Foundations of Economic Analysis of Law

by Shavell, Steven

ISBN13: 9780674011557

ISBN10: 0674011554

Format: Hardcover

Pub. Date: 2004-03-15

Publisher(s): Belknap Press

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Summary

What effects do laws have? Do individuals drive more cautiously, clear ice from sidewalks more diligently, and commit fewer crimes because of the threat of legal sanctions? Do corporations pollute less, market safer products, and obey contracts to avoid suit? And given the effects of laws, which are socially best? Such questions about the influence and desirability of laws have been investigated by legal scholars and economists in a new, rigorous, and systematic manner since the 1970s. Their approach, which is called economic, is widely considered to be intellectually compelling and to have revolutionized thinking about the law.In this book Steven Shavell provides an in-depth analysis and synthesis of the economic approach to the building blocks of our legal system, namely, property law, tort law, contract law, and criminal law. He also examines the litigation process as well as welfare economics and morality. Aimed at a broad audience, this book requires neither a legal background nor technical economics or mathematics to understand it. Because of its breadth, analytical clarity, and general accessibility, it is likely to serve as a definitive work in the economic analysis of law.

Preface

xix

1. Introduction

(6)

I. PROPERTY LAW

(168)

2. Definition, Justification, and Emergence of Property Rights

(18)

1. Property Rights Defined

(2)

2. Justifications for Property Rights

(12)

3. The Emergence of Property Rights

(4)

3. Division of Property Rights

(6)

1. Division of Rights Described

(1)

2. Social Advantages and Disadvantages of Division of Possessory Rights

(2)

3. Social Advantages and Disadvantages of Separation of Possessory Rights from Transfer Rights

(1)

4. The Socially Optimal Division of Property Rights, Their Actual Division, and the Law

(2)

4. Acquisition and Transfer of Property

(44)

1. Acquisition of Unowned Property

(5)

2. Loss and Recovery of Property

(7)

3. Sale of Property-In General

(1)

4. Sale and Theft of Property in the Presence of a Registration System

(6)

5. Sale and Theft of Property in the Absence of a Registration System

(3)

6. Constraints on the Sale of Property Imposed by the State

(3)

7. Gifts

(1)

8. Transfer of Property at Death: Bequests

(8)

9. Control of Property Long after Death: The "Dead Hand"

(5)

10. Involuntary Transfer of Property: Adverse Possession

(5)

5. Conflict and Cooperation in the Use of Property: The Problem of Externalities

(33)

1. Notion of External Effects in the Use of Property

(3)

2. Socially Optimal Resolution of External Effects

(3)

3. Resolution of Externalities through Frictionless Bargaining

(4)

4. Why Bargaining May Not Occur and, If It Does, Why It May Fail to Result in Mutually Beneficial Agreements

(5)

5. Resolution of External Effects through Legal Rules in the Absence of Successful Bargaining

(9)

6. Resolution of External Effects through Legal Rules Given the Possibility of Bargaining

101

(9)

6. Public Property

110

(27)

1. Justifications for Public Property

110

(13)

2. Acquisition of Property by the State: By Purchase and by Power of Eminent Domain

123

(14)

7. Property Rights in Information

137

(38)

1. Patents, Copyrights, and Trade Secrets: Property Rights in Information of Repetitive Value

138

(28)

2. Property Rights in Other Types of Information

166

(2)

3. Trademarks: Property Rights in Labels

168

(7)

II. ACCIDENT LAW

175

(114)

8. Liability and Deterrence: Basic Theory

177

(30)

1. Unilateral Accidents and Levels of Care

178

(4)

2. Bilateral Accidents and Levels of Care

182

(11)

3. Unilateral Accidents: Levels of Care and Levels of Activity

193

(6)

4. Bilateral Accidents: Levels of Care and Levels of Activity

199

(8)

9. Liability and Deterrence: Firms

207

(17)

