Law and Economics

Semester and Year Offered: 3rd / 4th Semester, 2nd year

Course Coordinator and Team: Taposik Banerjee

Email of course coordinator: taposik[at]aud[dot]ac[dot]in

Pre-requisites: Graduation level Microeconomics and Mathematics along with Microeconomics-1 course.

Aim: This is an optional course for postgraduate economics students where an interdisciplinary approach is followed to analyse the efficacy of Law. The course introduces students to a class of theories that tries to explain law and its evolution with the help of economic methodology. Legal institutions are analysed here within the framework of economic methodology; and it is contended, explicitly or implicitly, that the law and its transformation can be almost entirely explained in terms of economic norms and processes. The course introduces students to different branches of law. It evaluates different rules of law in terms of efficiency criteria, the most important of these being that of Pareto efficiency.

Course Outcomes:

On successful completion of this course students will be able to:

1. Figure out the economic aspect in a legal problem and apply the economic methodology to analyse the same.
2. Analyse legal rules and policies in terms of the criterion of economic efficiency.
3. Construct liability rules that induce efficient outcome.
4. Explain the basic theories of law and economics regarding ownership, tort, contract and criminal law.
5. Examine the legal institution in a game theoretic framework.
6. Discuss the limitations of the theories of Law and Economics.

Brief description of modules/ Main modules:

The course introduces students to a class of theories that tries to explain law and its evolution with the help of economic methodology. The course begins with the introduction of Coase theorem and shows its influence in the evolution of the sub discipline of Law and Economics. The course introduces students to different branches of law, namely, Tort, Contract and Criminal law. It evaluates different rules of law in terms of efficiency criteria, the most important of these being that of Pareto efficiency. The following would be the broad outline of the course.

1. Objective of Law and Economics.
2. Legal traditions: Civil Law and Common Law.
3. Basic economic tools: logic, equilibrium analysis, basic uncertainty, welfare.
4. Market failure and Coase theorem.
5. Branches of law: Property, Contract, Tort, Criminal.
6. Tort Law

• Different liability rules
• Efficiency analysis of liability rules
• Characterization of efficient liability rules
• Different cases: two party - multiparty - independent and dependent cost of care.

7. Property Law - remedies for trespass.

8. Contract Law - remedies for breaches.

9. Criminal Law –ways to reduce social cost of crime.

Assessment Details with weights:

Three class tests with following weights: Test 1 (25%), Test 2 (35%) and Test 3 (40%).

Test 1 will be a class test based on material covered during first half of the semester.

Test 2 will be a class test based on material covered during second half of the semester.

Test 3 will be an end of semester class test based on all material covered in the course.

Reading List:

• Brown, John Prather, 1973. `Toward an Economic Theory of Liability', 2 Journal of Legal Studies.
• Calabresi, Guido, 1970. The Costs of Accidents: A Legal and Economic Analysis, Yale University Press, New Haven.
• Calabresi, Guido, 1991. `The Pointlessness of Pareto: Carrying Coase Further', 100 Yale Law Journal.
• Coase, R.H., 1960. `The Problem of Social Cost', 3 Journal of Law and Economics.
• Cooter, Robert D. and Ulen, Thomas S., 1999.Law and Economics, third edition, Addison-Wesley, New York.
• Jain, S.K., 1996. `Structure of Neutral and Monotonic Binary Social Decision Rules with Quasi-Transitive Individual Preferences, 64 Journal of Economics (ZeitschriftfurNationalokonomie).
• Jain, S.K., 1998. `Rationality and Values', paper prepared for Indo-French Seminar on Norms, Reliability and Science/Knowledge held at Shimla.
• Landes, William M. and Posner, Richard A., 1987.The Economic Structure of Tort Law, Harvard University Press, Cambridge (MA).
• Shavell, Steven (1987), Economic Analysis of Accident Law, Harvard University Press, Cambridge (MA).

ADDITIONAL REFERENCE:

• Arrow, K. J., 1963. Social Choice and Individual Values, second edition, Wiley, NewYork.
• Arrow, K. J. and Hahn, F. H., 1971.General Competitive Analysis, North-Holland,Amsterdam.
• Barnes, David W. and Stout, Lynn A., 1992.Economic Analysis of Tort Law, WestPublishing Company, St. Paul.
• Bonjour, L., 1985. The Structure of Empirical Knowledge, Harvard University Press,Cambridge.
• Burrows, P. and Veljanovski, C.G., 1981. `Introduction: The Economic Approach to Law' in The Economic Approach to Law ed. by Burrows, P. and Veljanovski, C. G.,Butterworths, London.
• Calabresi, Guido, 1961. `Some Thoughts on Risk Distribution and the Law of Torts', 70Yale Law Journal.