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Law and Econ Midterm Review Comprehensive notes up to the first midterm. Detailed, easy to understand and includes awesome graphs! You'll be sure to ace this one with these superb notes!

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ECON 381
Anindya Sen

Econ and Law 381 Midterm NotesDavies v Mann 10 MW S45 Ex 1842Plaintiff took a donkey to the highway Killed by defendant who was driving a carriage if you look at English law up to the point Under previous rulings plaintiff would have lost because he had contributory negligencebecause why did he take the donkey to the highway in the first placeBut the jury found in favour of the plaintiff and further the defendants appeal on the grounds that the plaintiff had contributory negligence and the fact that the incident would not have occurred but for the plaintiffs illegal action taking the donkey to the highway was rejected Reasons for excusing the plaintiffs negligence were 1 Defendants negligence came laterhad the defendant not been driving recklessly the accident would not have happened a The defendants negligence came afterwards and controlled the outcomelast clear chance rule b If both parties to an accident are negligent then the party who had the last clear chance to avoid the accident will be held responsible for any liability arising from the accident 2 The objective of the verdict was to encourage precaution in the future by people situated like the defendanta The earlier rule of contributory negligence being a complete bar to recovery was overturnedKey points to evaluate efficient dispute resolution rule creation 1Different Areas of LawChapter 4Property LawProperty law supplies the legal framework for allocating resources and distributing wealth 4 fundamental questions 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 the violation of property rightsLegal viewpoint of property is a bundle of rights describing what people may and may not do with the resources that they own and the extent to which they mayo possess use develop improve transform consume deplete destroy sell donate bequeath transfer mortgage lease loan or exclude others from their propertylegal conception of property is that of a bundle of rights over resources that the owner is free to exercise and whose exercise is protected by interference by others Question how do property rights create wealth in societyEncourages investment because reduces risks of other people taking away your houseFundamental basics of capitalism Critical framework is provided by bargaining theory Two individuals A and BA has car worth 3000 to himB has 5000 in cash and the car is worth 4000 to himScope for bargaining as the seller value the car less than the buyerThe actual price depends on bargainingCooperative surplus is the value created by moving the resource to a more valuable useNot just the exchange of goods value created by moving from one resource to another because people value the good differently Cooperative surplusmax seller WTAthe min buyer WTP 400030001000 That is the cooperative surplus available in this transaction If price3500 then cooperative surplus is split evenlyIf price3800 then A the seller gets 800 38003000pricevalue and the B the buyer receives 200 40003800 valueactual price Ultimate price is a function of factors such as bargaining skillsthere are two possible outcomes to bargaining 21 Cooperative solutionagreement on the price and transaction is consummated and surplus is created 2 Noncooperative solutionno agreement on the price and no transaction no surplus is created Want to clearly calculate how society benefits from cooperative as opposed to noncooperative solutions Noncooperative solutionCooperative solutionPayoff to participants are their respective threat Assume that the agreed transaction price the car is valueswhat they end up with by walking away 3500with no agreed price B has a car worth 4000 to her and 1500remaining of 5000 ie 50003500A keeps the car3000 Value of coop solution B keeps cash by assumption50004000 value of car to B1500 cash retainedby B3500 amt received by A Total value80009000 total valuecooperative surplus Cooperative Surplus difference in value between cooperativenoncoop solutionAssuming that property rights are welldefined and protected Arguably property rights not only have an impact on the creation of surplus and wealth for society but also explain how societies evolve from clans to nationsThought experimentImagine a simplified world where people are farmers and warriors because need to farm for food and protect your foodRationally individuals must allocate their resources between farming and fightingResourcetime What is the marginal decision making rule that defines the equilibrium allocation of time between the two activitiesValue of resources for military purposes marginal benefitvalue of resources used for farming marginal costLost opportunity cost for spending time on militarybenefit gained for farmingThis is true from the perspective from an individual clanBut is this socially efficient 3
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