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

What does economics have to do with law? Suppose legislators propose that armed robbers receive life imprisonment. Editorial pages applaud them for getting tough on crime. Constitutional lawyers raise the issue of cruel and unusual punishment. Legal philosophers ponder questions of justness. An economist, on the other hand, observes that making the punishment for armed robbery the same as that for murder encourages muggers to kill their victims. This is the cut-to-the-chase quality that makes economics not only applicable to the interpretation of law, but beneficial to its crafting.

Drawing on numerous commonsense examples, in addition to his extensive knowledge of Chicago-school economics, David D. Friedman offers a spirited defense of the economic view of law. He clarifies the relationship between law and economics in clear prose that is friendly to students, lawyers, and lay readers without sacrificing the intellectual heft of the ideas presented. Friedman is the ideal spokesman for an approach to law that is controversial not because it overturns the conclusions of traditional legal scholars--it can be used to advocate a surprising variety of political positions, including both sides of such contentious issues as capital punishment--but rather because it alters the very nature of their arguments. For example, rather than viewing landlord-tenant law as a matter of favoring landlords over tenants or tenants over landlords, an economic analysis makes clear that a bad law injures both groups in the long run. And unlike traditional legal doctrines, economics offers a unified approach, one that applies the same fundamental ideas to understand and evaluate legal rules in contract, property, crime, tort, and every other category of law, whether in modern day America or other times and places--and systems of non-legal rules, such as social norms, as well.

This book will undoubtedly raise the discourse on the increasingly important topic of the economics of law, giving both supporters and critics of the economic perspective a place to organize their ideas.

"David Friedman, a first-rate economist with a good deal of experience in applying economics to the law, has written a lucid, imaginative, entertaining, opinionated, and, on balance, a very fine introduction to the application of economics to law. The book is wide-ranging in scope, at once simple and highly sophisticated, consistently provocative, an excellent read, and a notable contribution to an exciting field of interdisciplinary studies."--Richard A. Posner, Chief Judge, United States Court of Appeals For the Seventh Circuit

"David Friedman explains in clear and accessible language what basic economic theory adds to the understanding of law, and how simple concepts of rationality, value, and transaction costs can go a long way to bring out the hidden unity among various diverse branches of law. Whether one speaks of the complexities of marginal deterrence, the resolution of disputes between farmers and railroads, or the social functions of copyright and patent law, Friedman's book provides the outsider to the field with a comprehensive but accessible account of his legal subject matter."--Richard A. Epstein, University of Chicago

David D. Friedman is Professor of Law at the University of Santa Clara School of Law. He holds a Ph. D. in physics from the University of Chicago and is the author of, among other books, Hidden Order: The Economics of Everyday Life and The Machinery of Freedom.

Introduction 3

1. What Does Economics Have to Do with Law? 8

2. Efficiency and All that 18

3. What's Wrong with the World, Part 1 28

4. What's Wrong with the World, Part 2 36

5. Defining and Enforcing Rights: Property, Liability, and Spaghetti 47

6. Of Burning Houses and Exploding Coke Bottles 63

7. Coin Flips and Car Crashes: Ex Post versus Ex Ante 74

8. Gaines, Bargains, Bluffs, and Other Really Hard Stuff 84

9. As Much as Your Life Is Worth 95

Intermezzo. The American Legal System in Brief 103

10. Mine, Throe, and Ours: The Economics of Property Law 112

11. Clouds and Barbed Wire: The Economics of Intellectual Property 128

12. The Economics of Contract 145

13. Marriage, Sex, and Babies 171

14. Tort Law 189

15. Criminal Law 223

16. Antitrust 244

17. Other Paths 263

18. The Crime/Tort Puzzle 281

19. Is the Common Law Efficient? 297

Epilogue 309

Index 319