Q1.

Why is it efficient to limit the duration of patents and copyrights, whereas real property rights
endure almost forever?

Answer-There is a tradeoff between reward for innovation and dissemination. Rights are granted to
encourage innovation and technology findings as far as patents and copyrights are concerned. But,
it starts resembling with monopoly and it also creates a social cost. Besides, it blocks dissemination
that is not good for society as well as economy in broader perspective. Thus, a time duration is
attached to strike a balance between reward for the innovator and expansion of technology. That’s
why, it is considered to be efficient to limit the duration of such rights.
But, it does not apply to real property rights because it does not create a monopoly and other
restrictions that come with patents and copyrights.

Q2. Cooperative enterprises are collectively owned, and their affairs are directed through shared
governance. Use the preceding theory to discuss the management of some cooperative enterprises
with which you are familiar, such as a cooperative dairy, a cooperative apartment building, an Israeli
kibbutz, a Hutterite farm, a commune and so on

Answer-Cooperative enterprises are collectively owned by the producers and is controlled by them
collectively.

Dairy cooperative is a business which is owned and controlled by the dairy farmers who produce
milk used by the cooperative. Owning a cooperative is beneficial for both the dairy farmers and
customers in several ways :

 Receive a competitive price of their milk.

 Have a strong secure market domestically and globally.
 Can easily switch from production to manufacturing in order to get the highest market
returns.
 Get additional services to keep their business a profitable one
 Get a share in cooperative society income.
Customers get a good and high quality milk.

Cooperative apartment is run by a cooperative society and all the affairs are run collectively. The
maintenance and controlling of the apartment affairs are controlled jointly by the cooperative
society .
Israeli Kibbutz is an agriculture based collective community managing the affairs of agriculture and
production and collectively set the price of agricultural output whcih gives the maximum returns.

Commune is a large gathering of people sharing common life and the affairs and expenses are
managed collectively.

Q3. Suppose households had a right to enjoin [a neighboring commercial enterprise] to stop
polluting. What obstacles would the [neighboring enterprise] face if it tried to purchase the right to
pollute from the households?

Answer-The above question can be explained with the help of Coase Theorem.
The various obstacles the neighboring enterprise would face to purchase the right to pollute from
the households are as follows:

1. The enterprise would have to compensate the households fro creating pollution in the
environment. This compensation should not be less than the Marginal benefits that the households
derive from clean environment.

2. It is very difficult to measure the correct marginal benefits derived by the society from clean
environment.

3.The transaction or the cost of negotiation cost should be low. In case the cost is high, the firm will
run into losses as the households will demand more compensation.

4. The externality involved should be on a small scale and not large scale. Only small scale
externalities can be corrected using this approach.

Q4. The Federal Government provides disaster insurance that helps people to build vacation homes
in places subject to flooding, such as sand dunes. Assume the government wants to protect the
environment by preventing construction of homes on a specific sand dune near the ocean. If the
government takes private property on the sand dune, either by condemning it or by imposing
regulations that forbid any construction, should compensation include ort exclude the increase in
the value of land cause by government flood insurance?

Answer-According to me, the compensation paid by the government for taking private rights on the
sand dunes should include the increase in the value of land caused by government flood insurance.
It is because if the actual owners of the particular land had sold it in the open market for building
the vacation homes, they would have received a higher price for it. However, as the government is
taking the land from them, they would not be able to avail the high price for it. Thus, the
government should include that excess in the compensation it pays to them.

Q5. To what extent can the private law of property solve the problem of pollution?
Answer-Private law of property to some extent can solve problem of pollution, Fisheries are the best
example. In past fisheries were hunted recklessly and they were destroyed because of misery of
commons, but after giving property rights over fisheries over exploitation of these fisheries have
stopped. The owner of the fisheries will feel the ownership and will protect the reserves,

Property rights of small ponds can be handed over to residential communities so that they would
never dump waste or pollute the lakes with garbage. To some extent property rights can solve
problem of pollution but larger policy is needed and strict laws must be enforced againist polluters.

