Yale law School Public Law and Legal Theory Research Paper No 52 Center for Law, Economics and Public policy Research Paper No 275 University of virginia School of Law Law and economics research Paper series Research Paper No. 03-1 Contract Theory and the limits of Contract Law Alan Schwartz and robert e. scott

Content Pure exchange system The existence of Walrasian equilibrium The first theorem of welfare economics The second theorem of welfare economics Exchange with production

Optimal Commodity Taxation Assume that the goal is to finance expenditures with a minimum of excess burden. Assume lump sum taxes are infeasible 3 commodities: Good X. Y, and leisure

Introduction A key policy question is how do households respond to the incentives presented in the U.S. tax code? We will examine: Labor supply -Saving Housing Portfolio Composition

Introduction Are people unaffected by tax increase if they pay zero in taxes afterwards? No, consumption may have changed in response to the tax increase Bundle consumed is less desirable Excess burden is a loss of welfare above and beyond the tax revenues collected

Introduction Many policies center around whether the tax burden is distributed fairly. Not as simple as analyzing how much in taxes each person actually paid, because of tax-induced changes to price

Introduction Cost-benefit analysis is a set of practical procedures for guiding public expenditure decisions

What's Special About Health Care? Health care costs are large and growing fast Number of reasons why First Welfare Theorem may be violated Poor information(physician induced demand) Adverse selection and moral hazard Disease externalities

Social Insurance Programs Generally share 4 characteristics: Participation is mandatory Eligibility and benefits depend on prior contributions Benefits begin with an identifiable occurrence Programs are not means-tested

Quick Look at Welfare Spending .\Welfare\ in the United States is a patchwork of dozens of different programs. All welfare programs are means-tested-- only individuals with sufficiently low income are eligible. Programs often have other requirements related to family structure and assets