1.Normative Coase vs normative Hobbes Normative Coase



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Handout for Econ 522, Spring 2009, Disc #2, 2/6

1Normative Coase VS Normative Hobbes

Normative Coase: Structure the law so as to remove the impediments to private agreement. “By lubricating bargaining, the law enables the private parties to exchange legal rights, thus relieving lawmakers of the difficult task of allocating legal rights efficiently.” –Information Cost by the courts.

Normative Hobbes: Structure the law so as to minimize the harm caused by failures in private argreements. “When the parties fail to reach a private agreement where one is, in fact, possible, they lose the surplus from exchange. To minimize the resulting harm, the law should allocate property rights to the party who values them the most.”

2. Damage Rule (Liability Relief) VS Injunctive Relief

2.1 when transaction costs are high, damages are more efficient

2.2 when transaction costs are low, injuntion are more efficient

2.3 Example:

2.3.1 The damage is $100. The farmer can build a fence at $50 and the Rancher can build a fance at $90.




When T.C. High

When T.C. Low




who build

payoff(F,R)

who build

payoff(F,R)

Rancher's Right













Damage Rule













Injunctive Relief













2.3.2 The damage is still $100. The farmer can build a fence at $50 and the Rancher can build a fance at $120.

4. Intellectual Property Right

4.1 Static Efficiency and Dynamic Efficiency (temporary monopoly)

The reason why we don’t like monopoly, and the reason why we want monopoly conditionally.

The flip side: why we don’t give infinitely long patant right?

4.2 some thoughts on pirated music VS pirated Movies

5. Examples:

a. “Sosumi” story: Apple Corps v. Apple Computer trademark conflict

Background:...settlement in 1991 resulted in a $A36 million payment by Apple Computer and an agreement to limit the use of the Apple trademark in the music business.

Apple Computer was prohibited from using their trademark on "creative works whose principal content is music". When new sounds for System 7 were created, the sounds were reviewed through Apple's legal department and they objected that one of the new system sound alerts had a name that was "too musical", as per the recent settlement.



The creator of the new sound alerts for System 7 and the Macintosh Startup Sound, Jim Reekes, had grown frustrated with the legal scrutiny and first quipped it should be named "Let It Beep", a pun on The Beatles' "Let It Be". When someone remarked that that wouldn't pass legal's approval, he remarked "so sue me." After a brief reflection, he resubmitted the sound's name as sosumi (a homophone of "so sue me"), telling the legal department that the name was Japanese and had nothing to do with music.

b. Tennis balls left out in the tennis courts. (v.s. Wallet)

c. black markets for stolen goods (bikes VS cars—also related: cocain)

d. copyrights for musics and movies



e. patent rights
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