1 The reader may find a recent, comprehensive survey of this work in Cento G. Veljanovski, The New-Law-and-Economics: A Research Review (Oxford, England: Centre for Socio-Legal Studies, 1982).Google Scholar

2 Lawyers quickly appreciated the value of economic reasoning in the “traditional” law and economics. Legal education and much law and administration in these areas have been influenced by economic ideas. In Ernest Gellhorn & Glen O. Robinson, The Role of Economic Analysis in Legal Education Today (paper presented at the Law and Society Association Meeting, Denver, June 1983), the authors describe and contrast the use of economic reasoning in antitrust courses with its use in courses dealing with administrative/constitutional law, torts, and property.Google Scholar

3 Posner, Richard A., The Economic Approach to Law, 53 Tex. L. Rev. 757 (1975).Google Scholar

4 Richard Posner is probably the best-known lawyer who strongly supports the use of economic analysis to understand legal issues. For examples of Posner's work, see Richard A. Posner, Economic Analysis of Law (2d ed. Boston: Little, Brown & Co., 1977); Richard A. Posner, The Economics of Justice (Cambridge: Harvard University Press, 1981). However, lawyers have also been enthusiastic about the power of economic analysis in the past. For example, in a 1916 Illinois Law Review article, Justice Brandeis wrote: “A lawyer who has not studied economics … is very apt to become a public enemy.” As quoted in Werner Hirsch, Law and Economics: An Introductory Analysis xi (New York: Academic Press, 1979).Google Scholar

5 Horwitz, Morton A., Law and Economics: Science and Politics, 8 Hofstra L. Rev. 905, 905 (1980).Google Scholar

6 Michelman, Frank I., Norms and Normativity in Economic Theory of Law, 62 Minn. L. Rev. 1015, 1028 (1978).Google Scholar

7 Cooter, Robert D., Law and the Imperialism of Economics: An Introduction to the Economic Analysis of Law and a Review of the Major Books, 29 U.C.L.A. L. Rev. 1260, 1269 (1982).Google Scholar

8 Most economists would suggest that one should return to the income distribution question after efficiency has been achieved. However, Posner argues that “the criterion for judging whether acts and institutions are just or good is whether they maximize the wealth of society.” Posner, Economics of Justice, supra note 4, at 115. Posner believes that legal rules should be primarily concerned with promoting efficiency.Google Scholar

9 This expansion of economics to nonmarket transactions is part of a major trend that began in the late 1950s. The movement toward a wider scope was greatly stimulated by the work of Downs on public choice (Anthony Downs, An Economic Theory of Democracy (New York: Harper & Row, 1957)); and Becker on discrimination (Gary S. Becker, The Economics of Discrimination (Chicago: University of Chicago Press, 1957)). Actually the subject matter of economics had been quite broad until the “marginal revolution” of the late nineteenth century. See Mark Blaug, Economic Theory in Retrospect, ch. 8 (3d ed. Cambridge: Cambridge University Press, 1978). Today, in expanding the scope of economics, researchers are atternpting to apply the insights of the marginal revolution to topics that were of interest to many great political economists of the eighteenth and nineteenth centuries. However, the new works often have a narrow economic view that differs markedly from the more multidisciplinary approaches of eighteenth- and nineteenth-century thinkers. Becker states the position well: “I asserted [in an earlier publication] that the economic approach provides a framework applicable to all human behavior—to all types of decisions and to persons from all walks of life.” Gary S. Becker, A Treatise on the Family ix (Cambridge: Harvard University Press, 1981).Google Scholar

10 Coase, R. H., The Problem of Social Cost, 3 J. L. & Econ. 1 (1960). Although the date on this article is 1960, it was not actually published until 1962 due to a lag in publication of the Journal of Law and Economics. According to Posner, Coase and Calabresi developed their ideas independently. See Posner, supra note 3, at 759 n.9.Google Scholar

11 Calabresi, Guido, Some Thoughts on Risk Distribution and the Law of Torts, 70 Yale L.J. 499 (1961).Google Scholar

12 Actually, as has been pointed out by a number of authors, the proof of Coase's theorem requires assumptions in addition to zero transaction costs. The most important of these are the assumptions of no wealth effects and of mutually advantageous exchanges being undertaken. See Veljanovski, supra note 1, at 50-54, and Hoffman, Elizabeth & Spitzer, Matthew L., The Coase Theorem: Some Experimental Tests, 25 J.L. & Econ. 73 (1982). for a discussion of the assumptions needed for the Coase theorem to hold.Google Scholar

13 Guido Calabresi, The Costs of Accidents: A Legal and Economic Analysis 24 (New Haven, Conn.: Yale University Press, 1970).Google Scholar

14 Calabresi, Guido & Hirschoff, Jon T., Toward a Test for Strict Liability in Torts, 81 Yale L.J. 1054, 1060 (1972) (emphasis omitted).Google Scholar

15 A Pareto-efficient outcome is defined as one in which no individual in society can be made better off without some other individual being made worse off.Google Scholar

16 See Posner, Economics of Justice, supra note 4, at ch. 4. In economics, the wealth-maximization criterion is usually referred to as the Kaldor-Hicks or potential Pareto criterion. See Jack Hirshleifer, Evolutionary Models in Economics and Law: Cooperation versus Conflict Strategies, in Paul H. Rubin, ed., 4 Research in Law and Economics 4–8 (Greenwich, Conn.: JAI Press, 1982). for a discussion and comparison of the Pareto and wealth-maximization criteria.Google Scholar

17 Posner, Economics of Justice, supra note 4, at 75. An excellent exposition and survey of work designed to use economic analysis for discerning what laws should be is A. Mitchell Polinsky, An Introduction to Law and Economics (Boston: Little, Brown & Co., 1983).Google Scholar

