states that people have elected rulers and whatever rules those leaders select, provided those rules comport with moral minimums, are just. A common complaint of theological volunteerism is that the rules created are either arbitrary or justified by some other line of reasoning. The same would hold true of rules made by legislators. The difference is that legislators can lose elections and those rules can be undone. Whereas God cannot be unelected. For the manager, legal positivism supersedes law and economics. Legislatures can make inefficient rules that would contradict a court’s reasoning on a matter.
The next moral theory is natural law. Natural law states that knowledge can be determined by studying the nature and capacity of humans very closely to determine what is foundational to survival and what can lead humans to virtue. The threshold requirement of law enabling foundational existence is identical to the moral minimum in positive law. For the manager, being aware of these foundational requirements of human dignity that cannot be crossed without creating liability is a good way to avoid risk.
The final moral theory is based on deontology or “duty-based” ethics. In particular is Immanuel Kant’s second formulation of the categorical imperative. This states that humans should be treated as an end in themselves and not as a means to an end. For the manager, the law imposes certain responsibilities as hurdles that must be overcome in order to engage in some conduct. Being aware of the hurdles and jumping over them is emphasized as a preferred course to conduct over pretending hurdles do not apply or do not exist.
1Reservation price—the maximum amount a person is willing to pay for a good or service.
2A collection of all the benefits obtained by a decision.
3The term marginal utility refers to the incremental utility gain which diminishes as consumption is increased.
4The first is called the income effect, and the second is the substitution effect of the price change. Both happen simultaneously when the price of a product changes, and in simple cases it is sufficient to just concentrate on the overall effect.
5Many economic laws are not like physical laws; they frequently represent what tends to happen, not what always happens. In case of certain goods where price signifies exclusivity, and exclusivity is important to consumers, a drop in price might discourage some consumers from buying the product. This is because in case of these goods, collectively called Veblen-goods, the consumer actually purchases two different benefits: not just the core service the product offers, but also a strong indicator of status. The lower price decreases the subjective benefit of the latter, potentially making the product less desirable, thus violating the law of demand.
6There are different reasons for this; the most obvious is that at higher revenue levels, the producer can afford to hire additional (potentially less efficient) resources to increase output.
7Market demand and supply can be calculated by adding up their respective individual curves horizontally, which means that all the quantities are totaled for every price.
8If the same market operates for Alice and Bob (in Figures 4 and 5), it means that out of the 1,500 hamburgers in the marketplace, Alice can buy 8, and Bob can supply 225.
9Alice, for example, was willing to eat burgers 9.5 times at $4. When the price increases to $5, she will still eat burgers, but only 8 times a week.
10Abba P. Lerner, The Economics of Control (1944).
11It is important to note, that in an unregulated environment lower resource usage might be—and frequently is—the result of the utilization of environmentally and or socially harmful production technologies, which can cause externalities; discussed below.
12Chapter 4 provides an exception relating to agreements that are unreasonable restraints of trade.
13Chapter 4 explains an exception relating to agreements that are so unfair they are not enforceable.
14Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (“sparse competition among large firms dominating separate geographical segments of the market could very well signify illegal agreement….”) This is difficult to plead. Twombly is discussed in more detail in Chapter 2.
15E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1964).
16Berkey Photo, Inc. v. Eastman Kodak Company, 603 F.2d 263 (2d Cir. 1979).
17This can happen because they choose an action simultaneously or simply without knowledge of the choice of the other player.
18This is most convenient when the number of players is two. For more players, the matrix becomes multidimensional, which can be depicted in two dimensions, but the size can grow rather quickly.
Chapter Two
Civil Procedure
American procedure has developed to remove non-meritorious cases quickly and cheaply while making meritorious cases so expensive to pursue that settlement occurs. The primary problem is that litigants are often confused as to whether their positions are meritorious. This is further complicated by litigants making a significant emotional investment in litigation that tends to undermine rational settlement. As Paul explains, “The very fact that you have lawsuits among you means you have been completely defeated already.”1 The question is not whether a litigant will lose, but how much the litigant will lose. When plaintiffs win, they are unlikely to recover the full valuation of their case. Even when defendants win, every action involves labor hours, attorney fees, and inventory holding costs. This chapter provides a framework for answering that question, which is pursued at the level of individual actions in subsequent chapters. The Federal Rules of Civil Procedure are used here, though many of these concepts exist at the state level as well.
At a high level, there are four principal phases of trial. At the pleading phase, litigants test one another’s allegations. At the discovery phase, litigants discern whether allegations are supported by competent evidence. At the trial phase, litigants seek to overcome their burdens of proof and persuasion to get a trier of fact to rule in their favor. At the appeal phase, litigants seek to have a portion of the other phases reversed or redone. The important aspect for the manager is that cases that can be disposed of at the pleading phase pose
