1/23/2018

Friedman’s Essay
 Positive Economics – Independent of ethical positions or normative judgements
o Positive economics can be an objective science
 Normative Economics – What should be
o Need to know the positive economics to be able to make normative judgements
o Can agree on the positive economics but have different normative judgements
 Friedman says that differences in much economics opinion is over positive economics, not
normative economics
Rigsby V. Palmer
 Facts – Grandfather died. He left a little money to two of his daughters, and a large amount of
money to his grandson that would be cared for by his mother. The grandson then killed the
grandfather in order to secure his stake in the will.
 Issue – Can the grandson who kills his grandfather and is subject to criminal penalties keep the
money?
 Analysis – On one hand it makes sense that the grandson shouldn’t be able to profit from his
crime. On the other hand, if there is no law explicitly against this the judges shouldn’t be able to
make up laws on the fly for results they do not like.
Efficiency
 Cooter – Ch. 10 412 & 413
 Friedman – Ch.2
 Paul Hine Article
o It is efficient if there is not a way to use less means to get the same outcome
o A parcel of land is under the most efficiency when it belongs to whoever is willing to pay
the most money for it
o Coase Theorem – Property rights will allow whoever values something the most the
obtain the right, thereby creating efficient outcomes
o Private Ownership of resources is good. Avoids tragedy of the commons.
o Unrestricted rights to exchange ownership is good as well
o Example: People were hunting hawks to extinction and a group of activists bought a
mountain they roosted on to protect them from extinction. Their ability to buy property
rights led to the most efficient outcome
o Example: Everyone has to wait in traffic. People are unable to purchase better positions
in traffic, and everyone has wait times. In this situation there are no transferrable rights,
so it is not an efficient outcome.
 Posner (Do not read) Summarized by Rubin
o Posner states the Common Law is efficient
o Rubin says the Common Law is sometimes efficient
o A law can be either efficient or inefficient, and it makes sense that efficient rules are
more likely to survive
o Given a precedent, people may choose to settle rather than go to trial if a similar
precedent has been set
o Both people care – the law will be efficient
o Nobody cares – the law most likely won’t go to court and the law will remain unchanged
o If one person cares – the law will evolve, but not necessarily to be more efficient
 o The more inefficient the current rule, the quicker the law will approach the efficient rule
 Jewel (?) from Yale Law school – only read the lit review
o Economists look at productive efficiency, pareto optimality, pareto superiority, and
Kalgore-Hicks (?) efficient
o Pareto Optimal – No one can be made better off without making someone else worse
off
o Pareto Superior – No one is made worse off and at least one person is made better off
o The choice between Pareto Optimal distributions cannot be made on grounds of
efficiency (they are all equally efficient)
o Kalgore-Hicks – Someone is allowed to be worst off if the overall goodness added more
than makes up for it
Specialty Tires v CIT group
 Facts – CIT owns tire presses. They are at Condere, but Condere is going bankrupt.
Specialty is interested in buying these presses, so they visits Condere to inspect them.
Specialty enters into a contract with CIT for CIT to sell them the tire presses. When it
comes to delivery Condere does not agree to relinquish the presses and Condere
attempts to buy the presses.
 Issue – Is CIT liable for violating the contract given that Condere is holding the pressers
hostage in bankruptcy court?
 Rule – Specialty tires cannot reclaim damages against CIT group since it is outside of CIT
group’s control.
 Law - By Impossibility Doctrine, CIT is not responsible as it is impossible for them to
fulfill their side of the contract given Condere’s actions.
 “It is clear that this is not the risk that CIT should be expected to bear or contract
against. It cannot be said with any reliability that either Speciality or CIT would be able
to avoid the risk at a lower cost. On the otherhand, Specialty is able to better
understand the risks of not having the presses, so they should bare the risk.
 He rules based on the precedent; however, he says by pareto optimally ruling against
specialty tires is the more efficient outcome as a way of justifying the precedent.

