University of Kansas, Spring 2005
Philosophy 674: Philosophy of Law

Study questions: chapter 6, “Law and Economics”

The following questions are intended to guide your reading of the assigned texts by calling attention to key concepts, distinctions, principles, and other parts of the texts. The questions are listed in the order in which their answers should become evident to a close reader.

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  1. pp. 170–183
    1. What are the three kinds of theses associated with the law and economics movement?
    2. Suppose a person wants to buy and eat as many cookies as it would be economically rational for her to buy and eat. How should she determine how many cookies to buy and eat?
    3. What does it mean for an allocation of resources to be Pareto optimal?
    4. What does it mean for one allocation of resources to be Pareto superior to another?
    5. What does it mean for an allocation of resources to conform to Posner’s wealth-maximization criterion?
    6. Suppose you have paid me for some potatoes that I am selling, but I decide to deliver them to someone else who is willing to pay more for them. How might it promote economic efficiency for the law to say that all I have to do is give you your money back (as opposed to saying that I am barred from delivering my potatoes to anyone except you)?
    7. According to the Hand formula, what inequality must be satisfied in order for a person to have behaved negligently?
    8. Suppose you and I keep our boats tied to piers at the same lake. Every year, I use rope costing $50 to secure my boat, so that it doesn’t break free in a storm and smash into yours and cause damage to your boat that would cost you $5,000 to fix. (Assume that, due to the way the boats are built, any damage my boat does to yours would cost you $5,000 to fix.) One year, in a big storm with lots of wind, my boat breaks free and smashes into yours, costing $5,000 worth of damage to your boat. You sue me, claiming that I was negligent in the way I secured my boat. I respond by claiming that in any given year, the probability of a storm bad enough to break a $50 rope is less than 1 percent. Assuming that I am correct in this assertion, does my conduct satisfy the Hand formula?
    9. Suppose that I use my boat as a water taxi that people use to quickly get from one side of the lake to the other. Sometimes, the wake from my boat causes waves to splash up on the shore of your property, ruining expensive rare books that you (let’s say you’re a rare-book dealer!) often keep stacked there. Fortunately for me, the law of our little maritime municipality says that you, not I, are responsible for the damage my boat causes to your books. What must be true (about the costs involved in the way we run our respective businesses) in order for for this aspect of the law to be economically efficient?
    10. Suppose that, for whatever reason, the law economically inefficiently says that I am responsible for the damage my boat causes to your books. What sort of arrangement does the Coase theorem predict that you and I will reach?
  2. pp. 183–187
    1. What argument does Posner give in support of the economic-efficiency explanation of the common law?
    2. What rival explanation of the economic efficiency of the common law does Altman consider?
  3. pp. 187–196
    1. In what sense is the wealth-maximization criterion for evaluating the law supposed to be a “neutral” criterion that everyone can endorse?
    2. On what grounds does Posner argue that the wealth-maximization criterion protects individual rights? (You can answer this question just in terms of the individual right not to be enslaved.)
    3. It is often claimed that the economic approach to law has a conservative bias. How can it be argued, to the contrary, that wealth would be maximized if the government would run a fairly extensive welfare program for the poor?
    4. What is the main idea of the contrast between conservatives in the law and economics movement and liberals in that movement?
    5. Why, according to Altman, is it not in everyone’s equal interest for society to maximize efficiency?