Table of contents for Principles and methods of law and economics : basic tools for normative reasoning / Nicholas L. Georgakopoulos.

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Principles and Methods of Law &
Economics: Basic Tools for Normative
Reasoning
NICHOLAS L. GEORGAKOPOULOS
PREFACE XI
INTRODUCTION: INNOVATION IN LEGAL THINKING 1
A. Proposals, Consequences, and Ideals 2
B. Toward Scientific Analysis of Law 3
C. Bibliographical Note 8
PART 1: PRINCIPLES 11
1. FROM FORMAL LOGIC TO NORMATIVE REASONING 13
A. Formal Deontic Logic 15
B. Formal Logic's Failure in Normative Reasoning 16
C. The Informal Normative Syllogism 17
i. Proposals, Consequences, and Ideals in Normative Reasoning 19
D. Concluding Exercises 21
E. Bibliographical Note 22
2. SOCIAL WELFARE VERSUS MORAL PHILOSOPHY 25
A. Ideals behind Law & Economics: Welfarism and
Pragmatism 29
B. Juxtaposition with other External Derivations of Ideals 31
i. Deriving Ideals from Existing Rules (including Formalism) 31
ii. Rawls' Contractarianism 32
iii. The Potential Equivalence of Derived Ideals and Preferences 34
C. Distinguishing Features of Economic Analysis 36
i. Avoidance of Moral Relativity 36
ii. Preference for Applications over Refinement of Principles 37
iii. Ubiquitous Importance of Incentives 37
iv. Treatment of Preferences as Objective 38
v. Lack Bias for Rule Proliferation 41
vi. Orientation Toward the Future 42
D. Concluding Exercises 42
E. Bibliographical Note 43
3. FROM POLITICAL PHILOSOPHY TO GAME THEORY 45
A. Political Theory 46
i. Inefficiencies of Majority Rule 47
ii. Legal Process: Explaining the Administrative State 49
iii. Civic Republicanism 50
iv. Perfectionism 52
B. Voting System Design 53
C. Game Theory 60
i. Cooperation Games: Prisoner's Dilemma 61
ii. Coordination Games: Driving Side 64
iii. Game Theory in Legal Scholarship 66
D. Social Norms 67
E. Bounded Rationality 70
F. Concluding Exercises 78
G. Bibliographical Note 82
4. THE IMPORTANCE OF DISTRIBUTION OF WEALTH 85
A. Redistribute! 88
B. Do not Redistribute! 93
C. Delegating Redistribution to Tax Policy 99
D. Concluding Exercises 106
E. Bibliographical Note 110
5. COASE AND LAW'S IRRELEVANCE 113
A. Coasean Irrelevance 115
B. Coasean Irrelevance 116
i. Revealing Imperfections 117
ii. An Example of Deploying Coasean Irrelevance 117
C. Transaction Costs: The Usual Suspect 118
i. Vantage Point Makes Transaction Costs 123
ii. Innovations Transform Transaction Costs 124
iii. Litigation Costs: Transaction Cost or Not? 124
iv. Increasing Social Gain from Private Litigation 125
v. Normative Implications for Litigation of the Analysis of
Transaction Costs 127
D. Concluding Exercises 129
E. Bibliographical Note 132
6. MORE FAILURES OF COASEAN IRRELEVANCE 133
A. Negotiation Holdouts 133
B. Systematic errors 136
C. Risk-Aversion 137
i. Imposing a Transaction Cost 140
ii. Substantive Solutions of Risk Aversion 140
D. Distribution 142
E. Concluding Exercises 144
F. Bibliographical Note 149
PART 2: METHODS 151
7. MATHEMATICAL MODELLING 153
A. Symbols, Functions, and Idioms 155
B. Simplification and the Model as a Premise 166
C. Modelling Applications 170
i. Modelling Negligence Law: Optimisation 170
ii. Modelling the End of Affirmative Action: Differential Equations
174
D. Concluding Exercises 176
E. Bibliographical Note 180
8. CONFRONTING UNCERTAINTY: BASIC PROBABILITY
THEORY 183
A. Describing Randomness: Probability and Expectation 185
B. Mathematical Models of Expectation 188
C. Uncertain Uncertainty: Conditional Probability 191
D. Concluding Exercises 196
E. Bibliographical Notes 206
