Law and Economics
Outline
Fall 2010
I. Introduction
I. ECONOMIC JUSTICE
A. Distribution of income or wealth
B. Utility – sense of well-being or happiness
C. Economic justice is different from “general sense of justice”
i. Incommensurate values – some sources of disutility can NOT be offset by anything that falls w/in the realm of economics
a. Slavery Example –
1. Imagine organizing society.
2. Is there any way for slavery to be an accepted part of slavery?
3. No!!! Thus, anti-slavery position is incommensurable w/ any other utility that might be gained from a positive view of economics.
b. What a/b whether had to enslave someone or torture them? Here, slavery and torture may be commensurable
c. Incommensurable – in a different sphere
ii. “Difference Principle” – Social and economic inequalities should be arranged so that they are both…
a. To the greatest benefit to the least advantaged persons; AND
b. Attached to offices and positions open to all under conditions of equality of opportunity
c. Veil of Ignorance
iii. Net Happiness – difference b/t utility and disutility
iv. Positional Externalities –
a. Negative psychic impact inequalities in wealth and income can have
b. Have great deal of influence over how we evaluate experiences
c. “The Jones’ have a bigger house than me v. my house isn’t that big, but its bigger than everyone else’s in the neighborhood”
D. Interpersonal Comparisons of Utility
i. The little old lady is a prime example of this concept.
a. When you compare the utility that each resident gets out of their home, the utilities are different.
b. W/ the little old lady, her utility is much higher than the average residence.
ii. In order to achieve distributive justice, it becomes very difficult b/c not all homeowners have the same utility and some may have received much more utility than others. It is hard to decide what justice is in these scenarios
E. Are all deserving of the same level of net utility?
i. Ex: if harming someone else gives a person pleasure, is he deserving of the same net outcome as the person who gets pleasure from aiding others
ii. Idea of economic justice almost certainly means some level of redistribution
iii. Talent tax?
F. Summary
i. Is economic justice to be determined solely by one’s ability to produce goods or services that have mkt value?
ii. Is economic justice achieved by accidents of birth that affect intellect and wealth?
iii. If not …
a. Should the default position be equality of income w/ deviations based on factors that are generally accepted as fair?
b. What factors that result in income inequalities should be regarded as fair?
c. Is economic justice consistent w/ permitting people to retain income they did not earn?
II. BASIC TOOLS OF ECONOMIC ANALYSIS (8-30)
A. Demand –
i. Range of prices and the amounts individuals are willing and able to purchase of a good at each price in a given market at a given time
a. Demand curves almost always slope downward, i.e. consumers willing and able to purchase less as prices increases
1. Price on Y-axis.
2. Quantity on X-axis.
b. Change in Demand
1. Tastes / Preferences
2. Prices of Related Goods
3. Substitutes
4. Law
c. Change in demand v. change in quantity demanded
1. Complementary goods – those typically used together, i.e. tennis ball and racket. If price of racket , demand for balls ¯.
2. Substitute goods – jogging as substitute for tennis. Price of rackets , demand for jogging shoes .
3. What if people just start hating tennis? Demand curve will move ¬
ii. Does a change in law have an impact on demand or quantity demanded?
a. Or … does a change in law simply change price or make a good or service more or less desirable in general?
b. Some may argue that laws cannot change our tastes and preferences
iii. When thinking a/b demand and its implications for questions dealing w/ justice or fairness, demand can NOT be equated w/ desire or intensity of need
a. Why? B/c desire / need part of demand only if backed w/ ability / willingness to pay
b. Ex: hungry, pizza loving student w/out money not factored into demand calculus
iv. George v. Alaska, 1997 –
a. Facts: Prisoners and non-prisoners may bring claim a/g state respecting their imprisonment. Inmate says Alaska law requiring indigent inmates to pay for litigation is UC-al, as non-inmate indigents do not need to pay.
b. Issue: Is there a relevant different b/t prisoner’s and non-prisoners to rebut Inmate’s equal protection claim?
c. Analysis:
1. Court says there are too many recreational lawsuits. However, rich prisoners can still bring lawsuits
2. Court looks at the economics of litigation – more litigation when price of litigating is low. In prison the court says litigation is a recreational activity.
3. Opportunity costs higher for non-prisoners.
i) Prisoners don’t have near as much at stake. When change fee, number of filings will react (very elastic).
