[You may omit any complete question or questions for 20%. This does not apply to individual sections within a question]



I.             Answer one of the following two questions:                                              (10 points)


When governments take land under the power of eminent domain, they are required to compensate the owner for the land's value. What is the economic argument in favor of that requirement? Against?


B. What is the argument for the "coming to the nuisance" defense? What is the argument against?



II.         Pick one of the following and briefly explain it:                                          (10 points)

A. The argument discussed in class for why increasing the penalty for crimes of passion, such as killing someone in a blind rage, might result in fewer such crimes.



B. Why permitting plea bargains might result, on average, in more severe punishments.


III.       If I tortiously kill you I owe damages to your heirs. The amount owed is both what your heirs receive, which can be thought of as a sort of insurance, and what I pay, which can be thought of as a penalty for my act. Is there any reason to expect the optimal amount for the two purposes to be the same? Explain.            (10 points)



IV.       Ownership of a piece of land is really ownership of a bundle of rights related to that land. Answer both:    (10 pts)


1. Give examples of several of the rights included in the bundle.


2. Give an example of a right that might plausibly belong in either of two bundles—the one associated with my property or with my neighbor’s. What sort of considerations should determine which bundle it goes in?


V.         Answer one of the following:                                                                      (10 points)
  1. Should contracts made under duress be enforceable under all, some, or no circumstances? Explain.


  1. Discuss why freedom of contract might not be appropriate for transactions between tug boats and sinking ships. Is there an efficient price for the ship to pay the tug to rescue it? Explain.



C. You are arranging with a contractor to build a house for you. One possibility is to agree on a fixed price that you will pay, in exchange for his building the house as described in the contract. An alternative is for you to pay his costs, plus an additional sum for himself. What problems will arise with each alternative? How might they be dealt with?



VI.       Answer one of the following:                                                                      (10 points)

A. Summarize Margaret Brinig’s explanation for why the custom of giving engagement rings became common when it did.


B. Suppose we shift from divorce by mutual consent to unilateral divorce—either party can walk out of the marriage without penalty.  In the short run, who is worse off or better off as a result of the change? Explain. In the longer run, how do people adjust their behavior in response to the change? Explain.


VII.       Answer all parts          (15 points)

1. What does “negligence” mean in tort law as interpreted by economists? 


      2. Briefly explain Posner’s argument for why strict liability is efficient for ultrahazardous activities and relate it to the issue of what courts do or do not know.


3. Briefly explain how, with a perfectly informed court, negligence liability solves the problem of giving both parties the correct incentive to take precautions.



VIII.   What is the "optimal number of traffic accidents.” Of murders? Is either number zero? Explain.       (10 points)



IX.         IX. Do A or B                                                                                                   (15 points)


A. What is an “efficient crime”? How can criminal law be set up to deter inefficient crimes and permit efficient ones?



B. A crime might be deterred by a high probability of a low punishment, a low probability of a high punishment, or something in between. How, in principle, do we choose the best combination of probability and punishment to impose any given level of deterrence?



X.          Discuss any one of the following questions:   (5 points)


A. Why did victims of crime in 18th century England prosecute offenses?



B. How did the legal system of saga period Iceland deal with the problem of judgment proof defendants? Note that the problem is not only how to punish them but how to make it in someone's interest to prosecute them.



C. Residents of Shasta County punish neighbors who violate local norms in a way which is costly for both the person inflicting the punishment and the person receiving it. Is there a reason why doing things this way is more important in that system than in an ordinary legal system?



XI.        What is the Posner Conjecture? Offer one example of a legal rule that is evidence in favor of it and one that is evidence against it, explaining briefly. Use the back of the previous page if necessary. (10 points)