Cases and Materials on Law and Economics.

• Author: Crespi, Gregory S.

The economic approach to law has become a respectable mode of legal analysis.(1) Legal educators should encourage those students with the necessary background and abilities to develop some facility in applying microeconomic principles to legal questions. Most of the "better" law schools now offer at least one upper-level elective course, usually taught by a law professor with a substantial background in economics (often a Ph.D. degree), that reviews the basic concepts of price theory and efficiency analysis and then applies those concepts to the core doctrines of property, contract, and tort law.

The greatest difficulty that a teacher faces in offering such a course is selecting course materials. One can provide students with a set of articles, book excerpts, cases, and other handouts individually selected to develop the themes that one wishes to emphasize. The effort involved in such a painstaking assembly, however, is considerable, and one labors with the nagging suspicion that one is perhaps reinventing the wheel. Since "law-and-economics" courses have been standard offerings at the elite law schools from at least the early 1970s, and have diffused rapidly thereafter into the lower-tier schools, one would expect a treatise to be available that could serve adequately as a core course text, requiring only modest supplementation to reflect a teacher's particular perspective and choice of topics. Somewhat surprisingly, none of the available books has all of the qualities necessary to fill that role.

David W. Barnes(2) and Lynn A. Stout(3) have attempted to meet this clear need with their new publication Cases and Materials on Law and Economics(4) (hereinafter Cases and Materials). In my opinion, their effort is unsuccessful. While the book compares favorably in some regards to earlier attempts, it exhibits significant and pervasive shortcomings that will probably prevent it from being widely adopted.

Economics is the science of rational choice under constraints; the study of maximizing behavior when tradeoffs must be made. Cases and Materials should thus be evaluated not against some abstract standard of perfection, but instead by the more appropriate (and forgiving) benchmark of the best available alternatives. In this review I will first briefly describe and criticize the four most serviceable texts available to teachers of law-and-economics courses prior to the publication of Cases and Materials. Then, I will outline the structure and content of Cases and Materials and compare it to those earlier works. I will conclude by offering a few comments concerning the institutional and other problems that are retarding the development of suitable texts for law-and-economics courses.

1. The Competitors

   Prior to the publication of Cases and Materials, four legitimate candidates were available as core texts for law school courses designed to review basic microeconomic principles and apply those concepts to analyze the efficiency and other characteristics of legal rules: Richard A. Posner's Economic Analysis of Law;(5) A. Mitchell Polinsky's An Introduction to Law and Economics;(6) Robert Cooter and Thomas Ulen's Law and Economics;(7) and Robin P. Malloy's Law and Economics: A Comparative Approach to Theory and Practice.(8)

   Richard Posner's seminal book, now in its fourth edition, was the first work comprehensively to apply economic principles to a wide range of legal questions,(9) and it has received considerable critical attention.(10) Its great strength is its very broad range of topics: Economic Analysis of Law insightfully and provocatively applies price theory not only to property, contract, and tort law, but also to criminal law, family law, administrative law, corporate and financial regulation, constitutional law, civil and criminal procedure, and a number of other areas. While incredibly broad in scope, however, it is exceedingly narrow in its unqualified endorsement and relentless application of the Kaldor-Hicks wealth-maximization normative efficiency criterion.(11) Posner barely pauses to acknowledge the rather persuasive criticisms of that criterion,(12) let alone to develop the implications of assessing legal rules by other standards. Posner also marshals little, if any, empirical support for his strong policy positions, and he generally relies upon hypotheticals to make his points rather than applying economic principles to actual cases. Moreover, while Posner declares in the preface to the latest edition that "no prior acquaintance with economics on the part of the reader is assumed,"(13) the book is extremely heavy going for a law student who has not taken a solid introductory microeconomics course and had some exposure to intermediate price theory and efficiency analysis.