Q6. Consider the right to smoke or to be free from smoke in the following situations:
1. smoking in a public area.
2. smoking in hotel rooms.
3. smoking in a private residence.
4. smoking on commercial airline flights.
In which situations do you think the transaction costs are so high that they preclude private
bargaining. In what cases are they low enough to allow private bargains to occur? Explain your
Answer-Smoking on commercial airline flights has very high transaction cost and thus there should
be a private bargaining. In an airline, the people in it may get smoke directly which may affect them
because not all of them are smokers. Sometimes in airlines there is little air for ventilation thus the
people inside might suffocate due to the smoke. The smoker is interfering with other people's right
of being free from smoke and also right to life because some of them might die due to suffocation.
Smoking on a private residence is the case which is low enough to allow private bargaining.
Everyone has a right to own property and thus if someone is smoking in his/her residence area,
there is no need to question because he she is not interfering with other people’s rights. Thus if you
are a non-smoker and you are in the residence of a smoker you have to excuse him or her to do
what he/she wants.

Q7. Why is a trial [economically] inferior to a settlement on the same terms as the expected trial
judgment?

Answer-Two basic models of settlement bargaining which is based on concepts from information
economics and game theory. These models have been generalized to address issues that arise when
there are more than two litigants with related cases. Linkages between cases can arise because of
exogenous factors such as correlated culpability or damages, or they can be generated by
discretionary choices on the part of the litigants themselves or by legal doctrine and rules of
procedure. In general, the prohibition of price competition promotes quality competition and secret
discounting. The valuation of a legal dispute is simply its "expected value," defined as the probability
of judgment multiplied by the expected damage award. It applies that the principles of financial
economics to construct a pricing theory of legal disputes. In addition to probability and transaction
cost, dispute risk must capture the concepts of weight of evidence, variance of case disposition, and
confidence in assessment. In much the same way that cost of capital, a measure of financial risk,
affects the valuation of firms, the risks associated with litigation and settlement imply a cost of
resolution of which transaction cost is but one component. By focusing on transaction cost, the
standard model underestimates true economic cost. Because the expenditure of transaction cost
reduces uncertainty, transaction cost and risk adjusted valuation are in dynamic tension.Therefore,
sometimes it is opine that the normative axiom -litigation is inferior to settlement-a conclusion
having broad policy implications in the administration of justice.

Q8. Litigation insurance shifts the legal cost of plaintiffs or defendants to insurers. How do you think
this insurance would affect the number of suits filed?

Answer-The shifting of cost to the insurers will raise the legal cost for the insurers. Any rise in the
cost will reduce the quantity demanded . Thus, this change will reduce the number of the suits filed.

Q9. How would judicial behavior be altered if judges’ salaries were a percentage of litigants’ filing
fee?

Answer-In litigation, there are three relevant actors namely the plaintiff, the defendant, and the
court. The plaintiff and the defendant pays a filing fee required by statute. If any of them is unable to
pay the fee may file a request to proceed in forma pauperis. Assuming that salaries were a
percentage of litigants filing fee then most judges would be reluctant in waiving the fees. Also the
mediation, arbitration, and other forms of alternative dispute resolution, primarily designed to
produce a resolution of a dispute without the requirement for trial or other court fees proceedings
will not be that effective.
Q10. If judicial salaries were much higher than they are, how would the selection of judges be
affected?

Answer-There would be more competition for getting the nominations, Further judicial selection is a
process that involves many levels of politics and administration so if competition for judicial jobs
become higher then selection process automatically will become more difficult.

More stringent requirements would become norm.

Q11.Suppose that two people choose to litigate a dispute. Should the law presume that if two
parties are prepared to litigate, transaction costs must be high, and therefore the court should
choose damages as the remedy, not an injunction.

Answer-Yes Court should chose damages as the remedy and not an injunction since it will cause fear
in the mind of litigant to approach the court and moreover if court chooses damages as remedy only
then in that case the party/litigant at the wrong side would get a lesson in terms of funanfina penalty
and will keep that in mind while approaching the court next time.