1/25/2018
 Coase Theorem – If property rights are established and enforced, externalities can be solved
through trade in the free market given free transaction costs.
o Tautological argument, you can never bargain without cost (even if it is an opportunity
cost.)
Cooter
 Three fundamental aspects of property
o Impersonal – Rights belong to the property itself, not to the owner (rights move with
the property)
o The owner is free to exercise the rights over his or her property (cannot be forced to do
things with their property)
o Others are forbidden with property owners exercising the rights of their property
 Four fundamental questions of property
o How can ownership be established
o What can actually be owned
o What can owners do with what they own
 o What are remedies if someone interferes with our property
 Different ways of assigning water rights
o If water touches your land, you can have it. Used in the eastern part of the US this is
more common because there is more water.
 Prior appropriation – You cannot use the water in a way that affects those who are already using
it
 The big issue with Coase Theorem is transaction costs
o Search costs – The cost to find a buyer/seller of the item
o Bargaining costs – the cost of coming to an agreement
o Enforcement costs
 Search costs would be high when the product is very unique and low when the product is very
common and standardized.
 Bargaining costs are very high when the information is private. Bargaining costs are very low
when the information is public.
 Enforcement costs are low when the transaction is simple & quick. They are high when the
transaction is complex and lasts for years.
 SEARCH BARGAINING AND ENFORCMENT COSTS WILL BE ON TEST
Demsetz Article (And Friedman?)
 348 – 354
 When transaction costs are so high that Coase Theorem does not apply, that is when we end up
with externalities.
 Certain Indian Tribes utilized Property Rights in the fur trade.
o How did this emerge
o Why did this emerge
 The Fur Trade explains the emergence of property rights
o Before the fur trade Indians were hunting for food, and using the fur for their family
o The external effects of this hunting were so small, no one was negatively effected
o 2 consequences of fur trade
 Value of fur increased considerably
 Consequently, hunting increased greatly due to demand for furs to sell
o These two consequences increased the negative externalities of hunting the animals
o Thus, this brought about property rights
o They appropriated pieces of land a fixed size for each group of Indians to hunt on
 Other Indian Tribes did not adopt property rights
o No tribes had other animals available as profitable as beavers
o Animals of the plain are grazing animals that wonder around large areas of land, so
dividing up territories is difficult (need fences)
o Peninsula Indians had forest animals that did not move around a lot, so it was easy for
them to divide up territory
 “Property Rights arise when people affected by negative externalities choose to realize this in
the market”
 Dogs helped bring about property rights as well
o If people began to privatize land, there are new costs that occur in order to prevent
theft
o Dogs are a loyal and territorial animal, thus they were used to protect land at minimal
cost (Greatly reduced enforcement rates)
 Homestead Act of 1862
 o Viewed as a dumb act – let people who farmed on new land to own the land.
o To make the land yours, one provision that allowed you to claim it is to have a living fruit
tree
o Johnny Appleseed would go ahead of the normal pace and planted a lot of fruit trees to
later sell (land speculation)
o He then made a fortune selling apple trees (effectively the land)
o Homesteading land is inefficient, because it encourages people to claim land when it is
unprofitable. Without the act, people would wait to move to the land until it was
profitable.
o They tried to auction the land, but the people who originally lived there intimidated
people to not bid or they would kill them
o Also, the frontiersman had been protecting the land from Native Americans, and the
French, and the Spanish. Thus, the Government thought maybe they deserved the land
and enacted the Homestead act.