   If one is a devotee of the Kaldor-Hicks efficiency criterion and is teaching a class of law students who all have relatively strong economics backgrounds, then Economic Analysis of Law may be a suitable text. If, however, one confronts the usual cross-section of law students that enrolls in a law-and-economics course - the majority of whom have only taken a single year of introductory economics at least two or three years before, and a few of whom have no prior economics background - and wishes to develop in these students not only an ability to engage in efficiency analysis but also a critical understanding of the wealth-maximization criterion, informed by utilitarian, Kantian, Christian, Marxist, racial, feminist, nihilist, and perhaps other perspectives, Posner's book is unsuitable as a core text. Just to equip the students with the microeconomic concepts and philosophical perspectives necessary to read Economic Analysis of Law and to take it with the appropriate shaker of salt would take virtually the entire semester; insufficient time would remain to apply these concepts to substantive legal questions.

   An Introduction to Law and Economics, by Mitchell Polinsky, differs greatly in approach from Posner's effort. It is short (about one quarter the length of Economic Analysis of Law), lucid, and well written.(14) Polinsky's book also suggests that the reader need not possess prior knowledge of economics, but unlike Economic Analysis of Law the book lives up to this claim. Polinsky builds his work around a concise explication of the Coase Theorem, which he then applies to increasingly sophisticated hypothetical contract and tort contexts. He keeps the economics terminology to a minimum and limits the mathematics to relatively simple numerical examples. No case analysis is provided. Polinsky's avowed goal is to convey the spirit and flavor of the economic approach to law rather than to provide a comprehensive survey of its applications.(15) The book is quite successful in achieving this objective.

   Good as it is, however, An Introduction to Law and Economics is unsuitable as a comprehensive core text for a law-and-economics course for at least three reasons, all deriving from the book's limited objective and scope of coverage. First, while it may well serve to motivate a law student with little or no economics background to learn microeconomics, it will not teach that student microeconomics. If used in a law-and-economics course enrolling the usual diverse group of law students the book requires substantial supplementation with technical microeconomics material. Second, if one wishes to move beyond the most basic common law doctrines in applying the efficiency paradigm, or to examine any actual cases, topical supplementation is required. Third, while Polinsky avoids Posner's "in your face" stance with regard to the importance of wealth maximization and expressly recognizes the tensions between Kaldor-Hicks efficiency and various equitable considerations, the limited attention he devotes to this important question necessitates substantial supplementation if students are to develop a critical understanding of the normative pivot of conventional law-and-economics thinking.

   Because of this need for considerable supplementation, An Introduction to Law and Economics leaves the core text problem unsolved. As a small piece of a "homemade" course drawing upon many other sources, however, it serves well. I have found it a very useful book for students to read lightly prior to commencing the course. It has proved particularly helpful to students with no prior economics background; the book gave some of them a basic appreciation of economic modeling and deductive reasoning that helped them make great early strides and (to be candid) efficiently demonstrated to others that their economics and analytical skills were unfortunately so deficient that they should enroll in a different course. I have also found quite useful certain of its substantive chapters, particularly the excellent materials on risk-bearing and insurance and on activity-level issues in tort law. Polinsky's book is too narrow, however, to serve as the core course text.

   Unlike either Posner or Polinsky, Robert Cooter and Thomas Ulen, in Law and Economics, provide the reader with a comprehensive and systematic discussion of basic microeconomic theory.(16) While their discussion serves as an excellent review for someone already familiar with microeconomics, its theoretical sophistication may overwhelm a student with little or no prior economics background. Cooter and Ulen cover a fairly broad range of legal issues, though not as many as Posner's book. The book also includes a chapter that introduces law and legal institutions, although in a fashion too simplistic to be of much benefit to upper-level law students.

   Cooter and Ulen have designed a text primarily for upper-level undergraduate or graduate students majoring in economics who wish to learn to apply economic reasoning to legal issues and who have little or no prior legal background.(17) For law students who were undergraduate economics majors or have graduate degrees in economics or a related field, Law and...