This remedy will help judiciary in below way.

1 It will reduce the number of cases in the court as wwwe as time.

2 It will give scope to court to give time to seeious and unavoidable cases.

3 It will save time and money of both plaintiff and defendant.

4 It will help in speed up of other cases.

Q12. Discuss the following proposition: reliance rather expectations damages are the proper
measure of damages for breach of contract in cases (e.g., mistake) where was no actual meeting of
minds?

Answer-The proposition requires defining reliance, expectations damages, breach of contract and
meeting of minds. The meeting of minds implies that two parties have same information before
agreeing to the contract and no misconception regarding an understanding of roles of each party.
Breach of contract is when either of the party is not able to meet the end of a contract. expectation
damages refer to the full value of the contract.

The proposition defines that the parties want to give credit to full expectations instead of reliance. It
is about giving full incentives to a place. They want transaction costs of contract with no meeting of
the minds.so that in future people will not go into contracts where there is no meeting of the minds .

Q13. If insurance is an important function of contracts, which contract remedies perform this
function best (and worst), and should the winning party be entitled to have his legal fees paid by the
loser?

Answer-Insurance, restitution, reliance, expectations - Given

I. Remedies
A. Expectation damages are the standard measure of damages of promissory liability
both for actions based on the bargain theory and those based on promissory estoppel.
They put the promisee in as good a position as he would have been in had the contract
been performed.
Award = benefit of the bargain (out of pocket + profit).

Basis = enforce promises according to their terms

1. Why ever award expectation damages?

a. Economic explanation = credit economy tends to eliminate the
distinction b/w past and future (promised) goods. Expectation of
future values becomes present values for trade purposes. Problem is
that promise has value only b/c law enforces it , while the expectancy
that is regarded as the present value is not the cause of legal
intervention but the consequence of it.

b. Juristic explanation = makes sense of the economic theory by

considering the utility that underlies that way of living.

(1) to cure the harms occasioned by reliance

(2) to prevent the harms occasioned by reliance by

penalizing breach of promise by the promisor

(3) to facilitate reliance on business agreements

2. Measure of expectation damages = contract price minus whatever

benefits, if any, the received from not having to complete his own
performance (e.g., expenditures that would have had to make).
B. Reliance damages are occasionally awarded for promissory estoppel cases. They put
the promisee in as good a position as he would have been in had the contract never
been entered into. Usually given where expectation costs are difficult to measure (but
the P can demonstrate expenditure), or where expectation damages are inappropriate
b/c they grossly exceed the amount of reliance damages.
Award = out of pocket costs.

Basis = compensate for detrimental reliance

1. According to Fuller, the reliance interest is the most important. The reliance
interest not only covers all cases covered by restitution, but it also protects the
expectation interest in most cases, where it compensates opportunity costs in
terms of expected gain instead of losses caused (e.g., foregoing an opportunity
to contract elsewhere is compensated in terms of what one could have expected
a similar deal to produce.
2. Why does the law not usually reward reliance damages? According to Fuller, it
is more practical to award expectation damages, although the law ought to
operate in accordance with the reliance interest:
 a. Expectation interests are easier to define.

b. Deters breach of contract and reliance loss b/c it’s easier to prove
expectation damages (see above).

3. Limitations on amount of reliance recovery

a. Contract price as a limit—when ’s only obligation is to pay a sum of
money (contract price), reliance damages will almost always be limited to
the contract price. Don’t want to give more than what his expectation
damages would have been, and expectation damages will seldom be
greater than contract price.

b. Recovery limited to profits—May ’s reliance damages exceed

expectation damages, in case where completion of contract would have
resulted in a loss for ? Most courts refuse to allow reliance damages to
exceed expectation damages, but place BOP on to show what ’s loss
would have been.