1. Victims Are Strangers to Firms

208

(4)

2. Victims Are Customers of Firms

212

(12)

10. Extensions of the Analysis of Deterrence

224

(33)

1. Problems in the Negligence Determination

224

(5)

2. Why Negligence Is Found and Implications of Findings of Negligence

229

(1)

3. Injurers' Inability to Pay for Losses: The Judgment-Proof Problem

230

(2)

4. Vicarious Liability

232

(4)

5. Damages and the Level of Losses

236

(1)

6. Damages and the Probability of Losses

237

(3)

7. Damages and Courts' Uncertainty about the Level of Losses

240

(2)

8. Damages and Pecuniary versus Nonpecuniary Losses

242

(1)

9. Damages Greater than Losses: Punitive Damages

243

(5)

10. Damages and Victims' Opportunities to Mitigate Losses

248

(1)

11. Causation

249

(8)

11. Liability, Risk-Bearing, and Insurance

257

(23)

1. Risk Aversion and the Socially Idea! Solution to the Accident Problem

258

(1)

2. The Accident Problem in the Absence of Liability and Insurance

259

(1)

3. The Accident Problem Given Liability Alone

260

(1)

4. The Accident Problem Given Liability and Insurance

261

(6)

5. The Purpose of Liability

267

(2)

6. Extension: Nonpecuniary Losses

269

(6)

7. Extension: The Judgment-Proof Problem

275

(5)

12. Liability and Administrative Costs

280

(9)

1. Nature and Importance of Administrative Costs

280

(3)

2. Socially Desirable Use of the Liability System Given Administrative Costs

283

(2)

3. Private versus Social Incentive to Use the Liability System Given Administrative Costs

285

(4)

III. CONTRACT LAW

289

(98)

13. Overview of Contracts

291

(34)

1. Definitions and Framework of Analysis

291

(3)

2. Contract Formation

294

(2)

3. General Justifications for Contracts and for Their Enforcement

296

(3)

4. Incompleteness of Contracts

299

(2)

5. Interpretation of Contracts

301

(3)

6. Damage Measures for Breach of Contract

304

(8)

7. Specific Performance as the Remedy for Breach of Contract

312

(2)

8. Renegotiation of Contracts

314

(6)

9. Legal Overriding of Contracts

320

(2)

10. Extra-Legal Means of Contract Enforcement

322

(3)

14. Contract Formation

325

(13)

1. Search Effort

325

(2)

2. Fundamental Rule of Recognition of Contracts: Mutual Assent

327

(1)

3. Offer and Acceptance

328

(1)

4. Fraud

329

(1)

5. Mistake

330

(1)

6. Information Disclosure

331

(4)

7. Duress

335

(3)

15. Production Contracts

338

(30)

1. Completely Specified Contracts

338

(4)

2. Remedies for Breach and Incomplete Contracts

342

(13)

3. Reliance

355

(7)

4. Renegotiation

362

(6)

16. Other Types of Contract

368

(19)

1. Contracts for Transfer of Possession

368

(12)

2. Donative Contracts

380

(7)

IV. LITIGATION AND THE LEGAL PROCESS

387

(84)

17. Basic Theory of Litigation

389

(30)

1. Bringing of Suit

389

(2)

2. Fundamental Divergence between the Private and the Socially Desirable Level of Suit

391

(10)

3. Settlement versus Trial

401

(10)

4. Divergence between the Private and the Socially Desirable Level of Settlement

411

(4)

5. Trial and Litigation Expenditure

415

(4)

18. Extensions of the Basic Theory

419

(25)

1. Negative Value Suits

419

(4)

2. Sharing of Information Prior to Trial

423

(3)

3. Forced Disclosure of Information Prior to Trial: Discovery

426

(2)

4. Shifting of Legal Fees to the Loser at Trial

428

(4)

5. Difficulty of Statistical Inference from Trial Outcomes

432

(2)

