LongTermContracts:FamilyLawWhyHaveLong-termContracts?Whynothandleeverythingasaspotmarket?Insomerelationships,partnersacquirerelationshipspecificskillsConvertingacompetitivemarkettoabilateralmonopolyThecasefortraditionalmarriageEliminatingtheoptionofthreateningtoleavereducessomebargainingcostsSocialcustomsonthedivisionofresponsibilitiesreducesothersAttheriskofbeingstuckwithawrongchoiceorawrongdivisionAndyoucannotenforcecontracttermsthatarenotobservableChangesOverthePastCentury+DivorceUsedtobelegallydifficultanduncommonIsnoweasyandcommonMostcoupleshadasexualdivisionoflaborHusbandworkedoutsidethehomeforincomeWiferanthehouseholdMostadultswerepartofahusband-wifecouple,nowabouthalfAlmostallchildrenwereborninwedlock1940U.S.Illegitimacyrateabout4%1999about33%Whydidthesechangeshappen?HousewifeceasedtobeafulltimejobbecauseInfantmortalityratesdroppedAlotofhouseholdproductionmovedoutofthehouseSincewomenwerelessspecializedtobeingthewifeofaparticularmanThecostsofendingamarriage,whilestillsubstantial,weresmallerSolessincentivetomakeandkeeplongtermcontractsConsequencesofEasyDivorceConsideralongtermcontractinwhichAperformsearly,BlateIfthecontractisnotenforceableAperformsandBbreaches.Opportunisticbreach,notefficientbreachInatraditionalmarriage,thewifeperformsearly,thehusbandlateProducingandrearingchildrenisthehardpartofthewife’sjobThehusband’sincomeusuallyrisesovertimeSowitheasydivorce,somehusbandsbreachopportunisticallyOncepeopleadjust,howwouldwomenrationallyrespond?Specializelessinbeingawife,moreinmarketskillsPostponeandspreadoutchildbearingBelesslikelytomarryatallOut-of-WedlockBirths:PossibleExplanationsWelfareforsinglemothersmadesinglemotherhoodmoreviableIncreasingacceptabilityofnon-marriageequivalentsAsurplusofwomenonthemarriagemarketrelativetothepastBecausewomennowhardlyeverdieinchildbirthIn1900,~1%ofbirthsresultedindeathforthemother,andwomenhadalotofchildrenInaricherworld,morewomenwhodidn’twantahusbandcoulddowithoutoneAkerlof-YellinExplanationInaworldwithoutabortionorcontraception,sexandbabiesarejointproductsSomostwomeninsistedonmarriageorengagementasaconditionofsexAndcouldgetthatdealbecausemostmenhadnogoodalternativesourceofsexWithreliablecontraceptionandlegalabortion,thelinkisbrokenWomenwhodon’twantbabiesbutwantsexcanofferitwithouttheconditionAndtheircompetitionmeanssomewomenwhowantbothcan’tgetitSoenduphavingbabiesandrearingthemwithoutamantohelpThisassumesthat,ontraditionalterms,menarerelativelymoreinterestedinmarriageforsex,womeninmarriageforbabiesThisistheoppositeofthepredictedeffectofthechangeOut-of-wedlockchildrenwereassumedtobeunwantedchildren:AccidentsCausePeopleWithreliablecontraceptionandabortionavailabletherewouldn’tbeanyApparentlytheyweren’tunwantedExplainingSexLawAgainstadultery:ContractenforcementEspeciallyagainstfemaleadultery—thedoublestandardMendon’tgetpregnant,andmenwanttoreartheirownchildrenMaleadulterycandivertresourcesawayfromthewifeForboth,alinkbetweensexualexclusivenessandemotionalcommitmentAgainstfornicationAkerlof-Yellinargument:Womenwhowanttogetmarrieddon’twantcompetitionIfmarriageproducesbetterchildren,andfornicationunderminesmarriageThat’sanargumentfordiscouragingfornicationRingsandPromises:MargaretBrinigTraditionalpatternincludedsexbeforemarriagebutwithcommitmentThatraisestheriskofseduceandabandonInAnglo-Americanlaw,breachofpromisewasactionableIneffectdamagesforlossofvirginity,whichwasvaluableonthemarriagemarketWhy?Startingabout1935,U.S.courtsincreasinglyabandonedtheactionWhichiswhywomenstartedrequiringvaluableengagementringsThinkofitasaperformancebond–ifhejiltshershekeepstheringSeductionLaw:OldandOlderFatherswanttocontrolwhotheirdaughters’marryInAnglo-Americancommonlaw,onewayofdoingitWasanactionagainstaseducerbythefatherOnthegroundsthathewasdeprivedoftheservicesofaservantMyexplanation:“Seduction”oftenmeantevasionofparentalcontrolIfBillgetsmepregnantmyfatherwillhavetoletusgetmarriedSothefatherwantsalegalactionhecancontrol,notonehisdaughtercancontrolThesameissueshowsupintraditionalJewishlawUnderreligiouslaw,awomanwasadultandcouldchooseherhusbandat12?CommunalauthoritiestriedtofindwaysofaddingadditionalrequirementsGettingaroundthereligiouslawrulesinvariouswaysPrettyclearlyforthesamereasonTheAdoptionMarketIt’sanoddmarket–supplyanddemandareroutinelyoutofsynchAsonewouldexpectinamarketwithpricecontrolAdoptionagenciesclaimtomakethechoiceinthebaby’sinterestWhataretheirincentives,comparedtothoseofnaturalandadoptiveparents?Dotheiractualrequirementssupportthatclaim?TheCommodificationArgumentFromMargaretRadin,StanfordLawItiswrongtotreatthingsascommoditiesthatshouldn’tbeSuchasbabies(paymentforadoption)orsex(prostitution)SoperhapsthetransactionsshouldbeillegalThislooksliketheoppositeofthelogicreflagburningGovernmentscanmakelotsoflawsaboutburningthingsunderminimalscrutinyButburningaflagisbothafireandamessageAndthegovernmentcan’tpunishmessagesRadinisarguingforpunishingthingsbecausetheyaremessagesAreBabiesaGoodThing?AlotofpeoplearguetherearetoomanypeopleFromtheeconomist’sstandpoint,thisisaclaimaboutexternalitiesWhenIproduceandrearachild,doIimposenetcostsonothers?TrytolistthemThechildneedsfood,clothing,shelter—morepeoplemeanslessforeachThat’snotacostexternaltothefamilyWhattheyuse,theyortheirparentshavetobuyThechildwillgotopublicschool,atsomecosttothetaxpayersButhewillthengrowupandpaytaxestothepublicschoolsRoughlythetwoeffectscancelThechildmayproducepollution,commitcrimes,goonwelfare–negativeHemayinventthecureforcancer,writeagreatnovel,positiveMorepeoplemeanmorepeopletosharetheburdenoftaxesNewReproductiveTechnologyMultipleparentsThechildwithfiveparents–arealCaliforniacaseSterilehusband,doublyinfertilewife,aproblemSolution:spermdonor,eggdonor,hostmotherChildisborn,couplegetdivorcedWhohasrightsandresponsibilitieswithregardtothebaby?LordMansfield’srulemaynotbetherightanswer"Mymotherwasatesttube,myfatherwasaknife”IfwecandocutandpastegeneticengineeringWhoarethelegalparentsandWhoownsyourgenes?LibertarianeugenicsSupposeeachcouplecouldchoose,amongthechildrentheycouldproduceTheonestheydidproduceSeparatelyselectingonspermandeggGood?Bad?TortLawAnyquestionsonthechapter?ATortisaWrongWhyisanactwrongful?Becauseitimposescostsonothers.ButCompetitionisnotatortBecausetheexternalityispecuniaryNonetcostLotsofminorthingsimposenetcostsbutarenottortsBecausesomeexternalitiesarenotworthlitigatingSuchasmytasteinclothingForsomeissuesapropertyruleisbetterthanaliabilityruleWhichisanargumentforusingcriminallawinsteadThesameactcanbebothacrimeandatortArethereactsthatarecrimesbutnottorts?WewillgetbacktothecrimevstortissueinafewweeksCausationWhatdoes“AcausedB”mean?CoincidentalcausationMystoppingyoutochatisa“butfor”causeofyourbeingunderthefallingsafeButitdoesnotincreasetheprobabilityexante,sopunishingitProvidesonlyanincentivenottochatwithpeopleUnlesswealsorewardyouwhenthesafefallstensecondsearlierEasiertodoneitherInlegallanguage,thisistheissueofforseeabilityRedundantcausationTwolivehuntersandoneverydeadone.Whoisliable?TheaveragecostimposedbyeachofthetwohuntersishalfalifeButthemarginalcostimposedbyeachiszeroReversecaseBillcarelesslypointedanunloadedgunatJohnandpulledthetriggerUnfortunately,MaryhadcarelesslyloadeditAveragedamagebyeachofthemhalfalifeper,marginaldamagebyeachonelifeThisisthelegalversionoftheDiamond-WaterpuzzleDiamondsaremuchmorevaluablethanwater$3000/carat=~$6,000,000/gallonWatercostsconsiderablylessthanthatWaterismuchmorevaluablethandiamondsIftherewerenodiamondsintheworldEngagementringswouldhaverubies,sapphiresandemeraldsinsteadWhichmightbeanimprovementAndgrindingwheelswouldbecarborundum,whichwearsoutfasterWithoutwaterwealldieSolution:ThedifferencebetweenaveragevalueandmarginalvalueAllofthewaterisworthmuchmorethanallofthediamondsButsincewehavealotofwater,onemoredropisworthverylittleOnemorediamondisworthquitealotInthesecases,wearelookingatthecostofonemoreactionProbabilisticCausationYoumayhavecauseddamageof$10,000Underthe“preponderanceoftheevidence”ruleIfp<.5youowenothingIfp>.5youowe$10,000Whydon’twemakeitdamage=p($1000)?AjuryhasahardenoughtimedecidingonguiltorinnocenceAndtheamountofthedamageNowyouwantthemtoagreeonwhetherpis.6or.7AccountingfollowsthesamerulePossiblyforthesamereasonEachofthemneedsasimpledecisionruleWhatistheEfficientLevelofTrafficAccidents?Zero?WeknowhowtogetthatBanalldrivingButthecureisworsethanthediseaseTakeprecautionsifandonlyifThebenefitfromtheprecautionIsgreaterthanitscostHowdowegetthatresult?ArrangethatsomeonewhotakesaprecautiongetsthebenefitOrsomeonewhofailstotakeitpaysthecostTwowaysofsayingthesamethingAvoidingacostisabenefitEfficientRulesforaUnicausalAccidentStrictliabilityisthestraightforwardPigouviananswerNegligence,asinterpretedbyeconomists,givestherightanswertooYouareliableifyoufailedtotakeallcostjustifiedprecautionsSoitisinyourinteresttodosoWhichistheefficientresultTheHandruleThatassumesthecourtknowsWhatprecautionsyoutookAndwhatprecautionsyoushouldhavetakenSoitisapartlyregulatorysolutionStrictliabilityonlyrequiresyoutoknow—leveragesyourprivateinformationActivitylevelisshorthandforunobservableprecautionsThecourtdoesnotknowhowmuchtakingthattripwasworthtoyouSocannottellifitwasworthtakingButotherprecautionsmaybeunobservabletooDualCausation:CoaseianaccidentsStrictliabilityoneitherpartyGivesthatpartyafullincentiveTheotherpartynone,sinceheisbeingfullycompensatedforthecosttohimHowaboutmakingbothpartiesfullyliable?Eachofuspaysafineequaltotheotherdriver’scostoftheaccidentNowanythingIcandothatreducestheprobabilitybyonepercentagepointIsworthdoingifitcostsmorethandamage/100,whichistherightruleBothdriverscausedtheaccident–theemptygunstoryWhatiswrongwiththissolution?Whoreportstheaccident?Whataboutnegligenceliability?Mysimplecaseiscarsandtanks.Thetankisliableifthedriverwasnegligent–fullincentiveIfthetankisnotliable,thecardriverbearsthefullexpenseAndthetankwon’tbeliable,becauseitisnotinitsinteresttobenegligentSobothofthemtaketheoptimalprecautionsHalftheproblemissolvedbyPigou,halfbyregulationButitonlyworksforobservableprecautionsInamorerealisticcasethancarsandtanks…Howdowedecidewhichpartyisliableifnegligent?Thetallerdriver?ThinkofitascompensationfortheevileffectsofheightismButIdon’tknowhowtallthedriverIamabouttorunintoisSotheargumentworkspoorlyforautocollisions,betterforSituationswherethereissomeconsistentdifferencebetweenthetwopartiesSuchthatwecanhavearulespecifyingwhichisliableifnegligentDrivervspedestrian,forexampleThesamelogicworksforcontributorynegligenceIpayforyourdamageunlessyouwerenegligentSoyouwon’tbe,soIwill,soIwilltaketheoptimalprecautionsTable14.1shouldmakesensetoyouSupposewedon’thaveacourtthatcanaccuratelyjudgenegligenceTheleastbadrulemaybetosplitthedamageAlongthelinesoftheargumentforcoinsuranceIfIbearhalfthecost,itstillpaysmetotaketheprecautionswithahighpayoffAndifyoubeartheotherhalf,itpaysyouto.DamagesMeasuringnon-pecuniarydamages:MaimonidesHowmuchdoestheinjuryreduceyourvalue?Ifyouweresoldasaslave,howmuchwoulditreduceyourprice?Whatmightbewrongwiththisanswer?Howmuchdidthepainandsufferingcostyou?IfyouwerecondemnedtohaveyourhandcutoffWhatwouldyoupaytohaveitdoneunderdrugs?Punitivedamages:TheexceptiontotheusualruleDamagesgreaterthanrequiredtomakethevictimwholeHucklevsMoney:DamagesagainsttheSecretaryofStateThecasethatgaveustheFourthAmendmentCourtesyofJohnWilkesDamagesforshootingbirdsonsomeoneelse’spropertyArguablydonebecausethetortfeasorwantednotbirdsButtohumiliatethepropertyownerSixTheoriesofPunitiveDamagesNosuchthing,justordinarydamagesforinjuriesthatarehardtoseeTheyservetoexpressmoraloutrageTheyfunctionasaprobabilitymultiplier(LandesandPosner)ForatortwhichwilloftengounpunishedScaleupthepunishmenttogetitonaverageequaltodamagedoneIfdamagesarehardtomeasurebutthetortisalmostalwaysinefficient,setdamagesatahighestimateofharmdone(LandesandPosner)BecausetheoptimalpunishmentisnotreallyequaltodamagedoneCatchingandpunishingpeopleiscostlySodeteralloffensesthatdonetdamageisonlyafirstapproximationtotherightruleDetailsnextweekTodeterstrategictortsMythreattoharmyoustopsyoufromdoingthingsIdon’tlikeWhichisacosttoyounotobservedasdamagesButthisonlyworksifthevictimisnotfullycompensatedConsider