18 Posner, Economic Analysis of Law, supra note 4, at 18.Google Scholar

19 Posner, Richard A., A Theory of Negligence, 1 J. Legal Stud. 29 (1972); id., Economic Analysis of Law, supra note 4, at 119–74; Landes, William M. & Posner, Richard A., Salvors, Finders, Good Samaritans, and Other Rescuers: An Economic Study of Law and Altruism, 7 J. Legal Stud. 83 (1978); Posner, Richard A. & Rosenfield, Andrew M., Impossibility and Related Doctrines in Contract Law: An Economic Analysis, 6 J. Legal Stud. 83 (1977); and Posner, Richard A., Killing or Wounding to Protect a Property Interest, 14 J. L. & Econ. 201 (1971), are a sample of the literature attempting to “prove” the efficiency theory of the common law.Google Scholar

20 Posner, Economic Analysis of Law, supra note 4, at 179–91.Google Scholar

21 Rubin, Paul H., Why Is the Common Law Efficient? 6 J. Legal Stud. 51 (1977).Google Scholar

22 The process of marching toward efficiency is not completely agreed on, but proponents usually rely on some variant of the following: inefficient laws will be litigated more often than efficient laws and, hence, are more likely to be changed.Google Scholar

23 Major issues in this debate are summarized in Rubin, supra note 16, ch. 6.Google Scholar

24 Michael D. Intriligator, Econometrics, Models, Techniques and Applications (Englewood Cliffs, N.J.: Prentice-Hall, 1978).Google Scholar

25 See Peter Schmidt & Ann D. Witte, An Economic Analysis of Crime and Justice: Theory, Methods and Application, ch. 9 (Orlando, Fla.: Academic Press, 1984) for a survey of economic models of illegal behavior.Google Scholar

26 See Cook, Philip J., Punishment and Crime: A Critique of Current Findings Concerning the Preventive Effects of Punishment, 41 Law & Contemp. Probs. 164 (1977); Daniel Nagin, General Deterrence: A Review of the Empirical Evidence, in Alfred Blumstein, Jacqueline Cohen, & Daniel Nagin, eds., Deterrence and Incapacitation: Estimating the Effects of Criminal Sanctions on Crime Rates (Washington, D.C.: National Academy of Sciences, 1978); Brier, Stephen S. & Fienberg, Stephen E., Recent Econometric Modeling of Crime and Punishment: Support for the Deterrence Hypothesis? 4 Evaluation Rev. 147 (1980); and Philip J. Cook, Research in Criminal Deterrence: Laying the Groundwork for the Second Decade, in Norval Morris & Michael Tonry, eds., 2 Crime and Justice: An Annual Review of Research 211 (Chicago: University of Chicago Press, 1980).Google Scholar

27 Cook, Research in Criminal Deterrence, supra note 26, at 259.Google Scholar

28 A field experiment involves the random exposure of such things as individuals, incidents, or sectors of a city to different treatments. Differences in outcome can then be unambiguously attributed to differences in treatment. The Kansas City preventive patrol experiment (George L. Kelling et al., Kansas City Preventive Patrol Experiment: A Summary Report (Washington, D.C.: Police Foundation, 1974)) is an early example of this type of work. The recent experiment in Minneapolis on methods of treating incidents of domestic violence is another. Richard A. Berk & Lawrence W. Sherman, Police Responses to Family Violence Incidents: An Analysis of an Experimental Design with Incomplete Randomization (paper presented at the meeting of the American Society of Criminology, Denver, Nov. 1983).Google Scholar

29 Macaulay, Stewart, Elegant Models, Empirical Pictures, and the Complexities of Contract, 11 Law & Soc'y Rev. 507 (1977).Google Scholar

30 Veljanovski, supra note 1, at 55.Google Scholar

31 Id.Google Scholar

32 Id. at 61.Google Scholar

33 This suggestion is made in the second half of the article in which Coase developed the reasoning that has led to the “Coase theorem.” See Coase, supra note 10.Google Scholar

34 Demsetz, Harold, Information and Efficiency: Another Viewpoint, 12 J. L. & Econ. 1, 1 (1969).Google Scholar

35 Komesar, Neil, In Search of a General Approach to Legal Analysis: A Comparative Institutional Alternative, 79 Mich. L. Rev. 1350, 1350 (1981) (emphasis added).Google Scholar

36 Id. at 1368.Google Scholar

37 See Palay, Thomas M., Comparative Institutional Economics: The Governance of Rail Freight Contracting, 13 J. Legal Stud. 265 (1984) for an example of empirical work using the comparative institutional approach.Google Scholar

38 An obvious challenge to transactions cost analysts would be the empirical testing of the prediction that least-cost market structures will tend to be used. Work to date has produced a series of case studies, and occasionally some tabulations. For example, see Williamson, O. E., Franchise Bidding for Natural Monopolies-in General and with Respect to CATV, 7 Bell J. Econ. 73 (1976); Palay, supra note 37. Collection of relevant data on a representative sample of transactions of various types would be desirable but both difficult and costly. Development of statistical tests of the propositions of transaction cost analysis also provides a challenge.Google Scholar

39 For a good review of some of the conflicts between lawyers and economists, see Veljanovski, supra note 1, at 126–41.Google Scholar

40 Krier, James E., Review of Economic Analysis of Law, by Richard A. Posner, 122 U. Pa. L. Rev. 1664, 1665 (1974).Google Scholar

41 Veljanovski, supra note 1, at 130.Google Scholar

42 Id. at 131.Google Scholar

43 Id. at 135.Google Scholar