4. Non- prisoners demand curves are inelastic, b/c cost of filing has almost no impact.
5. Must measure disutility of denying non-frivolous claims w/ utility of filing frivolous claims (36 min)
6. Assumptions court makes (46 min)
i) Bullard: find assumption of rationality underlying the economic model, and ATTACK that assumption
a) Use in K cases where diff. in sophistication of parties
b) Ex: minor’s are not rational
7. NO supply side to this analysis, as supply is infinite
d. Holding: No / Yes
e. Rule: Indigent prisoners do not have a legally protected right to sue the government at no cost.
B. Supply
i. Schedule of prices and corresponding quantities that would be available for sale in a given mkt at a given time
a. Usually upward sloping – as price , quantity supplied
b. Surplus – more offered for sale than individuals are willing and able to purchase. Tends to cause prices to ¯
c. Shortage – quantity supplied less than quantity demanded. Prices tend to .
d. Marginal cost – increase in total costs associated w/ the production of one additional unit of output
ii. Changes in Supply
a. Increase Cost of Production
b. Taxes / Lower Utility
c. Reduced Demand and Supply
iii. Again, important to distinguish b/t shift in supply and change in qty supplied
a. Typically, shift in supply caused by increase or decrease in the cost of inputs
b. Ex: if price of labor , supply curve will shift left
C. Market Equilibrium (9/1) –
i. Where the supply and demand curves intersect
a. Tendency for mkt to gravitate toward the equilibrium price and qty
ii. US v. Richardson (2001)
a. Facts: Δ rec’d child porn and sentenced w/ sentence enhancers, i.e. using a computer to receive the porn.
b. Two issues:
1. Four level enhancer- receiving porn w/ bondage or torture
2. Two level enhancer – use of the computer / internet
c. Possessing / creating v. receiving child porn. Should they receive same penalty?
d. If there are no substitutes, demand will be very inelastic, and un-responsive to changes in supply from targeting suppliers through har
cal consistency in the object’s of one’s desires
ii) Take actions that don’t contradict the goal
iii) Relevant conflict here is one where desires necessarily conflict b/c their propositional objects are contradictories of one another
iv) If law did not assume consistency in desires, crim and K law doctrines relying on parties intentions would be “radically indeterminate”
3. Transitivity:
i) Heart of “economic reality” to assume that the desires of a person are transitively ordered
ii) Required by K law, b/c giving up something to get what you’d rather have
4. Time:
i) Law assumes that a person has a character structure, and character consists in part in the set of desires that people maintain over time
5. Correctness:
i) To act rationally, in this sense, is to act on…
a) A desire that is correct, or on
b) A moral belief that is true
ii) N Concept – R person must weigh competing values and get it right
iii) Lesser-of-Two-Evils Justification
iii. Godinez v. Moran, 1993 –
a. Facts: Guy shot and killed 4 b/f trying but failing to kill himself. Δ plead guilty and waived right to counsel. Later, filed for PCR in state court, then habeas corpus. 9th Cir. App. Ct. granted, stating “competency to waive C-al rights requires a higher level of competency then required to stand trial.”
1. Stand Trial – “rational and factual understanding of the proceedings and is capable of assisting his attorney”
2. Waive Counsel / Plead Guilty – “the capacity for ‘reasoned choice’ among the available alternative”
b. Issue: whether competency standards for pleading guilty or waiving right to counsel are higher than competency standard for standing trial.
c. Maj. Analysis: NO difference
1. First, a criminal Δ may not be tried unless he is competent and may not waive rights unless he does so competently and intelligently.
i) 9th Cir. Std – “the capacity to make a reasoned choice”
ii) DP does NOT require a higher std
2. Guilty / Not Guilty Plea are sets of “strategic choices”, which are no less complicated than each other. Thus, no basis for demanding higher level of competence for Δs who chose to plead guilty.
3. Person waiving counsel does not need to be more competent than one who does not waive counsel. Measuring competence to waive right, not competence to represent himself.
4. Waiver of C-al rights must be knowing and voluntary. Heightened std for pleading guilty / waiving right to counsel, but not heightened stad of competence (ability to understand).
d. Dissent:
1. Criminal prosecution of an incompetent Δ offends the DP Clause of 14th Amd.
2. Disagree w/ majority over competency std to waive counsel and represent one’s self.
3. Difference b/t “rational choice” and “rational understanding”
4. Suggests two different levels of rationality …
i) Passive understanding;
