This course provides a broad overview of the scholarly field known as "law and economics." The focus is on how legal rules and institutions can correct market failures. The class discusses the economic function of contracts and, when contracts fail or are not feasible, the role of legal remedies to resolve disputes. It also discusses at some length the choice between encouraging private parties to initiate legal actions to correct externalities and government actors, such as regulatory authorities. Extensive attention is given to the economics of litigation, and how private incentives to bring lawsuits differs from the social value of litigation. The economic motive to commit crimes, and the optimal government response to crime, is studied in depth. Specific topics within the preceding broad schemes include: the Coase Theorem; the tradeoff between the certainty and severity of punishment; the choice between ex ante and ex post sanctions; negligence versus strict liability; property rules; remedies for breach of contract; and the American rule versus the English rule for allocating litigation costs.
This course is offered jointly with the Public Policy Program. It is one of the core courses for the master's degree in that Program. Intermediate-level training in microeconomics and some comfort in the use of calculus is required.