LAW AND ECONOMICS 1
1. To what extent can the private law of property solve theproblem of pollution?
The problem ofpollution is concerned with externalities. In this regard, economicactivities may have consequences that are experienced by thirdparties. It is important to assign property rights so as to definewho owns the property. Private law is concerned with legal agreementsmade between two or more individuals or entities while propertyrefers to assets of ownership. The private law of property involvesassigning rights of ownership to either persons or corporations(Devlin, 2015). Therefore, the problem of pollution can be solved tothe extent that private law of property is defined. When the privatelaw is perfectly defined, then the problem of pollution will also beperfectly solved.
The owner ofproperty is at liberty to exercise their rights over theirpossession. This means that the owner is neither legally required norforbidden from exercising those rights. Therefore, the owner has theright to pollute and to be free from pollution. Besides, otherprivate persons are prohibited from interfering with an owner’srights (Hatzis & Mercuro, 2015). On the other hand, publicproperty is controlled by the government in terms of taxation.Nevertheless, the private law cannot solve the problem of pollutionif the definition of property is unclear. Statutes established withinthe private law are supreme.
2. Litigationinsurance shifts the legal cost of plaintiffs or defendants toinsurers. How do you think this insurance would affect the number ofsuits filed?
Insurance is concerned with the payment of fixed annual premiums soas to obtain cover against possible risks that may cause financialloss. Insurers guarantee compensation to the insured in the event thelatter suffers a financial loss. Insurance helps to decreaseuncertainty and spread risks. There are two problems associated withinsurance. Adverse selection occurs when a person with a higherpropensity for filing suits pays the same price as one that filesfewer suits. The average pricing favors the person with a higherlikelihood of filing suits. Moral hazard occurs when a person knowsthat they will not pay the full price for their actions (Schwarcz &Siegelman, 2015). For example, a motorist may flout road rules anddrive recklessly when they know their costs will be subsidized.
Litigationinsurance results in lower costs incurred by both defendants andplaintiffs. Therefore, the number of suits filed will increase.However, a different outcome may be realized in the long-run. Theinsurance company will respond to the increased level of payouts byraising the insurance premium (Schwarcz & Siegelman, 2015). Whenthe price of insurance exceeds the cost of litigation, this may leadto a decreased number of suits. It could also result in fewerwrite-ups of litigation insurance.
4. State theCoase Theorem as applied to remedies for breach of contract.
A contractrefers to a binding agreement between two or more persons to fulfillcertain obligations. A breach of contract occurs when either one orboth parties fail to accomplish the terms of the contract (Cooter &Ulen, 2008). Nevertheless, particular remedies are implemented in theevent a contract is breached. Perfect compensation is when theinnocent party receives the full value or benefit stipulated in thecontract. Restitution occurs when the guilty party is forced toreturn what was provided in the contract as a promise by the innocentparty. Reliance refers to the costs incurred while assuming the otherparty will fulfill the contract (Devlin, 2015).
The CoaseTheorem states that if transaction costs were zero, then privatebargaining would achieve the best possible outcome regardless of theproperty rights. The parties involved in disputing the propertyrights naturally pursue an outcome that is mutually beneficial(Hatzis & Mercuro, 2015). Transaction costs refer to the expensesincurred during a business deal. Bargaining helps to establish acompromise between two parties. As applied to the remedies for breachof contract, the Coase Theorem states that if there were notransaction costs, the most efficient outcome would be realizedthrough private bargaining regardless of the terms of the contract.
Cooter, R., & Ulen, T. (2008). Law and economics. Harlow,UK: Pearson Addison-Wesley.
Devlin, A. (2015). Fundamental principles of law and economics.New York, NY: Routledge.
Hatzis, A. N., & Mercuro, N. (2015). Law and economics:Philosophical issues and fundamental questions. New York, NY:Routledge.
Schwarcz, D. & Siegelman, P. (2015). Research handbook on theeconomics of insurance law. Cheltenham, UK: Edward ElgarPublishing Limited.