, 165, 183 practice parameters 170 precedent 57–59, 323, 329n3/7 “preferred stock” of corporations 262–263 preliminary injunction, standard of proof for 190 preponderance of the evidence 61, 190 present value of future payments 41–44 presumed consent 104–105 price: ceilings 11–13, 12, 103–104, 297, 301; elasticity of demand 26–27, 34, 323, 328n2/1; oil 118–119; shadow 324 price theory 1, 10–11 Priest, George 203–205, 209 principal-agent relationships 192, 195, 264; agency problems 192–199 prison population 240–242 prisoners’ dilemma 38–40, 39, 323 private condemnation 84 Problem of Social Cost, The (Coase) xx producer surplus 323 production: factors of 15, 20–23, 321; functions 15–16 products: generic names for 99; liability 165–167, see also marginal product; marginal revenue product professional degree xix–xx professors, employment and earnings 313, 314 promise, breach of 153 proof: burden of 55, 61–62, 159, 190, 206; standards of 61–63, 190 property: marital 122–123, 280; owners’ compensation 80–81; real 63, 118, 121, 323; self-assessment of values 80–81; taxes 292–293 property rights 69–70, 75–77, 79, 81, 83–84, 90–93, 96–97, 99, 323, 331n4/34&35, 331n5/13; absence 107–113; definition 85–89; division 113–118; informal creation 126–131; justification for and benefits 69–70; limits of disposition at death 119–123; problems of incomplete 83, 102–123; transferability 70–71; uncertainties in 118–119 public accommodations for disabled persons 310 public goods 50–51, 51, 323, 329n2/12 publishers, conflict with authors 113–114, 114 punishment: “cruel and unusual” 216, 233, 235, 241; economic model 230–232, 234, 243; optimal type 232–233 punitive damages 177–179, 232, 323, 334n8/35 “race” statute 88 racial profiling 236–238 ratio decidendi rule 57 real property 63, 118, 121, 323 “reasonable accommodation” requirement 309 reasonable doubt standard of proof 61–63, 190 recording systems for land (US) 87, 88–89 Registered Pension Plan 284 Registered Retirement Savings Plan 284 registry systems for ownership of property 85–89, 330n4/23 Index 347 regulation: of ammunition 255–256; of hazardous activities 182–184; of pensions 310–312; of takeovers 266–267 regulatory arbitrage 276 regulatory capital 276 remainder interest 116–117, 121, 323 “remaindermen” 116–118 remittitur procedure 179, 323 rent control 11–12, 12 rent-seeking behavior 40, 104, 120, 198, 210, 273, 323–324 res ipsa loquitur doctrine 168, 324 rescue, law of 162–163, 333n8/15–17 reserve clause 78–79 residuary clause 119, 324 resource allocation, efficiency in 71 respondeat superior doctrine 160, 165, 324 restraint of trade 232 retirement age 312 revenue: economic concept 3–4; economic definition 3–4; marginal 16–17, 17–18, 298, 300, 309–310, 312, 322 reverse auction 198, 211 Ribstein, Larry E 269 Ricardo, David, Ricardian equivalence 282 Rice University 120 right of contribution 171–173 “right-to-carry” laws in the US 251–252 rights: broadcasting 70, 96; of curtesy 122, 318; survivorship 113; US states 63–66; widows’ 122–123, 280, see also property rights risk: assumption of 159–160, 316; attitudes to 46–47; default 45 risk-aversion 47, 324 risk-neutrality 47, 324 risk-preferrer 47, 324 risk-weighted assets 276 Rockford Files, The 115 Roe v Wade (1973) xvii, 242, 337n10/15 Röhm Gesellschaft 253 Rothschild, Michael, and Klevorick, Alvin 215 royalties 96 Rubin, Paul 208–209, 335n9/20; and Shedd, Peter 300 rule against perpetuities 120–121 sales, installment 145–146 “Saturday night specials” 253 savings 282, 284–286 scale effect 19–20, 22, 145, 303, 306–307, 309 Scott, Robert E., and Goetz, Charles J 154 secondary market in firearms 252 Securities and Exchange Commission 266, 270 Sekar, Nitin, and Hsiang, Solomon 110–112 “selective incorporation” doctrine 67–68, 216 separation of powers 65–66 settlors 119–120, 324 severance pay 303–305 sex offenders 233–234 shadow price 324 Shakers sect 131, 332n6/3 “shall-issue” jurisdiction 251 “shaming” penalties 275 sharecropping 128 shareholders: conflicts among 270–271; major 270–271 “sharing” contracts 127–128 Shavell, Steven 92, 330n4/23; and Polinsky, A. Mitchell 166, 178 Shays, Daniel 64, 329n3/10 Shedd, Peter, and Rubin, Paul 300 Shelley’s case, rule in 121 Shepherd, George B 205 Sherwood v Walker (1887) 138 simultaneity problem 240–241 slavery 140 Smith, Adam 5, 10, 264 smuggling: cigarette 246–248; economics of 246–248 “snob” goods 46 social security 280–284, 283, 307–308, 311, 333n8/28 Social Security Disability Insurance 307–308 social welfare 12, 71, 91, 108 Sony Corporation v Universal City Studios (1984) 95, 331n4/33 species collapse 112 “specific performance” remedy 152–154 Spurr, Stephen J 205 standards of proof 61–63, 