I. Definitions

Define 10 of the following 11 terms. A definition should be no more than one sentence. Points will be deducted for longer answers and for answers that provide an explanation rather than a definition.

liquidated damages present discounted value
pecuniary externality punitive damages
competitive market risk aversion
Pigouvian tax covenant
bright line rule double moral hazard
consumer surplus

II. True/False/Explain

State whether the following statements are true or false, and explain briefly why.

1. The Coase Theorem states that, as long as property rights are well defined, externalities are dealt with efficiently through bargaining.

2. The equilibrium level of output in a competitive output market is that for which the marginal private benefit of consumers equals the marginal private cost of producers.

3. Economic efficiency obtains when it is not possible to make one economic agent better off without making some other economic agent worse off

4. Contracts in restraint of trade are unenforceable.

5. Unforseeability is a defense to tort liability.

6. The legal penalty for violating a property rule is designed to be sufficient to deter.

III. Property Law

Comment on the legal principles applicable to the following situation.

You own a summer cottage. There is a hay field between your property and the lake. The lakeshore is public property. Crossing the field is by far the most convenient way for you to access the lake. From the farmer who had previously owned the field, you had acquired an easement to walk across his property to access the lake. The field has recently been sold. You continue to walk across the field to get to the lake. The new owner of the field sues you for trespass.
 
IV. Law of Contracts

Comment on the legal principles applicable to the following situation.

You borrow $1000 from a friend. You give him an IOU promising to repay him the $1000 on the first of next month. You also give him a ring worth $10,000 stating verbally that he can keep it if you do not repay the loan on time. The IOU does not mention the ring. The next day you get an attack of appendicitis, which keeps you in hospital until the end of the month. When you get out, you sue your friend for return of the ring.There is no disagreement between you and your friend concerning what you agreed to.

(Hints: liquidated damages, penalty clause, renegotiation, doctrine of consideration)

V. Tort Law

Comment on the legal principles applicable to the following situation.

Ten years ago you subdivided your family farm, keeping the ancestral farmhouse and the land around it for yourself.The owner of one of the subdivided lots built his house close to an old stand of trees on your side of the property line. In a windstorm one of the trees falls on this neighbor's house. He sues you for damages. Before hebuilt his house, you had advised him not to build his house right next to the old stand of trees because of the danger of one of them falling down. Furthermore, after he had built his house, you hired an arborist to trim the stand of trees and to check their soundness.

(Hints: Strict liability, negligence, coming to the nuisance, contributory negligence)

VI. Jurisprudence: Non DUI, non-lethal hits but not runs

Jurisprudence is the theory or philosophy of law. Suppose that you are the Lawgiver. You must decide on the law related to non-DUI, non-lethal hits but not runs -- specifically, accidents in which a driver injures a pedestrian or cyclist, remains at the scene of the accident until the police arrive, and is found not to have been "under the influence" at the time of the accident.

a) What overriding principle(s) would you employ in deciding on the appropriate law?

b) Should such offenses be prosecuted under civil or criminal law or both? Why?

c) Which general tort rule would you favor in this context: no liability, strict liability, negligence, or strict liability with contributory negligence? Why?

d) What combination of punishments would you employ (ex antevs ex post and monetary damage awards vs imprisonment)? Why?

e) What monetary compensation should be provided to the victim? Who should pay it? Why?