6. Elements of Trial Outcomes Apart from the Judgment

434

(1)

7. Role of Lawyers

435

(2)

8. Role of Insurers

437

(7)

19. General Topics on the Legal Process

444

(27)

1. Public versus Private Legal Systems

445

(5)

2. Accuracy of the Legal Process

450

(6)

3. Appeals and the Legal System

456

(7)

4. Legal Advice

463

(8)

V. PUBLIC LAW ENFORCEMENT AND CRIMINAL LAW

471

(98)

20. Deterrence with Monetary Sanctions

473

(19)

1. Certain Enforcement: Basic Theory of Liability

474

(5)

2. Enforcement with a Probability: The Optimal Probability and Magnitude of Sanctions

479

(11)

3. Synopsis

490

(2)

21. Deterrence with Nonmonetary Sanctions

492

(23)

1. Certain Enforcement with Nonmonetary Sanctions: Basic Theory of Liability

493

(9)

2. The Optimal Probability and Magnitude of Nonmonetary Sanctions

502

(7)

3. When Nonmonetary Sanctions Are Optimal to Employ

509

(1)

4. Joint Use of Nonmonetary and Monetary Sanctions

510

(2)

5. Different Types of Nonmonetary Sanctions

512

(3)

22. Extensions of the Theory of Deterrence

515

(16)

1. Individual Deterrence

515

(3)

2. Marginal Deterrence

518

(2)

3. Costs of Imposing Monetary Sanctions

520

(2)

4. Self-Reporting of Violations

522

(2)

5. General Enforcement

524

(2)

6. Insurance against Sanctions

526

(2)

7. Sanctions for Repeat Offenders

528

(3)

23. Incapacitation, Rehabilitation, and Retribution

531

(9)

1. Incapacitation

531

(4)

2. Rehabilitation

535

(2)

3. Retribution

537

(3)

24. Criminal Law

540

(29)

1. Description of Criminal Law

540

(3)

2. Explanation for Criminal Law

543

(7)

3. Optimal Use of Imprisonment Reviewed

550

(2)

4. Principles of Criminal Law

552

(17)

VI. GENERAL STRUCTURE OF THE LAW

569

(24)

25. The General Structure of the Law and Its Optimality

571

(22)

1. Fundamental Dimensions of Legal Intervention

572

(3)

2. Optimal Structure of Legal Intervention

575

(6)

3. Optimal Structure of Legal Intervention Illustrated

581

(10)

4. Remarks: Incompleteness of Analysis

591

(2)

VII. WELFARE ECONOMICS, MORALITY, AND THE LAW

593

(82)

26. Welfare Economics and Morality

595

(18)

1. Welfare Economics

595

(3)

2. Notions of Morality Described

598

(5)

3. Functionality of Notions of Morality

603

(2)

4. Origins of Notions of Morality

605

(3)

5. Welfare Economics and Notions of Morality

608

(5)

27. Implications for the Analysis of Law

613

(34)

1. Observed Relationship between Law and Morality

613

(6)

2. Optimal Domain of Law and of Morality

619

(16)

3. Optimal Design of the Law Taking Morality into Account

635

(9)

4. The Nature of Normative Discourse about Law and Morality

644

(3)

28. Income Distributional Equity and the Law

647

(14)

1. The Distribution of Income and Social Welfare

648

(1)

2. The Income Tax System, Income Distribution, and Social Welfare

649

(3)

3. Effect of Legal Rules on the Distribution of Income

652

(2)

4. Should Income Distributional Effects of Legal Rules Influence Their Selection?

654

(7)

29. Concluding Observations

661

(14)

1. Descriptive Analysis: Concerning the Effects of Legal Rules

661

(2)

2. Normative Analysis: Concerning the Social Desirability of Legal Rules

663

(12)

References

675

(46)

Author Index

721

(12)

Subject Index

733

Foundations of Economic Analysis of Law

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