Economic Foundations of Law  book cover
3rd Edition

Economic Foundations of Law

ISBN 9780815375463
Published February 4, 2019 by Routledge
372 Pages 50 B/W Illustrations

USD $105.00

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Book Description

The third edition of Economic Foundations of Law introduces readers to the economic analysis of the major areas of the law: property law, torts, contracts, criminal law, civil procedure, corporation law and financial markets, taxation, and labor law. No prior knowledge of law is required, but a prior course in the principles of microeconomics would be quite helpful.

The text opens with a review of the basic principles of price theory and an overview of the legal system, to ensure readers are equipped with the tools necessary for economic analysis of the law. The third edition provides expanded or new coverage of key topics including intellectual property law, how the creation of new forms of property rights affects the conservation of species such as elephants and fish, controversies involving liability for medical malpractice and class actions, the transformation of personal injury litigation by the intervention of insurance companies as plaintiffs, how to predict the outcome of litigation with game theory, an economic analysis of the ownership and use of guns, bankruptcy law, and the economics of bank regulation.

Comprehensive and well-written, this text is a compelling introduction to law and economics that is accessible to both economics and law students.

Table of Contents

1 Principles of microeconomics (I)

A basic principle: the fungibility of money


Demand curves and supply curves

The equilibrium of a competitive market

Price ceilings

The market for lawyers

The factor market

The effects of a tax

The effects of a subsidy


Income and substitution effects

2 Principles of microeconomics (II)

Monopolies and cartels

Relation between marginal and average amounts


Game theory and the prisoners’ dilemma

Rent-seeking behavior

Capital; human capital

The present value of future payments

Interest rates

Efficient capital markets


Attitudes toward risk

Markets with incomplete information

Public goods

Appendix 2.1: Continuous compounding

3 Introduction to the legal system

Litigation and the court system

Precedents and the common law

Different standards of proof

The U.S. Constitution

The division of jurisdiction between federal and state courts

4 Property law


Transactions costs

Bilateral monopoly

How disputes are decided by law

The Coase Theorem

Eminent domain


How the entitlement should be protected

How to determine ownership of property

Intellectual property

5 Problems of incomplete property rights


Problems when there are no property rights

Problems when property rights are divided

Problems when property rights are uncertain

Limits on the disposition of property at death

Appendix 5.1 When should a tree be harvested?

6 Informal creation of property rights

Property rights in surfing

The Gold Rush

Sharecropping contracts

Whaling customs

The division of profits in law firms

The Shakers

7 The law of contracts

The economic functions of the law of contracts

General rules of contract law

The common law of slavery

The controversy concerning standard form contracts


Remedies for breach of contract

The lost-volume or expansible seller

Specific performance

Liquidated damages and penalties

8 Torts


Strict liability

The Learned Hand rule

The law of rescue

The collateral source rule

Comparative negligence

More on strict liability

Medical malpractice




Subrogation and potential moral hazard of tort victims

The economics of subrogation

Moral hazard arising from abolition of the collateral source rule

A note on trial strategy: should the jury know about insurance?

Whether dangerous conduct should be controlled by tort law or regulation

No-fault automobile insurance

9 The economics of litigation

An optimal judicial system

The standard of proof for a preliminary injunction

The economic model of litigation

Pre-trial discovery

Procedural rules which make litigation more efficient

Agency problems

Potential benefits of class actions

Waivers of the right to participate in class actions

The English rule

Court delay

Expert witnesses

Determining the quality of a judge (or court)

Whether the common law is efficient

Rules of collateral estoppel

The jury

Juries in death penalty cases

Analyzing litigation with game theory

An example involving Rule 68

Deciding whether to file a lawsuit

The solution under the American rule

The solution under the English rule

An example with two players

An example of subrogation, with no injury if tortfeasor takes care

A. Under the American rule

B. Under the English rule

10 Criminal law

The economic model of crime and punishment

The optimal type of punishment

An application: Megan’s Laws

Evaluating the system of law enforcement

Measuring the determinants of crime and the benefits of law enforcement

Markets for crime

Externalities resulting from precautions taken against crime; Lojack

The economics of gun ownership and use

Gun ownership and "hot" burglaries

Concealed-carry and right-to-carry laws

Laws restricting access to firearms

A proposed tax on firearms

Gun buyback programs

Changing the design of firearms

Regulation of bullets

Factors affecting the quality of law enforcement

Public versus private enforcement of law

11 Corporations and financial markets

The characteristics of the corporation

Common and preferred stock

Potential conflicts between managers and stockholders

Compensation of investment advisors

The competition to be the state of incorporation

The prohibition of insider trading

Conflicts among shareholders

Deposit insurance and moral hazard

Bankruptcy law

The economics of bank regulation

12 Taxation

The effects of a death tax

Social security

The effect on savings of tax rules concerning interest

The proposal for a tax on consumption

Charitable contributions


Percentage depletion

The subsidy for residential housing

The social cost of the tax exemption of interest on municipal bonds

13 Labor law

Covenants not to compete

General and firm-specific human capital

Maximum and minimum wages

Employment protection laws

Market Adjustments to Employment Protection Laws

Regulation of pensions

Comparable worth




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Stephen J. Spurr is a Professor of Economics at Wayne State University, USA. He obtained his J.D. from the University of Michigan Law School and a Ph.D. in economics from the University of Chicago. His primary research interests are in the areas of labor economics and economic analysis of law. He has published many articles in highly ranked economics and law journals.