Foundations of Economic Analysis of Law, edited by Steven Shavell

• Published date: 01 December 2006
• DOI: http://doi.org/10.1111/j.1539-6975.2006.00197_1.x
• Date: 01 December 2006

BOOK REVIEWS

Foundations of Economic Analysis of Law, by Steven Shavell, 2004, The Belknap

Press of Harvard University Press, 737 pages.

Reviewer: Georges Dionne, Canada Research Chair in Risk Management and Finance

Department, HEC Montreal, Canada, georges.dionne@hec.ca.

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 Calabresibeing 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 au-

diences: 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 ac-

cidents 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 dis-

tributive aspects into account; this is left to the income tax system and other transfer

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