Three Essays in Law and Economics

Citation

Sadanand, Asha B. (1984) Three Essays in Law and Economics. Dissertation (Ph.D.), California Institute of Technology. doi:10.7907/ws6s-ac41. https://resolver.caltech.edu/CaltechTHESIS:12102018-101952412

Abstract

This thesis consists of three essays, which are concerned with policies for economic situations characterized by informationally weak buyers.

The first and third are in related areas. They examine how the equilibrium distribution of market prices is affected when consumers are uninformed about various aspects of the market. The classical explanation of how competitive equilibrium can persist relies heavily on all consumers being perfectly informed about the prices offered in the market. The first essay generalizes the model due to Wilde and Schwartz (1979) which introduced the notion that a sufficient proportion of consumers need to be comparing prices in order that a competitive equilibrium obtains. They showed this under strong assumptions about cost and demand functions. Here, the result is generalized to allow downward sloping demand and U-shaped cost curves. Some comparative statistics are developed.

The second essay uses the simple techniques of optimization to assess how well the remedies of lost profits, market damages and specific performance compensate the seller when a buyer breaches a contract. The conclusion is that in general lost profits overcompensates, and market damages undercompensates; while specific performance always compensates exactly. The merits of these remedies on the basis of economic efficiency and implementation costs are also discussed.

The final essay explores how heterogeneous product markets behave when consumers are imperfectly informed about quality. Three models are introduced with varying assumptions about the nature of the lack of information about quality among consumers. If consumers can gain information about quality as they shop, then a large enough proportion of shoppers is sufficient to guarantee a competitive outcome. The critical proportion required is less when a larger proportion of consumers is naturally informed. Lastly, if the state of information does not improve with shopping, competitive outcomes can be generated only by educating the consumers.

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