National Law Journal and Economics

National Law Journal and Economics Final Project Guidelines
The essence of this project is for you to choose a legal topic that is of interest to you and
demonstrate that you can apply economic analysis to the legal issues raised by the topic.

National Law Journal and Economics
National Law Journal and Economics

One approach to identifying a topic is to skim the National Law Journal or legal sections of The
Economist, New York Times, Washington Post, Wall Street Journal, Philadelphia Enquirer, or
similar source for actual cases or other legal disputes that are in the news. Another approach is to
think of an application of a mechanism that we study in the course. It is best if you limit your
topic to the areas of property, contracts, torts, crime, or concepts of justice. You may not do
a project on antitrust law and economics.
You should list sources that you used for the project, but you do not have to use outside sources.
Some very good presentations have been based entirely on the students own ideas, without any
external references.
Most acceptable papers are in the rage of 8 to 12 pages. Shorter papers usually indicate a lack of
effort. Some papers have been 30-40 pages. That is unnecessarily long, but I do not impose a
Your project should include graphical models where appropriate. You should compose the project
as if you are addressing someone with the background of your classmates. The project is due on
the day that the University schedules the final exam for this course. The project is in place of a
final exam. There is no final exam.
The project requirements are intentionally flexible to permit you to choose an interesting topic
and present it in an interesting manor. My grading will accommodate different approaches to
satisfying the project requirement. Thoughtful application of economics to the law is the main
Creativity is rewarded.

National Law Journal and Economics Possible paper topics

Your paper should have some connection to mechanisms as an approach to a legal issue.
You do not necessarily have to have a formal mathematical mechanism, but if you can adapt
an “off-the-shelf” mechanism from the text, that would be great. You should try to use the
framework including: 1) a social goal, 2) agent types representing private information or
heterogeneity, 3) an authority, 4) an information (or strategy) exchange, 5) a set of rules
that specify outcomes based on agent reports of information, types, and/or strategy, 6) an
equilibrium concept, and 7) some discussion of how well the equilibrium concept
implements the social goal. This may be done in words or with math. Demonstrating that
you understand the mechanism concept is an important part of the assignment. Take a look
at the catalogue of mechanisms included in the Sakai site for a summary of the mechanisms
we have studied. You should do something that goes beyond the applications in the text, i.e.,
don’t just summarize something done in class. Independent thought and creativity will be
The following focus on legal issues to which mechanism design can be applied:
1) Coase’s (or other authors) examples (other than the Farmer-rancher example) of
applications of the Coase “theorem.” You will need to check the original version of
the article(s). Try to add private information and discuss how it affects the example.
2) How could you use mechanism design to get people to reveal their subjective
valuation of their property in an eminent domain case.
3) How could you use mechanism design to get people to reveal their subjective
valuation of a business.
4) How could you use mechanism design to get people to reveal their subjective
valuation of a personal injury in a court case.
5) How could you use mechanism design to get people to reveal their subjective
valuation of marital property in a court case.
6) Model the prisoner dilemma with an uniformed prosecutor, who doesn’t know
whether the accused is guilty.
7) Develop a Bayesian model of expectation, reliance, and/or restitution damages for
breach of contract.
8) Design a partnership agreement where partners jointly produce products, but their
skill or effort levels are unobservable.
9) Apply my bilateral externality model from chapter 4 to a real-world nuisance case.
For example, Spur industries.
10) Compare the outcomes of Bayesian models with Rawlsian, utilitarian, wealth
maximizing, and/or Libertarian outcomes.
11) Show how the social goals of efficiency and compensation conflict in Tort, contract,
or property cases.
12) Design a mechanism for “forced pooling” in fracking cases: i.e., how do you
determine whether to pool different owners’ properties (sub surface rights) for sale
to a fracking company, how do you pay the owners for use of their property.
13) Design a mechanism for allocation of water rights that produces a priority system.
Another approach to determining a topic is to think of ways you could apply the following
mechanisms to a real-world problem not studied in class:
1) Vickrey, Clark, Groves (pivotal). 2) Uniform mechanism
3) Canonical Mechanism
4) dVGA mechanism
5) Walker (public goods) mechanism
6) Externality mechanism
7) Divide and Permute mechanism
8) Combinatorial auctions
9) Any other mechanism
Another approach is to take an actual real world mechanism and explain/evaluate it in terms of what you learned in class:
1) Pennnsylvainia’s ( or another state’s) Forced Pooling legistation for Fracking
2) Cap and Trade mechanisms
3) FCC Auctions (don’t just reiterate what is in the Chapter 6 reading)
4) State Health insurance exchanges (determination of costs and prices)
5) Homesteading
6) Ocean mineral rights
7) ITIA slot allocations
8) Medical resident matching
9) Mutual insurance
10) Assignment of spaces in public schools
11) Property division rules in divorces
12) Water rights mechanisms
13) Organ matching for transplantation
14) NASA (or other governmental) project bidding rules
15) Common pool resource allocation.
Summary of Mechanism learnt in the class
1. Introduction 1
The development of Law and Economics 2
What is wrong with the Coase “Theorem”? 5
The Mechanism Design Paradigm 7
Overview of the text 10

National Law Journal and Economics Summary 15

2. General Equilibrium and Welfare 1
The fundamental concepts 1
The two-person, two-commodity, pure-exchange Edgeworth box 7
Pareto efficiency and the welfare theorems 10
An economy with production 13
Market Failures 15
Public Goods 16
Externalities 17
Information Asymmetries 18
Increasing Returns and other non-convexities 19
Incomplete Markets 25
3. The Theory of Social Choice and Mechanisms 1
Social Choice 2
What’s wrong with majority voting? 3
Domain Restrictions 4
Social Choice Functions 5
Summary 6
Determining Social Objectives 7
Mechanisms 7
Implementation in Dominant strategy equilibria 9
Mechanism Design with dominant strategy equilibria 10
Implementation in Nash equilibria 18
Sequential Rationality and Subgame Perfect Implementation 22
Implementation in Bayesian Equilibria 26
Applied Mechanism Design 32
Graph Theory 32
The linear programing approach to mechanism design 34
Allocation Networks 40
Allocation rules and social welfare functions 44
Linear programing formulation of VCG mechanisms 45
VCG Mechanisms and Combinatorial Auctions
VCG mechanisms, combinatorial auctions, and core allocations
Bayesian Incentive Compatibility
Lecture topics
Water rights (F)
FCC auctions (S)
Eminent domain
Intellectual property (D)
Mortgage markets (D)
Contract breach and remedies (F)
Contract bidding and risk sharing (D)
Commercial impracticability v bankruptcy (F)
Impossibility (F)
Unconscionability (D)
Products liability (F)
Negligence v strict liability (F)
Burdens of proof (S)
Takeover law (F)
Executive compensation (S)
Airport slot constraints v congestion fees (D)
Divorce proceedings (D)
Mutual insurance agencies (

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