Law and
Economics
Exam Two
Wednesday, October 26
Fall 2011
I. System of Law
A. Sources of Law
1. statutory law
2. common
law
a. judges decide cases
b. decisions become
precedents
B. Structure of US Court System
1. State Courts
a. trial court
b. appellate court
c. high court
2. Federal Courts
a. District Courts
b. Circuit Court of
Appeals
c.
C. Structure of
1. Circuit Court
a. district court
b. probate court
c. municipal court
d. family division
2. Court
of Appeals
3.
D. The Dispute Process
1. claim
2. trial
a. jury: verdict
b. judge: judgment on
the verdict
3. appeal
a. based on questions
of law
b. facts come from
trial
i. no new evidence
ii.
no witnesses
4. further
appeal is possible
a. state system
b. federal system
c. US Supreme Court
E. Precedent
1. judges follow
rules established by case law
2. no clear
rule: judge makes decision-- creates new rule
3. new rule
becomes precedent for courts beneath deciding court
4. US Supreme Court decisions become
precedent for all lower courts
F. Criminal Law and Civil Law
1. same courts
2. differences
a. parties
b. fines/damages
c. punishments
d. standards
II Property
A. Why create private property?
1. simultaneous
use can be impossible
2. unrestricted
use can deplete resource
3. incentive to
produce
B. Why have common property?
1. transactions
costs to negotiate use may be too high
2. monitoring
and enforcing property rights may be too expensive
3. defining
boundaries of property may be difficult
C. Efficient property definitions depend on relative costs
D. Property issues
1. How are rights established?
2. What can be privately owned?
3. What may owners do with property?
4. What remedies for violation of rights?
5. What bundle of rights?
E. Optimal System
of Property Rights
1. Characteristics
a. universality
b. exclusivity
c. transferability
d. enforceability
2. None of these characteristics are
fully realized in the real world
F. Right to transfer
1. inalienable
goods
2. entire bundle
3. individual
rights from bundle
a. real property
(land)
b. easements
c. covenants
d. air rights, mineral
rights . . .
4. recording
systems
5. Racially restrictive covenants
G. Establishing property
1. fugitive
resource
2. rule of first
possession
3. problems
a. depletion
b. overexploitation
c. alternative rules
can solve problems
i. private rights
ii. joint
ownership
4. Public Auction
5. State grants
6. Treaty
7. Common
law
8. Adverse Possession
H.
Property and the Wild West
III. Intellectual property
A. Copyright
1. protects
expression
2. exists at
creation
3. lengthy
protection
a. lifetime + 70 years
b. works for hire (95
years)
c. enters public
domain after expiration
4. rights can be
transferred
5. protection is
narrow
6. fair use
B. Patent
1. protects
ideas
a. novel
b. non-obvious
c. useful
2. registration
required
3. short
protection
-- 20 years
4. rights can be
transferred
5. breadth
depends on claim
6. use requires
approval
C.
Trademarks
1. protects
symbols
2. registration
3. no expiration
4. rights can be
transferred
5. protection is
narrow
6. other use is
limited
7. economic
reasons for protection
a. information
b. quality
D. Trade secrets
1. State law protects
2. very limited
protection
a. misappropriation
prohibited
b. independent
invention allowed
c. reverse engineering
allowed
3. Why not use patents instead of
secrets?
a.
patent standards may be too high
b. patent length may
be too short
c. patent cost may be
too high
E. Economics of intellectual property
1. incentives to
invent
2. value of
invention
a consumer surplus,
producer surplus
b. ideas as a public
good
c. when are ideas
most valuable?
3. monopoly
power
a. inefficiency and
deadweight loss
b. trade-off: value
of idea with loss from monopoly
4. rent-seeking
a. real resources are
spent to gain property
b. efficient amount
of investment
5. patent races
a. only first
inventor can use idea
b. huge incentive to
be first
c. can lead to
overinvestment in research
F.Cases
1. Counterfeits and
knock-offs in fashion
2. Online
music
3. Open source