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problem set econ 456 - 1 Judges use a type of law based on...

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1) Judges use a type of law based on past precedents found by earlier courts to make their legal rulings in common law. While some may see this as inefficient and outdates, there are tradeoffs. Under common law, everyone is equal in the eyes of the law. There are no exceptions precedent is all being. The unfortunate side effects of common law are that it lags behind times and is very hard to change the law at the same speed as society is changing. Although it is possible for laws that some may find unconstitutional to make their way into precedent, there is a system to overturn these laws, even though it may take a while. 2a) When transaction costs are so high that bargaining is not possible, efficiency is achieved. The rancher is entitles to operate his business with open range. Therefore, there is no responsibility on the part of the rancher to keep the farmers crops from being damaged. At a socially efficient cost, the farmer can merely fence his land for $50, and ends up saving $100 in damages, which gives him a net loss at only $50. If the rancher fenced his whole range it would cost him $75, but would save $100 in liability, which makes the rancher come out ahead $25 from the potentially $100 liability. Thus, it is must efficient for society for the famer to put up the fence.
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