Law and Economics will teach students (how) to view laws as incentives for changing the behavior of individuals or organizations, and as instruments to pursue policy objectives. However, as a field, Law and Economics has a broader aim: it tries to explain the presence (or absence) of legal institutions and to predict the role they play in organizing economic activity; in other words, it tries to understand the function of each legal institution. The goal of the course is to offer students a point of entry into this interesting line of research, which partly overlaps with a number of fields in microeconomics (industrial organization, organizational economics, political economy, for instance).
At the end of the course, students should be able to (i) recall the standard papers and arguments regarding the incentives created by a number of well-studied legal institutions or doctrines, (ii) be familiar with the standard techniques and models used in this literature, and (iii) assess the quality and relevance of recent papers in the field.
The course being open to CentER graduate students, its main focus will be on what economics can bring to the analysis of law. It is hoped, however, that the reverse contribution will be much more appreciated by students at the end of the course. Economic analysis usually takes for granted such legal institutions as property rights, contracts, or enforcement through courts, or takes a simplistic view of them. However, the history of many nations has dramatically illustrated how economies can be paralyzed by the absence of secure property rights or efficient contract enforcement, to name but a few examples.
The course will be mostly paper-based (some time will be reserved for the exposition of classical problems such as moral hazard and mechanism design). It will cover a mixture of classical and recent articles (most of them theoretical, some empirical) about the most general topics in the literature: torts, contracts, litigation and law enforcement. Students are expected to read assigned papers ahead of meetings and actively participate to the discussion.
Time will be reserved for the presentation by students of papers at the frontier of research on those or more esoteric topics. This will take place within the context of the Applied Micro Theory Reading Group, which means that in practice, the classroom will be open to other interested faculty members and doctoral students on those occasions. The rules of the reading group are simple: students have 45 minutes to present a paper; they cannot use slides, only the chalk and the blackboard; they should not try to present all the variants and all the results included in the published paper but instead focus on presenting the base model and the main result as clearly as possible.
Reading list 2016-2017
Kaplow, Louis and Steven Shavell (2002). “Economic analysis of law”, in Alan J. Auerbach and Martin Feldstein (eds.), Handbook of Public Economics, Elsevier, 1661-1784.
Polinsky, A. Mitchell and Steven Shavell (eds.) (2007). Handbook of Law and Economics, Elsevier.
Brown, John Prather (1973). “Toward an economic theory of liability.” Journal of Legal Studies, 2, 323-349.
Shavell, Steven (1982). "On liability and insurance." Bell Journal of Economics, 13, 120-132.
Fagart, Marie-Cécile and Claude Fluet (2009). "Liability insurance under the negligence rule." Rand Journal of Economics, 40, 486-508.
Kessler, Daniel and Mark McClellan (1996). "Do doctors practice defensive medicine?" Quarterly Journal of Economics, 111, 353-390.
Craswell, Richard (2000). "Contract law: general theories" in Bouckaert, Boudewijn and De Geest, Gerrit (eds.), Encyclopedia of Law and Economics, Volume III. The Regulation of Contracts, Edward Elgar, 2000.
Masten, Scott (2000). "Contractual choice" in Bouckaert, Boudewijn and De Geest, Gerrit (eds.), Encyclopedia of Law and Economics, Volume III. The Regulation of Contracts, Edward Elgar, 2000.
Tirole, Jean (1999). “Incomplete contracts: where do we stand?” Econometrica, 67(4), 741-781.
McLeod, W. Bentley (2003). “Optimal contracting with subjective evaluation.” American Economic Review, 93, 216-240.
Bebchuk, Lucian A. and Steven Shavell (1991). "Information and the scope of liability for breach of contract." Journal of Law, Economics and Organization, 7, 284-312.
Matouschek, Niko and Imran Rasul (2008). "The economics of the marriage contract: theories and evidence." Journal of Law and Economics, 51, 59-110.
Stephenson, Matthew (2009). “Legal realism for economists.” Journal of Economic Perspectives, 23(2), 191-211.
Bebchuk L.A. (1984). "Litigation and settlement under imperfect information." Rand Journal of Economics, 15, 404-415.
Walfogel, Joel (1998). “Reconciling asymmetric information and divergent expectations theories of litigation.” Journal of Law and Economics, 41, 451-476.
Dewatripont, Matthias and Jean Tirole (1999). "Advocates." Journal of Political Economy, 107, 1-39.
Kaplow, Louis and Steven Shavell (1994). "Accuracy in the determination of liability." Journal of Law and Economics, 37, 1-15.
Mookherjee, Dilip and I. Png (1994). "Marginal deterrence." Journal of Political Economy, 102, 1039-1066.
The course is a second-year elective in CentER's research master program in economics and business. The material will be taught at the graduate level. Formal theoretical models and empirical studies will be presented and criticized. You will need to apply the tools you learnt in core microeconomics and econometrics courses. No prior knowledge of law is required to attend the course.