Final Examination
Law 651: Economics and the Law

Prof. Avery Katz
University of Michigan Law School
Fall 1993


1. This exam is due at the take-home proctor's desk at or before the conclusion of the examination period, at 5 PM on Wednesday, December 22. Please type your exam. (If you use a word processor, you are expected to take precautions, sufficient to allow you to meet the end-of-period deadline, against mechanical failure, accidental erasure, and similar misfortunes.)

2. The exam is open-book; you are free to consult any written materials, and you are strongly encouraged to have available for your use the assigned course materials and readings. You must provide complete citations for any source you use apart from the assigned readings.

3. Until the examination period is completed at 5 PM on the 22nd, you may not communicate with any person about the contents of the exam or about course material relating to the exam, regardless of whether you have already turned it in.

4. There are two questions having equal weight in determining your grade. Each question has a 1500-word length limit. You may not use any leftover space from one question in answering the other. Answers exceeding the length limit will be penalized by reducing their score in proportion to the extent of the excess. I will assume for purposes of administering the limit that a typical double-spaced typed page with 1-inch margins contains about 300 standard English words when using fixed 12-pitch type (12 words per line times 25 lines per page), or about 250 words (10 words per line) when using fixed 10-pitch type. If you use another format, you should provide a word count, either actual or estimated. Any attempts to use systematic shorthand or nonstandard abbreviations to evade the length limit, however, will be counted as if full words were used.

5. Please begin each essay on a new sheet of paper. Please write your exam ticket number at the top of each essay.

Good luck on the exam, and for those of you graduating at the end of the term, best wishes.


Read the attached case, Garretson v. United States, 456 P.2d 1017 (1982). Then write an essay explaining how the economic analysis of law bears on the proper resolution of the case, and on cases involving similar fact patterns. You may find it helpful to indicate what additional facts, if any, would be relevant in answering this question. You should also consider what answer economics suggests for the broader policy issue raised by the case --- whether contract terms that try to bargain around negligence liability should be enforceable. You are also free to consider, to the extent you think appropriate and that space permits, issues that were present in the case though not discussed by the court.


In the second edition of his treatise, Economic Analysis of Law (1973), in a section entitled "The Implicit Economic Logic of the Common Law," Richard Posner wrote:

Our survey of the major common law fields suggests that the common law exhibits a deep unity that is economic in character. The differences among the law of property, the law of contracts (including implied contracts), the law of torts (and the parts of the criminal law that overlap tort law), and (to a lesser extent) family law are primarily differences in vocabulary, detail, and specific subject matter rather than in method or policy... The common law method is to allocate responsibilities between people engaged in interacting activities in such a way as to maximize the joint value, or, what amounts to the same thing, minimize the joint cost of the activities. It may do this by redefining a property right, by devising a new rule of liability, or by recognizing a contract right, but nothing fundamental turns on which device is used. . .

The reader may wonder whether it is plausible to attribute economic insight to common law judges, especially since litigants rarely couch their arguments in economic terms. However, the character of common law litigation virtually compels a confrontation with economic issues. The typical common law case involves a dispute between two parties over which one should bear a loss. In searching for a reasonably objective and impartial standard, as the traditions of the bench require him to do, the judge can hardly fail to consider whether the loss was the product of wasteful, uneconomical resource use. In a culture of scarcity, this is an urgent, an inescapable question. And in most cases, at least an approximation to the answer is reasonably accessible to intuition and common sense. (pp. 179, 180-181)

In subsequent editions of his treatise, Posner has chosen a more measured and judicious tone, but he still regards the common law as unified by an implicit economic logic. Write an essay that discusses this claim. You are welcome to comment on whatever aspects of his claim you find most interesting, but your essay should in particular address the questions:

1) to what extent is he right in his basic thesis?

2) if he is right, what difference does it make?