WEEK 1: PRIVATE LAW AND TRANSACTION COST ECONOMICS
During the first week, participants will develop the analytical tools necessary to design, teach and demand legal rules which encourage socially beneficial exchange by reducing incentives for opportunism and neglect. In this module, participants will read the influential writings of international scholars like Ronald Coase, Richard Posner, Mitch Polinsky, and Robert Elkinson.
| DAY 1 |
SUNDAY 2 JANUARY 2005 |
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The Assumptions of the Market Model and the Role of Law
Class Description: What is a market and what is the relevance of law in its operation? Discussing the basic assumptions of the market model (i.e., perfect information and perfect competition) participants will use the prisoners’ dilemma to analyze the role of law in facilitating beneficial exchanges.
The Coase Theorem: Transaction Costs and Designing Legal Rules
Class Description: Efficient exchange is often prevented by transaction costs (i.e., the costs of searching for a buyer, bargaining over terms, and the anticipated costs of enforcing the agreement). In this class, participants will discuss the Coase Theorem’s implication that well-designed legal rules can induce socially beneficial exchanges and, conversely, that poorly designed legal rules can prevent social welfare gains.
| DAY 2 |
MONDAY 3 JANUARY 2005 |
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Breach of Contract: Designing Efficient Remedies
Class Description: Commercial promises are often broken. Sometimes “breaches of contract” benefit all parties and, at other times, a breach serves only to enrich one person at the other’s expense. In this class, participants will analyze how properly designed remedies can encourage efficient, and discourage inefficient, breaches of contract.
Property Law: Economic Foundations and Social Norms
Class Description: Exploring the common economic rationales for property rights, participants will discuss the power of social norms (rules existing “outside of law” enforced by community rather than a government) in facilitating similar, or even superior, property uses than formal law. Expanding on the prisoners’ dilemma model, participants will analyze the benefits and limitations of social norms.
| DAY 3 |
TUESDAY 4 JANUARY 2005 |
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Insurance Contracts: Risk Aversion and Moral Hazard
Class Description: Most people are risk averse (i.e., they prefer a certainty of $1,000,000 VND over a 50% chance of $2,000,000 VND). In fact, many people will pay others (e.g., insurance companies) to bear their financial risks. However, when a party eliminates their risk of financial loss, strong incentives emerge to stop taking reasonable precautions to prevent the insured loss. In discussing these issues, participants will analyze methods of structuring insurance agreements to encourage socially efficient precautions.
Incompatible Property Uses: Creating Efficient Property Entitlements
Class Description: Do Phu Quoc’s nuoc mam factories have a right to produce a noxious smell or do local residents (and the hotel owners trying to attract tourists!) have a right to breathe clean air? Participants will discuss how the state’s choice of assigning property rights, and the methods employed to protect these rights, are affected by the relative costs of bargaining between the parties and the government’s access to accurate profit/damage information.
| DAY 4 |
WEDNESDAY 5 JANUARY 2005 |
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Information Costs and Default Contract Rules
Class Description: Contracts inherently represent two different views of the facts; one party places more value on the product purchased, and the other party places more value on the money received. Differential expectations of product value often rest on undisclosed information. For instance, the seller might know the product’s hidden defects or the buyer might know that the product is actually a valuable antique. Traveling along a continuum from proprietary knowledge to fraud, undisclosed information is the “shadow currency” of exchange. Participants will analyze how properly designed contract law can encourage efficient disclosure and nondisclosure of hidden information.
Designing Legal Rules in a Transition Economy: The Tragedy of the Anti-Commons
Course Description: In the mid 1990s, why did Moscow’s merchants sell their goods from flimsy metal kiosks when empty store fronts, unused and protected from the harsh winter, lined the commercial avenues? In this class, participants will analyze how poorly designed legal rules, common in transition economies, may have the perverse effect of eliminating a resource’s social value.
| DAY 5 |
THURSDAY 6 JANUARY 2005 |
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Case Analysis and Discussion
The Role of Legal Institution in Sweden’s 19th Century Economic Development
Course Description: In the beginning of the 19th Century, Sweeden occupied the poorest corner of Europe. However, between 1820 and 1860 Sweeden enjoyed one of the world’s most rapid periods of economic expansion.