190; clear and convincing evidence 61, 190 stare decisis precedent 57 state courts (US) 57, 66–68, 329n3/1&6 states’ rights (US) 63–66 Statute of Frauds 134, 144, 324 statutes: “compulsory unitization” 116; “forced share” 122–123, 326; of limitations 210; “notice” 88; “notice-race” 88–89 Stieber, Jack, and Block, Richard 39–40 Stigler, George J 6; and Becker, Gary S xvii, 256–257 stock options 264–265 strategic voting 61 Stratmann, Thomas, and Klick, Jonathan 182 strict liability 159–161, 164–167 Stuart Cove 160 subletting 118 subrogation 179–180; economics of 180–181; under American rule 222–224, 223; under English rule 224–225, 224 “subsequent repair” doctrine 160–161 subsidies 25, 75, 105, 162, 249, 249, 279, 289, 309–310; effects 24; housing 292–293, 293 348 Index substitution effect 18–20, 22, 31–32, 145, 174, 279–280, 287, 303, 307, 309, 325 Sun City 83–84 sunk costs 3, 325 “superior” goods 29 supply curves 8, 9–10, 13, 13, 23–24, 28, 35, 325 supply and demand 26–29, 321 Supreme Court see United States Supreme Court surfing 126 survivor’s benefit 283–284, 338n12/10 survivorship, right of 113 takeovers 265–267, 337n11/11 tax rate: average 316; marginal 279, 281, 285–286, 322 Tax Reform Act (1986) 286 tax(ation) 24, 45, 75, 77, 79–81, 105, 162, 174–175, 246–248, 279–294, 311, 327n0/7, 328n1/13; consumption 284–286, 338n12/12; death 279–280; effects of 22–24; EIG 280; gift 279–280; payroll 280–283; Pigovian 77, 83; property 292–293; proposed on firearms 253–254; relief on interest payments 284 Taylor, John, and Passell, Peter 235 tenancies 113, 116–118, 122, 128, 151, 325; joint 113, 122, 322 tenants, life 116–118, 322 testators’ wishes 120–121, 123, 325 title, registration and insurance 86–88 Todd, Petra, Knowles, John and Persico, Nicola 237 Torrens, Sir Robert Richard 86 torts 158–186, 325; definition 158 Toyota 98 trade: restraint 232; secrets 96–97, 301 trademarks 97–99, 325 trading, insider 232, 269–270 training costs 298–301 transaction costs 71–73, 76–79, 81, 84, 91, 94–96, 325 transplant surgery 102–105, 103 Trebilcock, Michael 144–145 trees, harvesting 116–117, 117, 123 trivial violations of law 258 trusts 117–120, 325 Tullock, Gordon 209 Type and mistakes 61–62 Umbeck, John 126, 128 “unconscionability” doctrine 143–146, 332n7/10 Uniform Commercial Code 133, 140, 143 Uniform Principal and Income Act (1997) 117–118 unilateral mistakes in contracting 136–138 Union Carbide Corporation 337n11/2 unions 6, 306 United Network for Organ Sharing 104 United States Constitution 55, 63–67, 79, 89, 213, 233, 235, 298; Amendments to 64–65, 67–68, 179, 216, 233, 235, 298, 329n3/11, 330n4/12, 335n9/25, 337n10/15 United States Supreme Court xvii–xviii, 57, 60–61, 66–67, 80, 98, 137, 142–143, 177, 179, 192, 206–207, 211, 213, 215–216, 235, 242, 329n3/4, 335n9/19&29, 338n11/13; grant of certiorari 60–61 United States (US): Bill of Rights (1791) 64–65, 67–68, 212, 216; “concealed-carry” laws 251–252; Patent and Trademark Office 90, 97; state courts 57, 66–68, 329n3/1&6; states’ rights 63–66, see also federal entries Universal Studios 115 university finance 130, 313, 314 value: concept 326; expected 47, 320; selfassessment of property 80–81 variable costs 326 verdicts, majority 214–215 vesting of pensions 311–312 vicarious liability 160, 326, 333n8/8 violations of law, trivial 258 voir-dire process 213–214, 326 voluntary bankruptcy 273 voting, strategic 61 wage differentials 10, 306, 313, 317 wage-earner plan 273–274 wages, maximum and minimum levels 301–303, 302, 303 Wahl, Jenny B 140 Waldfogel, Joel, and Ayres, Ian xvii, 238–239, 336n10/8 Warner Brothers 115 Wayne State University 311 Westinghouse Electric Company 139–140 whaling 129–130, 335n9/18 White, Michelle: and Berkowitz, Jeremy 274; and Lin, Emily 274 widows’ rights 122–123, 280 Williams Act (1970) 266 Williams, Stephen F xviii Winter, Harold, and Neilson, William 214 Winter, Ralph xviii witnesses, expert 205–206 Wolak, Frank 27 Wolpin, Kenneth 235, 336n10/6 work, hours of 305 working conditions, hazardous 305–308 “worthier title” doctrine 121 Xerox Corporation 99 Zenger, John Peter 212 Zimbabwe 109 .. .Economic Foundations of Law The third edition of Economic Foundations of Law introduces readers to the economic analysis? ?of the major areas of the law: property law, torts, contracts,... division of profits in law firms 130 The Shakers 131 126 The law of contracts The economic functions of the law of contracts 133 General rules of contract law? ?? 135 The common law of slavery ... of the present, but the man of the future is the man of statistics and the master of economics (Oliver Wendell Holmes, The Path of the Law, 1897) Economic analysis of law: its growth and consequences