EC410 Final Exam Study Guide University of Alabama EC 410

EC 410
What Will the Exam Be Designed to Do?
Assess your understanding of legal concepts
Application of the Central Concepts
Ability to develop economic analysis of situations from reading of case/facts

A Few Central Concepts for Law and Economics
1. EfficiencyMB = MC / Pareto Optimality = Efficiency
2. The Coase Theorem
3. Calabresi-Melamed Concept: Property Rules vs. Liability Rules (Coase
Theorem redux)
4. Optimal Deterrence
 The role of damages
 What is the effect of compensatory damages? What is the effect
of punitive damages/ Damage Multipliers (see Polinsky
Shavell argument in your textbook)
 [Becker and the Deterrence of Crime]

Legal Concepts From Tort Law
 No breach of contract, no damage to property, or harm to enjoin
 Negligence cases as well as intentional wrongs which result in harm
 Transactions costs are high (as compared to low in Coase Theorem)
 Use of liability to internalize externalities created by high transactions costs

 Plaintiff must have suffered harm
 Defendant’s act or failure to act must cause harm
 Defendant’s act or failure to act must constitute a breach of duty owed to the
plaintiff by the defendant

Liability Standards
 Negligence - Holds injurer liable for accidents that he causes if, and only if,
precaution is below the legal standard, regardless of victim’s level of precaution
Strict Liability –Gives victim no incentives for precaution (indifferent
between accident/compensation or accident not occurring)
Injurer internalizes marginal costs/benefits and gives incentives for efficient
precaution
No Liability – causes victim to internalize the marginal costs and benefits of
precaution which gives victim incentives for efficient precaution
Injurer has no incentive to take precaution
Variations with Contributory Negligence; with Comparative Negligence
 Contributory imposes duty of care upon victim
 Simple negligence with defense of contributory negligence – one party responsible for
costs of accidental harm even though both parties are at fault
 Comparative – damages in proportion to contribution of negligence to accident

Standards of Proof




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, Preponderance of the Evidence – More convincing evidence, not on amount of
evidence
Clear and Convincing Evidence – Higher level of proof; evidence must be
more likely to be true than not; higher degree of believability
Beyond a Reasonable Doubt - highest standard; no other logical explanation
can be derived from the facts except that the defendant committed the crime

Res Ipsa Loquitur (as seen in Escola v. Coca-Cola)
 Infers negligence from the very nature of an accident/injury, in absence of
how the defendant behaved
 Injury is the kind that doesn’t ordinarily occur without negligence
 Injury caused by an agency or instrumentality within exclusive control of
defendant
 Injury causing accident is not due to any voluntary action or contribution
on part of plaintiff
 Defendant’s non negligent explanation doesn’t completely explain
plaintiffs injury
Hand Rule (from US v. Carroll Towing)
 Injurer is negligent if the marginal cost of precaution is less than the
resulting marginal benefit

Applications of Efficiency to various areas of the law
Examples:
Efficient Breach of Contract – parties should feel free to breach and
pay damages as long as result is more economically efficient that
performing under the contract
Specific Performance vs. Damages
Optimal Reliance (Promissory Estoppel) - Reliance damages awarded;
prevents one party from withdrawing a promise made to a second party if
they have reasonably relied on the promise (promise made, evidence of
change in position due to promise; inequity if promisor were to go back on
promise)
Gratuitous promise – unilateral obligation; one party gets nothing from the
other party in return for a service

Moot Court Cases and Issues
Kelo Case—Eminent Domain and Economic Development
Kirtsaeng Case—Copyright protection vs. Dissemination of Ideas
(Private vs. Public)
Exxon Case—Punitive Damages (Tort Reform Issues)
Moore Case - Property Interests in Body Parts/Tissues (related: Organ
Markets)

Cases:
Negligence - Hendricks v. Peabody Coal Co.
 Strip mine closed in 1955; incident happened in 1960
 Dove into a strip mine area and broke his neck when he hit the bottom
of the water. Permanently disabled.



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