1/30/18
 Wants IFRACE for in class presentations
Sturges v. Bridgman
 There is a man who works at a confectionary. He makes meat and causes quite a bit of noise.
 One day a physician moves in and decides to build a small shed near the property line to host his
practice.
 The noise disturbs the physician’s practice, and he brings about an injunction against the
confectioner.
 The lower court tells the confectioner he cannot make his ruckus. The confectioner is upset
because he has been doing the same thing for twenty years & no one has complained.
 Coming to the Nuisance – The nuisance was obviously there and the physician chose to come
to it.
 There were was only a minimal complain in the past about his ruckus.
 The confectioner claims adverse possession. He has been doing it for so long – so if he can’t do
it he should’ve been notified earlier.
 In the court of appeals the judges say that the Physician did not know the extent of the ruckus
because he just recently built his shed there, so he did not in fact consent to the noise.
Bass v. Gregory
 Bass, the Plaintiff, owned a shop, that as adjacent to Gregory in the cottage. Underneath the
pub was an underground cellar that leaked out gaseous byproducts into the ground that ended
up contaminating the well in Gregory’s land.
 Gregory was upset with the sell, and sealed Bass’s ventilation shaft into his land.
 The owners of the pub took Gregory to court since they could no longer brew beer.
 Bass argued that they had the right to air passing through their property. The pub had been
doing this process for 40 years, and they claimed it would be impossible for any buyer of this
land to be unaware of what was going on the property.
 The court ruled that Bass had the right to the passage of air due to the fact that Gregory had
been consenting to this for so long.
 Loss-Grant Act – Allows otherwise illegal activities to become legal if neighboring landowners
with full knowledge of what is going on consent to it.
 Prescription Act of 1832 – fill in later
Fountainbleau Hotel Corp (Other Hotel is Edenrock)
 Issue – Do you have the right to air & light that travels through your neighbor’s property?
 The fountainbleau is next to another hotel and Fountainbleau is older. Fountainbleau wanted to
build a new addition to the hotel.
 They wanted to build the new addition on the north side of their yard to block the sunlight from
the neighboring hotel’s outdoor areas.
 The neighboring hotel claimed the decision to build on the North site was out of malice to
specifically block them from getting sunlight – as there was room on the south side to build the
addition as well.
 The lower court granted an injunction against the Fountainbleau since no one has the right to
use their property in a way to impede on another’s use of their property.
 Fountainbleau has already started building their addition, and they appeal the injunction.
 The Doctrine of Ancient Lights – Fill in Later
 The upper court said you do not have the right to constant unimpeded flow of light and air from
the neighboring property. Owning the property does not give you a right to the view.
Furthermore, it only blocks light at certain time right than all time. Finally, Fountainbleau’s
addition serves the additional benefit of housing more people. Had it had no benefit to
Fountainbleau and only a harm to the neighboring hotel, perhaps the ruling would’ve been
different.
 The upper court ruled that it was not a nuisance, and thus the injunction did not hold & no
damages would need to be paid. There was also an issue of the zoning permit, but regardless
the addition would’ve blocked sunlight and it was only a small difference so it was disregarded.
 Upper court says it was the duty of the lower court to enforce the law – not enact new laws.
 The Coase theorem said they could’ve came to the mutually beneficial outcome to build the
addition somewhere else. However, the parties were angry and acting irrationally and thus did
not attempt to make a deal.

Pierson v. Post
 Hunter was pursuing a fox. The fox ran by another guy, and the other guy shot the fox – killing it.
 Who has the right to the fox, the original pursuer or who shot it?
 The court initially ruled in favor of Post, saying that it was his fox since he was pursuing it.
 The higher court then overturned the lower court’s ruling, saying that the pursuit of an animal
does not give possession. The killing of the animal or capturing is what gives ownership.
 The dissenting opinion was that the pursuer of the fox should have ownership on it, as if their
intent gave them ownership.
 Dissent also noted the negative economic consequences of how a pursuer can expend resources
to chase and tire out a fox while someone else ends up with the fox.

Ploof v. Putnam
 Ploof was sailing on a lake in a boat when a violent storm blew on suddenly. He needed to find a
safe harbor quickly to protect himself & his family. He moored his boat to a dock on an island,
and an employee of Putnam thought the boat would damage the property, so he untied the ship
from the dock and the ship ended up crashing into the dock causing damages to the ship and his
family.
 The sailor argued that the emergency situation gave necessity for him to use someone else’s
property.
 Private Necessity – A precedent determined by common law that allows one permission to
use another person’s property without permission during an emergency.
 The severity of the storm showed that his live was at risk, so the necessity was justified and the
case was ruled in favor of using the dock.
 This is actually the most efficient outcome. Due to the suddency of the storm, the sailor at that
very moment valued the dock more – as it was his safety – but did not have time to engage in
bargaining to acquire property rights of it temporarily. In general, those in emergencies derive
the highest utility from shelter from the emergency.