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Econ 338: Law and Economics

Homework 5

Property Ch 6

1. Was the common law’s shift from strict liability to a rule of reasonableness for nuisance law, as described in the Carpenter v. Double B Cattle Company, Inc. case, efficiency-enhancing? (Use economic theory and the case details in your answer.) (5 pts)

2. Prepare a short essay by addressing the following questions to compare the cases Whalen v. Union Bag (1913) (p. 151) and Boomer v. Atlantic Cement (1970) (p. 153).  (10 pts)

• What area of law do these cases concern? What economic and legal concept does this case concern within that area of law?

• Who is the Plaintiff and who is the Defendant?

• These cases address different approaches to the question of how social welfare is maximized. Discuss these approaches and how they differ in each case.

• How are “permanent damages” calculated? Discuss the incentive effect of permanent damages vs. actual damages (the advantages and Disadvantages of each).

• Is the externality in each case public or private?

• In each case, are the transaction costs of bargaining among the parties low or high?

• In Boomer v Atlantic, suppose the households had a right to enjoin the cement company to stop polluting. What obstacles would the cement company face if it tried to purchase the right to pollute from the households?

• Explain the remedy given by the court. Suppose at some point in the future, the cement company doubles its rate of output, thus increasing the noise, smoke, dust, and vibration inflicted on the neighbors. Do the homeowners have a remedy?

• Contrast the difference between temporary and permanent damages on the incentives of the people to build new houses near the cement factory.

• To what extent can the private law of property solve the problem of pollution?

3. Prepare a short essay by addressing the following questions to analyze the case Spur Industries v Del E. Webb Development Co. (1972) (p. 156) (10 pts)

• What area of law does this case concern? What economic and legal concept does this case concern within that area of law?

• Who is the Plaintiff and who is the Defendant?

• Who was there first?

• Which party “caused” the nuisance?

• Why did court hold Spur liable?

• What remedy did the court award?

• Why did the court require the plaintiff to “purchase” the injunction?

• Is the court’s remedy decision more fair? More efficient?

• What incentives does the court’s ruling create?

• What consequences did Spur have?

4. Using (explicitly) the Calabresi-Melamed theory of transaction costs, justify the following rights by a property rule or a liability rule: (12 pts)

a. a land owner's right to exclude a neighbor's gas line from his property.

b. a new car owner's rights to have his car's defective engine replaced by the seller

c. a homeowner's right to be free from air pollution by a nearby factory

d. a spouse's right to half the house upon divorce

5. (5 pt) Return to HW 3 #3: The Coase Theorem problem with Taylor and Kanye. Discussion this situation in terms of Calabresi and Melamed. Explain how their theory applies. If you missed the problem, refer to the solutions to ensure you understand the correct analysis.

6 and 7.  EACH PERSON IN YOUR GROUP SHOULD DO THIS:

Go through the lecture slides and write two multiple choice or short answer problems (with solutions) about the material from Chapter 6.  You should be certain the questions are clear and the answers are correct. For multiple choice, ensure no other answer choice besides your correct one(s) could be correct. Your questions will be used to make a review exam. (3 pts ea)

FORMAT:

Question: [write your question here]

Answer: [write your answer explanation here. Whether your question is MC or short answer, explain.]

Question: [write your question here]

Answer: [write your answer explanation here. Whether your question is MC or short answer, explain.]