Spring 2003 New Supplementary Readings Questions-Part 1

TH 2-3:20 Econ 1471

1. In Michael Lynch’s article “Take My House, Please”:

a. What did Dutch Ruppersberger do that caused the residents of Middle River to be so upset? How did the residents react?

b. What could the residents do to fight back? What option did they actually choose? Is this the best strategy for fighting back?

2. In Sam Staley’s article “Wrecking Property Rights”:

a. Why is the case of Randy Bailey in Mesa Arizona important?

b. How do local governments abuse their power of eminent domain? Is urban blight a legitimate reason for exercising the right of eminent domain?

c. How do supporters of eminent domain rebut the arguments against the use of eminent domain?

d. Why are the courts unlikely to be the main source of change in the use of eminent domain by local governments? Why have the courts failed to uphold their duty to support the Constitution? (Hint: Use the idea of rent-seeking as described in Friedman, Chapter 3.)

3. In Bruce Benson’s article “Do Holdout Problems Justify Compulsory Right-of-Way Purchase and Public Provision?”:

a. Explain why the government’s use of compulsory purchase is an example of a liability rule.

b. What is the main problem with the idea that courts ought to use liability rules when transactions costs are high?

c. What is the holdout problem?

d. In what cases are holdout incentives considerably weaker than advocates of compulsory purchase expect them to be?

e. What assumptions underlie the reasoning concerning the incentives for holdouts? How does a change in these assumptions lessen the likelihood that holdouts will be a problem?

f. What is the Kaldor-Hicks criterion and why might it be used instead of the Pareto criterion?

g. Why would B’s valuation of the land at $550,000 cause the Kaldor-Hicks criterion to fail? (Hint: Look at Benson’s numerical example.)

h. Explain why Benson thinks that the public use constraint on the use of compulsory purchase has essentially disappeared. (Hint: Briefly summarize just a few of the important cases.)

i. Explain why Benson argues that compulsory purchases systematically undervalue the property that the government takes.

j. What are the costs of involuntary transfers? Do they produce net benefits or net losses to society as a whole? Explain.

4. In James Ostrowski’s article “Wanted for Outsider Trading”:

1. What did Martha Stewart do and why was it considered a crime by the SEC?
2. Is the statute prohibiting insider trading precise? Explain why or why not?
3. Are the SEC’s functions constitutional?
4. The SEC publishes a set of rules which elaborate on the statutory interpretation of what insider trading is. What does rule 10b-5 say about insider trading?
5. Why does rule 10b5-1 punish the exact opposite of what it is designed to deter? Is this rule simply poorly worded or is this intentional?
6. What is the affirmative defense to rule 10b5-1?
7. Why is Martha Stewart an outsider, not an insider?
8. What is the misappropriation theory of insider trading? From what source does this interpretation derive its authority? Why is receiving a tip and acting on it so dangerous now?
9. How might a common law suit serve as a substitute for the SEC enforcement of securities law and regulations?

5. In Dale Steinrich’s article “Imclone vs. Apple”:

1. Describe the basic facts of the Imclone case and the Apple case. Why did prosecution for insider trading occur in one instance but not the other?
2. What is the classical theory of insider trading? Briefly summarize the case law that serves as a basis for this theory (Cady, Chiarella, Dirks).
3. What is the brokerage cartel and how did Cady decision affect it?
4. Why did the SEC view “selective disclosure” as unfair and how did the O’Hagan case (1995) support the SEC approach?
5. Whose interests does the SEC favor (cui bono)?
6. Why is the equality in the dispersion of information more important than equal access to the market?