Department of Economics

Carleton University

Economics 3204*A

An Economic Analysis of Law

Winter 2005

Course Outline

Stephen Ferris Office: A801 Loeb

Hours: Monday 2:30-3:30; Tuesday 1:00 - 2:30

Phone: x3755

Email: stephen_ferris@carleton.ca

Web page: www.carleton.ca/~sferris/

Course Prerequisite: Econ 1000 or the first year seminar in economics FRSM 1003

Course Text: Anthony Dnes, The Economics of Law, Thomson, SouthWestern, 2005.

Robert Cooter and Thomas Ulen, Law and Economics, 4th Edition. Addison Wesley, 1996.

Recommended Readings (On reserve in the main library--articles in the Economics Reading room):

Yoram Barzel, Economic Analysis of Property Rights, Cambridge University Press, 1989

Henry Manne, The Economics of Legal Relationships, West Publishing, 1975

Richard Posner, Economic Analysis of Law, Little Brown, 1977

Dorfman R. and Dorfman N. Economics of the Environment, 2nd Ed. Norton 1992.

Barney, J. and Ouchi, W. Organizational Economics, Jossey-Bass, 1986.

Molho, I., Economics of Information: Lying and Cheating in Markets and Organizations, Blackwells, 1997.

Grading: There will be two exams and a paper (5 pages maximum).

Midterm 1: Mid Term (40%), Tuesday, February 8 th

Midterm 2: Mid Term (40%), Tuesday, March 22 nd

Paper: Four page paper (20%) due April 8 th by 4:30p.m.

Sort forms for journal references:

CJE = Canadian Journal of Economics; JPE = Journal of Political Economy; JLE = Journal of Law and Economics; AER = American Economic Review; JET= Journal of Economic Theory;

EJ = Economic Journal; QJE= Quarterly Journal of Economics.

Course Outline: Topics and Selected Readings

January 11 Introductory Class: Cooter and Ulen, Chapters 1-2.

Scarcity, Choice and Alternative Forms of Organization

--Alchian, "Uncertainty, Evolution and Economic Theory", JPE (1950)211-21.

-- introduction to legal institutions, see Cooter and Ulen, Chapter 3.

January 18 Property Law and the Coase Theorem. Cooter and Ulen, Chapters 3-4.

--R. Coase, "The Problem of Social Cost" JLE (3), 1960, 1-42. also in Manne, Dorfman and Dorfman

January 25 Applications of the Coase Theorem. Cooter and Ulen, Chapter 5

--Scott Gordon "Common Property Resource" JPE 1954 and in Dorfman and Dorfman

--Demsetz, H. Towards a Theory of Property Rights"AER , (57), 1967, 347-59. also in Manne

--McManus, J. An Economic Analysis of Indian Behaviour in the North American Fur Trade", Journal of Economic History (32), 36-53.

February 1 Other forms of Organization, The of the Firm---Principal Agent Problems: Molho, Chapters 9 -10

--Coase,"The Nature of the Firm" AEA Readings in Price Theory, and Barney and Ouchi

--Alchian and Demsetz, "Production, Information Costs and Economic

Organization", AER, (Dec. 1972). and in Barney and Ouchi, and Manne.

--Jensen and Meckling, "The Theory of the Firm" J of Fin. Econ. (Oct.76), and in Barney and Ouchi.

February 8 Mid Term Test 40%

February 15 Theories of Contracts and Agency:

--Cooter and Ulen, Chapter 6

--Ben Klein and Keith Leffler, "The Role of Market Forces in Assuring Contractual Performance", JPE, 89 (4), 615-41.

Klein, Crawford and Alchian, "Specific Capital", JLE, October 1978.

March 1 The Market for Lemons: Molho, Chapters 2-4

­Akerlof, "The Market for Lemons: Quality Uncertainty and Market Mechanism"

QJE (84), 488-500.

­Charles Wilson, "Equilibrium and Adverse Selection" AER (69), papers and proceedings, 313-317.

March 8 Job Market Signalling and Screening: Molho, Chapters 5-6

--M. Spence, "Job Market Signalling" QJE (87), 355-374.

--M. Spence, "Signalling in Retrospect.." AER June 2002, 434-60.

March 15 Mechanism Design and Truth Telling: Molho, Chapters 13-14

--Harris and Townsend, "Resource Allocation under Asymmetric Information" Econometrica, 49 (January 1981).

--R. Myerson, "Analysis of Incentives in Bargaining and Mediation" in Negotiation Analysis by H. Peyton Young. University of Michigan Press.

March 22 Mid Term

March 29 and April 5: Academic Tenure, an example of Law and Economics in Practice

Dnes, and Seaton, "The Reform of Academic Tenure in the United Kingdom", International Review of Law and Economics, 18, 4: Dec. 1998, 491-509.

Brown, W. "University Governance and Academic Tenure: A Property Rights Explanation", Journal of Institutional and Theoretical Economics, 153,3: Sept 1997, 441-61.

O'Flaherty and Siow, "Promotional Lotteries", JLE, 7(3), 1991, 401-409.

Siow, A., 1998, "Tenure and other unusual Practices in Academia, LEO, 14 (1), 152-73

Chen and Ferris, "A Theory of Tenure for the Teaching University", Australian Economic Papers 38 (1) (March 1999), 9-25, with

Ferris and McKee, forthcoming 2004, "Matching Candidates with Academic Teams: A Case for Academic Tenure" International Review of Law and Economics

April 8 Term Paper due 20%.

Note that the paper is due by 4:30 pm Friday April 8. If the paper is not received by that time, you will be penalized by one full grade (i.e., from B+ to C+) each weekend. That is, as of Friday April 8 at 4:31 you will be graded out of B+, etc.

A Special Note for the Essay:

All students must write one short paper, not to exceed four typewritten pages (double-spaced). The paper must be on a topic that is not researchable in the library and the topic must be cleared by me sometime over the term. The restatement of a famous/infamous case and/or an argument developed by someone else and/or a rehash of one of the classroom lectures will not be accepted. Rather you should attempt to tackle one simple real world topic that has particular interest to you. In the past individuals have used the opportunity of the paper to explain one of the "strange" or "atypical" allocative practices encountered in their summer jobs and/or have noticed different ways that common goods are sold or marketed in different countries (seen when travelling). In this paper you should motivate your topic by explaining why you find that real world observation of interest. Hopefully, the explanation (hypothesis) for why that practice takes place is not too obvious. After develop the hypothesis to explain why that observation has arisen, you must use the theory developed to explain at least one thing other than the problem that you started off to explain. That is, you can use your hypothesis to explain another aspect of the same problem that you started with or show how your explanation helps to explain an entirely different but related problem. In either case, the test must be on something other than the starting observation. Often a good starting point for analysis is to look at two potential explanations for the same problem (e.g., monopoly versus efficiency).

Note that you will be graded on 1) your choice of a distinctive topic, 2) your use of economic theory to explain your observation through an hypothesis and 3) your ability to develop an independent test (i.e., something other than its ability to explain your starting observation).