C. Restitution damages (quantum meruit) restore to the P the benefits conveyed to the
defendant. They are typically awarded in quasi-contract cases. Also awarded where the
expectation damages are too uncertain, and the reliance damages are not a fair
measure of recovery. According to Fuller, protecting the restitution interest is most
important in providing a ground for judicial intervention.
Award = benefit to promisor

Basis = compensate for unjust enrichment

Q14. Ashley pays $100 for a ticket to a Super Bowl game. Through some mix-up by the ticket broker,
the ticket is never delivered to Ashley, and she misses the game. She would have paid $10,000 for
the ticket. Assume that the mix-up was not avoidable at reasonable cost by the broker but he has
broken the contract. What should Ashley’s damages be?

Answer-Ashley pays $100 for a ticket to a Super Bowl game. Through some mix-up by the ticket
broker, the ticket is never delivered to Ashley, and she misses the game. She would have paid $
10,000 for the ticket. And that the mix-up was not avoidable at reasonable cost by the broker but he
has broken the contract. Here, When Ashley’s contract was Broken she should recover the Damages
of $100 only which is the Minimum Payment made by the Ashley’s. That is, Ashley’s can recover at
least an amount of $100 out of the $ 10,000 for the Ticket. Because the Mix-up was not Avoidable at
reasonable cost by the Broker and she is also Broken the Contract. So the Damages claimed from
the Broker of S100 which is only made by the Ashley's for the Ticket.

Q15. Explain why compensating the victim of breach for expectation damages causes efficient
performance and breach, whereas compensating the victim of breach for excessive reliance may
cause inefficient performance and breach.

Answer-Reliance damages compensate the victim for direct damages suffered but leave aside
indirect affects and foregone opportunities
Expectation damage compensates the victim for direct damages suffered and also all further
efficiency costs i.e opportunity costs or losses in value added caused by the partial breach of the
agreement . Therefore compensating the victim of breach for expectation damages causes efficient
performance.

Q16. “Default rules save transaction costs in direct proportion to their efficiency.” Explain this
proposition.

Answer-Default rules are those rules can be avoided by entering into a contract. these rules can be
changed by the parties. now default rules saves transaction costs because it is inefficient to expect a
remote risk the chances of which are very rare to occur or even if it occurs it need very little charge
to fix the risk. hence it is better to negotiate in the beginning to avoid costly expense for a remote
risk rather then going for a change in the contract after execution of the contract.

thus default rule save transaction costs in direct proportion to their efficiency. the more efficient
they are the more transaction costs they save.

Q17. Doctors who form a partnership may say nothing in the partnership agreement concerning its
future dissolution. The parties may deliberately avoid discussing dissolution for fear of breeding
distrust. Provide some other examples of gaps left in contracts for strategic reasons.

Answer-Examples are:

1. There is an agreement to pay an employee fair share of the profits without specifying the
precise fraction. The employee doesn’t ask it so avoid money minded impression in front of
employers and employers doesn’t speak about it because it may make them liable to pay
that sum of amount. Hence, it can be decided by the performance of company.
2. A landlord and a tenant agreed on the subject matter of lease and all other terms but left the
evacuation term open because of the reason that tenant don’t want to give them impression
of leaving property within short term and landlord don’t want bring stringent property
leaving condition in front of tenant beforehand.

Q18. Perfectly competitive markets contain many buyers and sellers of the same contract, so the
best alternative contract is identical to the actual contract signed. What does this fact imply about
the relationship between perfect expectation damages and perfect opportunity-cost damages for
breach in perfectly competitive contract markets?

Answer-The cost of all the contracts will be the same because they are all identical in a perfectly
competitive market. If the opportunity cost is the same as the expected payoff, then the expectation
damages should equal the opportunity-cost damages. This is likely to be true only in a perfectly
competitive market. Basically if you would breach one contract for the sake of efficiency, you would
breach all of the contracts in this industry.

Q19. Restitution is usually inadequate to compensate the victim. What practical reasons do courts
have for using restitution as a remedy?

