Law & Econs

Question 1

History of Law & Economics

Answer 1

conservative/libertarian reaction against Dworkin’s legal liberalism (fairness/justice)

1) conservatives do not like redistributive and cost implications
2) libertarians do not like the faith Dworkin puts in governmental interventionism

Question 2

Advantages of replacing with economic analysis

Answer 2

Economics is a science that uses formal theory to formulate precise hypotheses and using empirical testing to determine if they are true

Question 3

Two schools of economics

Answer 3

Macroeconomics and microeconomics

Question 4

Macroeconomics

Answer 4

studies the behavior of a country and how its policies affect the economy as a whole. It analyzes entire industries and economies, rather than individuals or specific companies

Question 5

Microeconomics

Answer 5

the study of decisions made by people and businesses regarding the allocation of resources and prices of goods and services. It also takes into account taxes, regulations, and government legislation

Question 6

Most prominent school is of neoclassical economics

Answer 6

focus is on how dynamics of supply and demand effect the output and distribution of material goods and services

Question 7

At a macroeconomic level, law and econs relies on neo-institutional economics

Answer 7

that explores how various governmental structures, most particular protection of property rights and contracts, contribute to national economic development

Question 8

Chicago School of Law of Economics

Answer 8

particular focus is on using neoclassic economic analysis to explore examples of regulation creating perverse incentive structures that actively prevent particular markets from maximizing social welfare

Question 9

Characteristics of Chicago School

Answer 9

1) positivist/descriptive
2) concerned with maximizing aggregate social welfare
3) not concerned with distributional issues
4) strong belief in innate capacity of free markets to maximize social welfare
5) strong distrust of regulatory intervention.

Question 10

Utility

Answer 10

can be measured by the price that individual is willing to pay for the thing

Question 11

Social Welfare

Answer 11

The aggregate utility found in a collective (ie., the summing up of the utility of all individual members)

often equated with wealth

Question 12

Efficiency

Answer 12

the degree to which one is able extract utility or social welfare from a finite set of resources: something is more efficient to the extent it is able to secure greater utility using a fixed amount of resources

There are 3 types: productive efficiency, allocative efficiency, dynamic efficiency

Question 13

Productive efficiency

Answer 13

How much one is able to produce from a finite set of resources

Question 14

Allocative efficiency

Answer 14

how well are a fixed amount of resources distributed so as to maximize social welfare

Question 15

Dynamic efficiency

Answer 15

ability to maintain productive efficiency in the face of significant changes in the environment/consumer demand

Question 16

Efficiency gains

Answer 16

One of the core goals of economics is to find ways of improving efficiency in the generation of social welfare

There are 2 types: Kaldor Hicks, Pareto

Question 17

Kaldor-Hicks efficiency

Answer 17

Production of social welfare is maximised.

similar to utilitarianism

Question 18

Pareto efficiency

Answer 18

A situation where the only way to make one person better off is to make another person worse off

A Pareto improvement is a change that makes someone better off without making anyone else worse off (only winners, no losers)

Question 19

A market

Answer 19

a place where two parties can gather to facilitate the exchange of goods and/or services

a few examples: commodities market, political market, regulatory markets, spontaneous markets

Question 20

Three fundamental laws of human behaviour

Answer 20

1) The Utility Function: Human beings are driven to maximize utility
2) Rationality Assumption: People base their actions on rational and realistic understandings of cause and effect
3) An individual is the best judge of how much utility a particular thing contributes to her utility

This portrays an ‘economic man’

Question 21

Purposes of Law according to law and economics

Answer 21

1) Construct markets that maximize social welfare
2) Construct market-like devices that maximize social welfare
3) Prevent market failure

Question 22

What Law & Economics does as a legal theory

Answer 22

A. Map out the incentive structures created by a particular regulatory field and how they affect market behavior

B. Identify sources of market imperfection and appropriate legal response to same

C. Identify aspects of social activity that would benefit from marketization

D. Identify heretofore unrecognized markets and their regulatory implications

Question 23

Critique of Law & Economics

Answer 23

A. Econs is not a science
B. Lack of empirical testing
C. Too simplistic to describe reality
D. Ignores issues of distribution

Question 24

Principal findings of behavioral law and economics

Answer 24

(1) that as an empirical matter, and rationality is relatively bounded
(2) that this boundedness comes in the form of a particular set of irrational behavioural biases; and
(3) that these particular biases are innate to all human beings