Foundations of the Economic Approach to Law: Interdisciplinary Readers in Law

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Foundations of the Economic Approach to Law: Interdisciplinary Readers in Law, edited by Avery Weiner Katz. New York, NY: Oxford University Press, 1998. Pp. 399. $55.00 (hardcover).

Foundations of the Economic Approach to Law: Interdisciplinary Readers in Law, is designed to serve as a textbook for law students studying economic analysis. As Katz explains in the book's preface, what is most unique about his textbook is what it is not. The editor's intent was not to survey economic analyses of the major areas of law like most major textbooks, but to focus on the foundations of economic analysis. To help students gain a clearer understanding of the "normative, descriptive, and interpretative positions the use of economics really commits them to," the editor organizes his book around basic methodological concepts. In particular, the editor seeks to focus on "economics as a way of thinking and on how economics compares and contrasts to more traditional methods of legal reasoning."

In Chapter 1, "Methodology of the Economic Approach," Katz introduces the basic methods and tools of the economic approach. While focusing on the question, "how does economics differ from other ways of thinking about social life and legal institutions?" the first chapter examines three aspects of economic methodology that differ from the traditional legal approach. The first reading, by Gary Becker, discusses the essential assumption of economics: the model of rational choice, which provides a descriptive theory of human behavior to explain past and future events. Second, the normative premise of the economic approach and related concepts are in outlined in separate readings by Jules Coleman and Thomas Schelling in Efficiency, Utility, and Wealth Maximization and Economic Reasoning and the Ethics of Policy, respectively. Third, selections by Mark Blaug and Milton Friedman focus on economics' central methodological distinction: the difference between normative and positive analysis.

Chapter 2 introduces two competing paradigms to the economic analysis of law: the model of cooperation and the model of market failure. The first readings in Chapter 2, by Guido Calabresi and Robert Cooter, follow the model of market failure, and argue that state intervention is necessary to promote an efficient allocation of resources. Ronald Coase then discusses the model of cooperation. Coase, the model's primary advocate, argues that governmental intervention as the presumptive resolution to market imperfections is a fallacy, and that alternate institutional arrangements should be considered. The concept of transaction costs, for which Coase won a Nobel Prize in 1991, is introduced in his article, The Nature of the Firm. Next, in The Problem of Social Cost, Coase introduces the rhetorical device now called the "Coase Theorem."

Following a more traditional pedagogical approach, Katz devotes Chapter 3 to a survey of the basic applications of the economic approach to law, drawing on the standard first-year legal curriculum. The goal of the chapter is to "train readers to recognize fundamental economic issues as they arise in legal contexts, and to compare functionally similar problems across doctrinal fields." Essays by Harold Demsetz and by Guido Calabresi and A. Douglas Melamed examine basic economic concepts of property rights. In the context of tort law, readings by Richard Posner and by Steven Shavell explore the model of market failure and tort liability.

Analogous issues are explored by Thomas Ulen in the area of contracts and the remedy for breach; by Gary Becker in the areas of criminal law and crime and punishment; and, by Richard Posner and A. Mitchell Polinsky on the design of legal procedures.

The succeeding four chapters introduce more advanced economic concepts that the editor believes are critical to understanding many legal institutions. Chapter 4, "Refining the Model I: Strategic Behavior," addresses the phenomenon of strategic behavior. …