Answer-The practical reasons courts have for using restitution as a remedy are:
  When contracts are voided due to the defendent's incompetence or incapacity
 When funds or property has been transfered by mistake or fraud
 When parties are induced to enter into contract by mistake,fraud,undue influence.
 When the defendent has been benifited from the loss of the plaintiff and the court needs to return the
plaintiff to the prior status where he was before entering into the contract.
 When the plaintiff.s property is found in the wrongful possession of the defendant
 In case of unjust enrichment

Q20. State the Coase Theorem as applied to remedies for breach of contract.

Answer-Economists before Ronald Coase accepted British economist Arthur Pigou's idea that if a
herdsman's cows destroy his neighbouring farmer's crops, the government should stop the
herdsman from letting his cattle roam freely or should at least tax him for doing so. Otherwise,
economist believed that the cattle would continue to destry crops because of herdsman would have
no incentive to stop them.

Coase challenged this accepted view. Coase argued that if rights are well defined, agents will
negotiate so as to achieve Pareto efficiency. A polluter imposes an externality on his neighbour's
property. The affected 'pollutee' may ask the polluter to reduce his emission of pollutannts. The
'pollutee' can also cause damage to the polluter in some way. If either the polluter's or the pollutee's
rights are recognised, then they will negotiate rather than harming each other. For example: if A has
a factory which produces noise and B is the neighbour who runs a factory generating polluted foul-
smelling water. A can cause harm to B and B can cause harm to A. The standard conclusion
desirable is to make the owner of the factory A liable for the damage caused by producing noise to
those injured by the noise or alternatively place a tax on the factory owner varying with the amount
of noise produced and to exclude the factory from the neighbourhood.

However, Coase does not think that this is the appropriate solution and stresses that there is a
reciprocity in the problem. Instead of the two harming each other, they can come to some level of
negotiation where they agree to reduce their respective pollutants by investing in some abatement
method. This does good to both parties. Thus, a possible efficient course of action is arrived at by
negotiation. The two agents will make up for missing markets. The precise amoung, which will be
decided, depends in general on the bargaining strength of the partners. People will always be able
to negotiate to avoid an inefficient outcome. There is no need for any central intervention, whether
for the purposes of taxation or of privatisation of the whole resource domain. Thus, according to
this interpretation, voluntary negotiation will lead to fully efficient outcome.

Q21. Suppose that excessive drinking causes temporary incompetence, and suppose someone who
has drunk too much alcohol seeks to enter into a contract with someone who is sober. Contrast the
incentive effects of enforcing and not enforcing such contracts.

Answer-Being drunk at the time of making contract is an exception recognized by many state laws
and considered as a state of legal incompetence to be in contract. Any harm cause by such contract
doesn’t provide plaintiff a cause of action.

Under such cases the courts often carry out scrutiny on the following basis:

Evidentiary – Determining whether someone really was drunk •

Efficiency – Do benefits of enforcement exceed costs?
Cautionary – Was contract when drunk seriously made? –
Or impulsive – and would not have been made sober
Courts often imposes liabilities who can fulfill contract at least cost. It is often considered as a
responsibility of the person in full competence to take care of the harmful contract.

Q22. The CEO of a company that makes components for other firms asks for your advice when a
customer seeks to reduce the prices paid under the terms of a sale contract. The customer claims
that there have been unforeseen changes in the demand for its final output. What economic
function of contracts would you highlight in giving advice?

Answer-Contract Management must be clearly distinguished from other functions. Contract

management is a part of the business action of a particular company. Assume that it is impossible to
determine a contract manager role as in practice it will always be vary. The companies can. choose
by own that on which stage to involve a contract manager for their particular company with
internal structure. For example, it can be a political role with the great authority and decision
making, a policing role with reporting heavy duties, a technical role which will be monitor
and record, a negotiator or blended, a legal role which will be draft contract associated by approval
and. documents.

The contract management role is will enforced where it complements the other functions,
tools and giving advice for other factions with regards to contract.