What accounts for this turnaround? According to Dr. Ari Kokko, Sweeden’s success was secured by “over capcity” in the legal system –well designed legal rules – which allowed Sweeden to benefit from severe market fluctuations. Can Vietnam learn from Sweeden’s experience?
| DAY 6 - DAY 7 |
FRIDAY 7 JANUARY 2005 - SATURDAY 8 JANUARY 2005 |
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Intensive Negotiation Weekend
During this intensive weekend, participants will apply their newly honed analytical tools and develop negotiation skills as they encounter problems of information asymmetry, opportunistic behavior by adverse parties, and poorly designed legal rules. By applying their skills to real life situations in Vietnam, the negotiation module will reinforce the role of legal policymakers as problem solvers.
| DAY 8 |
SUNDAY 9 JANUARY 2005 |
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READING PERIOD
| WEEK TWO: CORPORATE GOVERNANCE AND GOVERNMENT REGULATION OF THE MARKET
During the second week, participants will learn how firm organization is an attractive alternative to the market in many commercial settings. As participants apply their analytical tools from the first week, participants will develop an understanding of how the diversification of firm investment and the specialization of firm management is critical to economic development.
| DAY 9 |
MONDAY 10 JANUARY 2005 |
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Theory of the Firm
Class Description: In a market individuals exchange goods on the basis of price. Within a firm, however, the market’s pricing mechanism is sacrificed, and individuals trade services (e.g., labor) according to corporate rules and norms. Participants will analyze why, and under what conditions, the firm is a more efficient vehicle for organizing commercial activity than the market.
Vietnam’s Enterprises in a Global Context
Class Description: Throughout the world, company law is striking similar. Like Vietnam’s Enterprise Law, most company laws are designed for a widely dispersed investor class which delegates decisionmaking authority to a specialized core of directors and managers. In Vietnam, however, most firms are directly managed by owners. Discussing the benefits of this structure, participants will analyze the market forces often requiring firms to diversify ownership and hire specialized management.
| DAY 10 |
TUESDAY 11 JANUARY 2005 |
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Limited Liability and the Corporate Person
Course Description: When an enterprise manufactures an injurious product, or enters bankruptcy, should company owners be personally liable? What if company assets are insufficient to compensate the injured? Participants will discuss the economic rationales for limiting an enterprise owner’s liability, and participants will develop a theory of when efficiency and equity may require the doctrine of limited liability to be disregarded.
The Role of Securities Regulation I
Course Description: Corporations are an important vehicle for mobilizing society's capital. In the absence of regulation, will corporations conceal negative information, and produce unnecessarily optimistic information, to attract potential investors? How can investors, who know little about firm management, have confidence that their savings will not be squandered? Using game theoretic principles, participants will analyze how repeated interactions between firms and investors, as well as the reputational concerns of auditors and underwriters, create disincentives for enterprises to deceive investors.
| DAY 11 |
WEDNESDAY 12 JANUARY 2005 |
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The Role of Securities Regulation II
Course Description: If enterprises have incentives to produce truthful information, what is the role of securities regulation? Applying the prisoners' dilemma, participants will discuss various collective action problems which may limit a firm’s production of socially beneficial information. Participants will analyze how properly designed legal rules, responding to these transaction costs, facilitate the efficient allocation of society's resources.
Corporate Governance, Agency Costs and State Owned Enterprises
Course Description: In the modern enterprise, thousands of investors delegate decisionmaking authority to a few managers. This “separation of ownership from control” creates a fundamental conflict of interest: managers have incentives to seek personal gains (i.e., unnecessary perquisites), and individual investors, because of collective action problems, lack incentives to monitor management. Participants will discuss corporate governance methods which reduce these “agency costs” and the viability of these measures in the SOE context.
| DAY 12 |
THURSDAY 13 JANUARY 2005 |
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Competition Policy and Social Welfare
Course Description: Under conditions of perfect competition, the price of a good equals its marginal cost of production. Rationally, companies want higher profits. One simple way to increase profits is to “eliminate the competition” or for industry competitors to agree to “fix the price.” These anti-competitive practices, however, merely transfer wealth from consumers to companies without social benefit. Discussing the social costs of monopolistic behavior, participants will analyze the critical role of legal institutions in securing consumer welfare and a competitive market place.
The Economics of a Corporation’s Demise
Class Description: Inevitably, most companies fail; in the United States, for instance, 90% of new businesses dissolve within two years. How should society divide a failed company’s assets among creditors (e.g., banks, employees)? Discussing the role of bankruptcy law in maximizing the value of a failed firm, participants will analyze how properly designed legal rules can encourage the socially efficient and equitable redistribution of enterprise assets.
| DAY 13 |
FRIDAY 14 JANUARY 2005 |
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Major Case Introduction
The Situation: Vietnam Decides its Future
Class Description: Vietnam’s policy makers are faced with fundamental problems plaguing public investment, state owned enterprises, land pricing and education. What are the nature of these problem, and what are the elements of a sound solution?
Regulatory Space in China
Class Description: In the last thirty years, China has transformed itself from command economy into the world’s fastest growing market economy. What lessons, if any, can Vietnam learn from the successes and failures of the Chinese experience?
| DAY 14 |
SATURDAY 15 JANUARY 2005 |
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Major Case Analysis and Discussion
Panel Discussion of Vietnamese Commercial Law
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