LectNotes-5-Oct18-TransCost-Sos2330 - 1 INTRODUCING THE...

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Unformatted text preview: 1 INTRODUCING THE ECONOMICS OF LAW Prof. Salazar Session/Week 5 – Sosc 2330 October 18, 2010 1 2 OBJECTIVES 1. Understand the contribution of the transaction cost approach to enrich our view of the law • Introduction: Key issues and Basic definition • Problem of Transaction Cost • T Cost specified and Law’s role as solution • Is the TC superior to Market and Government Failure Approach? 1. Assess the strengths and weaknesses of the transaction cost approach: • Source of criticism • Example: Cell Phone case • Integrating Economic and Non-Economic considerations in legal analysis 3 IMPERFECT INFORMATION MARKET POWER EXTERNALITIES MARKET FAILURES GOVERNMENT INTERVENTION Law + Direct Control GOVERN. FAILURES OTHER FAILURES Public goods, behavioural/rationality (e.g. self-interest), Transaction cost, unemployment SELF-REGULATORY POWER OFMARKETS e.g. competition eliminates monopolies INDUSTRY SELF-REGULATION e.g. own advertising standards 4 If markets and governments fail, how do we deal with the inefficiencies and abuses in the economy? What is a better place and role of the law? 4 5 Ronald Coase (1910-, UK, London SE, Nobel Prize 1991, currently Chicago Professor) • “Market Failures v Government Failures”? • Acknowledge the merits of MF and GF • Instead: • Transaction Cost • Law’s role • Institutions 6 THE TRANSACTION COST APPROACH • TCA provides a rationale for legal intervention that purports to be superior to market and government failure views • TCA attempts to demonstrate that private markets are still a superior mechanism to solve all failures and enhance society’s welfare (Pareto efficiency) provided that legal institutions are in place. • Government intervention is thus not required beyond the making and enforcement of basic legal rights e.g. property rights (through court or legislature) 7 THE TRANSACTION COST APPROACH • Cost of transactions and market activities is problematic and requires law’s role: – Problem: costs associated with making a transaction may deter parties from carrying out a transaction. – Consequences: jobs are not created, wealth is not generated, public services are not funded. This may result in making individuals and society worse-off. – Solution: Law should play a role in mitigating TC so as to make society better-off 8 TRANSACTION COSTS DEFINED • Coase: “.. In order to carry out a market transaction it is necessary to discover who it is that one wishes to deal with, to inform people that one wishes to deal...
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This note was uploaded on 11/16/2010 for the course NATURAL SC NATS 1505 taught by Professor Isley during the Spring '10 term at Columbia State Community College.

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LectNotes-5-Oct18-TransCost-Sos2330 - 1 INTRODUCING THE...

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