Academic journal article Journal of Risk and Insurance

Foundations of Economic Analysis of Law

Academic journal article Journal of Risk and Insurance

Foundations of Economic Analysis of Law

Article excerpt

Foundations of Economic Analysis of Law, by Steven Shavell, 2004, The Belknap Press of Harvard University Press, 737 pages.

Steven Shavell has contributed to the foundations of economic analysis of law in different manners. According to Posner (2006), he is a member of the third generation of economic analysts of law-Coase, Becker, and Calabresi being the first group, with Posner himself, Landes, and Ehrlich forming the second. Shavell has published several books and more than 100 articles on economics and on the economics of law. He has contributed to the principal-agent theory (Shavell, 1979b) and, more particularly, to the moral hazard literature (Shavell, 1979a). This book proposes an overview of the fields in the economics of law to which the author has contributed. It also covers in detail other fields and many contributions to the literature. The emphasis is on theory, but some empirical facts are mentioned.

The book has twenty-nine chapters in seven parts or sections, a comprehensive list of references (786 references in the References section of the book), and two indexes (authors and subjects). It covers many subjects related to the economic analysis of basic law. Particular attention is devoted to the positive analysis of law, although the normative aspect is also well covered. The book is addressed to two broad audiences: economists and individuals interested in law with no formal background in economics. There is no formal economic analysis in the text (but formal models are sometimes sketched in footnotes) and no detailed discussion of legal doctrine. The subjects covered are important for any legal system: laws related to property, accidents, contracts, crimes, and their litigation process. Specialized subjects such as labor, bankruptcy, or environmental law are not covered. However, for the readers of the Journal of Risk and Insurance, accident law is discussed in detail (one section including five chapters that will be analyzed below).

Chapter 1, the introduction to the book, presents the author's basic philosophy with regard to the economics of law. He first distinguishes the positive analysis of the economics of law from its normative analysis. Using his example for automobile accidents, the positive analysis is concerned with how a liability system affects accidents and litigation expenses, whereas the normative analysis looks at the social desirability of a liability system. Two standard and important assumptions are made for the normative analysis. First, the normative analysis does not take any of the distributive aspects into account; this is left to the income tax system and other transfer mechanisms. Second, the notions of fairness and morality are not integrated in the analysis, although a significant effort is made to do so in part seven of the book.

The first four parts of the book treat areas related to private law: property law, liability for accidents, contract law, and civil litigation. They are called private because they are enforced by the activities or suits of private parties. The first of the four parts is devoted to property law. Chapter 2 covers the rationale of ownership and the emergence of property rights. The chapter defines concepts that are not often discussed in the standard economic literature. For example, the author treats property rights, their justification, and their emergence. Property rights are themselves divided into two types of rights: possessory rights and transfer rights. The justification of property rights is mainly related to incentives: incentives to work, incentives to maintain and improve things, and incentives to transfer things. Their emergence occurs when the advantages are greater than the costs of instituting and maintaining them.

Chapter 3 is devoted to the division of property rights while chapter 4 discusses, in detail, the acquisition and transfer of property rights, including transfer after death. Chapter 5 concerns the issues of conflict and cooperation associated with the use of property rights. …

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