Law's Order: What Economics Has to Do with Law and Why It Matters

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Law's Order: What Economics Has to Do with Law and Why It Matters by David D. Friedman Princeton University Press * 2000 * 329 pages * $29.95

Reviewed by Charles W. Baird

Law and economics, or the economic analysis of law, is a relatively new discipline. It was launched in the late 1950s and early 1960s and has grown in importance and in the number of its practitioners ever since. It uses key principles of economics-such as self-interest, rationality, efficiency, and externalities-to predict the intended and unintended effects of different legal rules and to explain why we have the particular legal rules we do and why some legal rules might be considered better than others. Aaron Director and Ronald Coase, to whom the book is dedicated, and Judge Richard Posner, to whom the author refers in several chapters, have been major contributors to the field.

David Friedman is an economist and a professor of law at the University of Santa Clara School of Law. This book is one of his best efforts. His style makes it great fun to read, and it is filled with intriguing insights. Because of its comprehensive scope, it could easily be used as a text in an introductory course in law and economics. For example, it includes a chapter on antitrust law that I wish Joel Klein and Judge Thomas Penfield Jackson had read before they proceeded to punish Microsoft for being too effective a competitor.

Friedman's early chapters explain basic economic concepts vital to understanding law. A transition chapter explains the structure of the American legal system, and the later chapters apply economics to the analysis of such things as criminal law, tort law, contract law, and marriage, sex, and babies. One especially interesting chapter is devoted to a law-and-- economics analysis of three alternative legal systems-saga-period Iceland, eighteenth-- century England, and Shasta County, California.

Law's Order is more than an introductory text, however. For example, in Chapter 5 Friedman goes far beyond the usual exposition of the Coase Theorem. He illuminates the differences between property rights and liability rights and how the choice of efficient rules depends on such things as the free-rider problem among joint buyers and holdouts among joint sellers. A reader is well advised to read this chapter carefully, with pencil and paper at hand since it is basic to much that comes later.

Friedman introduces each new concept with an actual or hypothetical example that puts the reader in the center of the issue. Frequently, he comes to what seems a reasonable conclusion and in the very next paragraph he explains why it is wrong. In one case, the issue of whether, on efficiency grounds, we need criminal law at all, he goes through seven rounds of arguments changing his answer each time. He offers this "as evidence of how risky it is to go from the existence of an argument for the efficiency of some particular rule to the conclusion that the rule is in fact efficient. …