Economics of firm 

• risk allocation 
  • controllable vs. non-controllable 
  • diversifiable vs non-diversifiable 
  • risk aversion vs. preference 
• specialization of function 
  • management / capital 
  • boundaries of firm 
  • relational vs discrete contracts 
• agency costs 
  • moral hazard / shirking 
  • monitoring - ex ante / ex post  
  • reduction devices:  control, pay based on performance, withdrawal, reputation 
  • unforeseen contingencies 

Basic organizational choices 

• Debtor-creditor 
• Landlord-tenant 
• Principal-agent 
• Employer-employee 

Role of law 

• mandatory rules 
• default rules 
  • majoritarian 
  • tailored 
  • penalty 

• Lottery: A tax on people who are bad at math. 
• Auntie Em, Hate you, hate Kansas, taking the dog. Dorothy. 
• Time is what keeps everything from happening at once. 
• Pride is what we have. Vanity is what others have. 
• Give me ambiguity or give me something else. 
• Consciousness: That annoying time between naps. 
• Why is 'abbreviation' such a long word? 
• Keep honking...I'm reloading 
• We are born naked, wet, and hungry. Then things get worse.

 Reilly is employed as a sales rep for CCS, a limited liability company.  He provides his services (human capital) and earns a salary and commissions.  Reilly learns that his employer CCS has begun to send other sales reps into his territory.  They are taking away his sales!!  Reilly considers this scurrilous and disloyal.  He stands up in his cubicle, extends his arms to the heavens and asks, "I’m bound by a non-compete, but my employer can compete against me?"

Party A (Reilly): Does Reilly have any rights?  Outline an argument that Reilly has an exclusive territory, even though one was not specified in writing.

Party B (CCS): Does Reilly have any rights?  Outline an argument that Reilly has no exclusive territory, even though nothing in writing says this.

• Posner, "Agency Models in Law and Economics"  
• Ayres & Schwab, "Employment Contract"  
• Mullanhaithan & Scharfstein, "Do Firm Boundaries Matter?"  
• Jared Diamond, The Ideal Form of Organization

BY: IRIS BOHNET
Harvard University
John F. Kennedy School of Government
ROBERT D. COOTER
University of California at Berkeley School of Law

Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=452420

ABSTRACT:
Besides deterring people, laws may affect behavior by changing preferences or beliefs. A law may elicit intrinsic motivation by framing an act as wrong. Alternatively, it may coordinate the behavior of different people by changing their beliefs about what others will do. We investigate framing and coordination effects experimentally in prisoner's dilemma, "crowding" and coordination games. We simulate a law by imposing a probabilistic penalty on one of the choices. In the prisoner's dilemma and the crowding game, announcing the penalty had no effect. In the coordination game, announcing the penalty caused behavior to jump to the Pareto-superior equilibrium.