9. ADVANCED PROBABILITY: DISTRIBUTIONS AS THE
SHAPE OF RANDOMNESS 207
A. The Shape of Randomness: Distribution Functions 208
i. Visual Comparison of Discrete and Continuous Distributions 209
ii. CDF and PDF: Features and Relations 211
iii. Truncated and Censored Distributions 214
B. The Normal Distribution 219
C. Concluding Exercise: Imperfect Enforcement 221
D. Bibliographical Note 229
10. HOW TO PRICE UNCERTAINTY: FINANCE 231
A. Valuation in Perfect Markets 233
i. Known Rates: Discounting 234
ii. Risky Assets 237
B. Normative Implications of the CAPM 247
i. Financial Information 247
ii. Forecasts 249
C. Financial Market Microstructure: The Game-Theoretical
Foundation of the CAPM 249
D. Normative Application of Microstructure: Insider Trading
251
E. Concluding Exercises 256
F. Bibliographical Note 261
11. FINANCE AND PROBABILITY: OPTIONS AND
DERIVATIVES 263
A. Option Pricing 266
B. Normative Implications of Option Pricing 274
i. Recipients of Fiduciary Obligation 274
ii. Automated Reorganizations via Options 276
iii. The Options Understanding of the New Value Exception 280
C. Concluding Exercises 284
D. Bibliographical Note 289
12. USING SPREADSHEETS 291
A. The Basics 292
i. Obtaining Built-In Help about Functions 293
ii. Using the Function Wizard 295
iii. Categories of Built-In Functions 297
iv. Relative and Absolute References in Copying 301
B. Graphics 305
i. Chart Types 308
ii. Completing the Chart Wizard 310
iii. Manipulating Charts 312
C. Solving Equations 314
i. The Solver 315
ii. Goal Seek 316
D. Macros and User-Defined Functions 316
i. Recording a Macro 317
ii. Editing a Macro 318
iii. Assigning a Macro to a Graphic 319
iv. Entering a Function 320
E. Downloading and Combining Data 320
i. Data Files Separating Columns with Commas or Tabs 321
ii. Specifying the Type of Data 323
iii. Fixed-Width Data 324
iv. Combining Data 325
F. Concluding Exercises 327
G. Bibliographical Note 327
13. STATISTICS 329
A. The Use of Statistics in Legal Thinking 330
B. Fundamentals: Descriptive Statistics and Distributions 334
C. Empirical Research 335
i. Basics: Comparing Data that Take Values and Data that Fall into
Categories 336
ii. Determining Influences: Multiple Outcomes 346
iii. Determining Influences: Yes/No Outcomes 358
iv. Observations that are filtered by a Threshold 360
D. Concluding exercises 361
E. Bibliographical Note 364
14. CONCLUSION: IMPORTING METHODOLOGICAL
INNOVATIONS 367
A. Cellular Automata 368
B. Fractals 369
C. Evolutionary Theory 372
D. To End 373
E. Bibliographical Note 373
APPENDIX A: MEINHARD V. SALMON 375
APPENDIX B: GLOSSARY 383
APPENDIX C: MATHEMATICA NOTEBOOKS 389
A. Differential Equations in Law: The Effect of Terminating
Affirmative Action 392
i. Determining the Participation in the Workforce 393
ii. Add the Initial Condition 393
iii. Manipulating the Exponent to See it Disappear 394
iv. The Long-Run Participation 394
v. The composition of the candidates 394
vi. Graphics 395
B. Derivation of the Normal Distribution 396
i. Derive the normal distribution as Gauss did 396
ii. The Standard Normal Distribution 398
iii. Restating with Standard Deviation 398
iv. Restating with Average Deviation 399
v. The Triangular Distribution 400
C. Application of triangular distribution: the uncertain
apprehension of speed limit violations 403
D. a comparison of insider trading regimes 407
i. Foundation 408
ii. Problem 408
iii. Solution: Statement 408
iv. Solution: Proof 409
v. Illustration of Price Path 411

Library of Congress Subject Headings for this publication:

Law and economics.
Law -- Methodology.
Economics -- Mathematical models.