CONTENTS
Preface

CHAPTER 1 Economic Concepts and Institutions
What Economists Study
Resource Scarcity
Cost and Price
Economic Decisions Are Made at the Margins
Allocating Entitlements to Resources
Demand, Supply, and the Market
The Law of Demand
The Law of Supply
The Market: Where Buyers and Sellers Meet
Market Equilibrium: Where Supply Meets Demand
Efficiency
Productive, Aliocative, and Adaptive Efficiency
Measuring Aliocative Efficiency: The Pareto and Kaldor-Hicks Críteria
Cost-Benefit Analysis
Market Failure
Neoclassical Assumptions Versus the Real World
Imperfect Competition
Imperfect or Asymmetric Information
Externalities
Public Goods
Transaction Costs
Strategic Behavior: Free Riders and Holdouts
Responses to Market Failure: Firms and Governments
(and Their Failures)
Firms
Government Intervention to Correct Market and Firm Failures
Government Failure
The Second-Best (Real Coasean) World
Chapter Summary
Questions and Problems

CHAPTER 2 An Introduction to the American Legal System
Why Law?
Scarcity Again
The Purposes of Law
Legal Institutions: The Rules of the Game
Legal Rules
The Rule of Law
Criminal and Civil Law
Rights and Duties
Liability and Remedy
Sources and Areas of Law
Constitutional Law
The Common Law and Its Courts
Statutory Law
Administrative Law
A Note on Local Custom: How Neighbors Settle Disputes
The Organization of American Legal Decision Making
The State Court Systems
The Federal Courts of the United States
State and Federal Legislative and Regulatory Bodies and Processes
Chapter Summary
Questions and Problems

CHAPTER 3 Putting Law and Economics Together: Frameworks,
History, and Perspectives
Economic and Legal Frameworks
What Economic Analysis Offers to Legislators, Judges, and Legal Scholars
Limitations of the Economic Approach to Law
The Legal Structure of Economic Activity
A History of Law and Economics
Progressive Era Law and Economics
The Coasean Revolution
Modern Law and Economics
Perspectives on Law and Economics
The Chicago School: Neoclassical Law and Economics
Public Choice
Institutional Law and Economics
New Institutional Economics
Behavioral Law and Economics
Chapter Summary
Questions and Problem

CHAPTER 4 "The Problem of Social Cost" and Modern Law and Economics
The Nature of Social-Cost Problems: Coase Versus Pigou
The Coase Theorem
No Problems of Social Cost Would Arise in a World of Perfect Competition, Complete Information,
and Costless Transacting
Critiques of the Coase Theorem
Transaction Costs and Law in the Real World
The Courts and the Delimitation of Entitlements
"The Problem of Social Cost" and Modern Law and Economics
Chapter Summary
Questions and Problems

CHAPTER 5 Property 1: Acquisition
What Is Property?
Rights and Duties Respecting Things
Not One Right, Bufa Bundie of Rights
What Makes a Right "Property"?
Ownership and Relativity of Title
Types of Property Regimes
Res Privatae
Res Publicae
Res Communes
Res Nullius
Mixed Property Regimes
Property Regime Choice
Economic Functions of Property
Economic Exchange
Resource Conservation
Capitalization and Investment
Anticompetitive Effects of Monopoly Property Rights: Incentives to Innovate Versus Market Com petition in Inteilectual Property Law
Sources of Property
Bottom-LIp Theories of Property: Prepolitical or Natural Property Rights
Top-Down: Political Definition and Aliocation of Property
Allocating Property Rights
Allocation Organizations
Aliocation Institutions
Chapter Summary
Questions and Problems

CHAPTER 6 Property II: Protection
Determining Liability
Strict Liability: Trespass and Nuisance Distinguished
Modern Nuisance Law
The Remedy Decision
Types of Remedies
Property Rules: Injunctive Relief
Liability Rules: Money Damages
Hybrid Property/Liability Rules
Inalienability Rules
Chapter Summary
Questions and Problems

CHAPTER 7 Property III: Limits
Private Law Linutations
Nuisance Law as a Limitation on Property
Private Land-Use Planning: Covenants
Public Law Limitations on Private Property
Police Power Regulation
Eminent Domain
Constitutional Limitations on Public Regulation of Private Property:
Regulatory Takings Law
Justifications for Regulatory Takings Law in the Law
and Economics Literature
Chapter Summary
Questions and Problems

CHAPTER 8 Contracts 1: Formation and Enforcenient
The Basics of Contract Law
The Nature of a Contract
Enforcement
Should Contracts Always Be Enforced?
Contract Failure
Two Economic Views of Contract Failure and the Role ofCourts
Reasons for Contract Breach
Formation Defenses
Performance Excuses
Not All Promises Are Contracts
Chapter Summary
Questions and Problems

CHAPTER 9 Contracts II: Remedies
Types of Remedy for Contract Breach
Specific Performance
Money Damages
The Notion of Efficient Breach
The Costs of Reliance and Precaution
Efficient Reliance
Efficient Precaution
Alternative Approaches to Calculatmg Damages
Expectation Damages
Reliance Damages
Restitution
Liquidated Dama ges/Penalty Clauses
Chapter Summary
Questions and Problems

CHAPTER 10 Torts 1: Negligence
Prologue: Accidents Happen
What Is a Tort?
Civil Wrongs
The Common Law of Torts
Types of Torts
An Economic Approach to Torts
Legal and Economic Functions of Tort Law
Corrective Justice
Deterrence Through Internalization of Externalities
Punishment
Maximizing Social Welfare by Minimizing the Total Costs of Torts
The Law and Economics of Negligence
Sim pie Negligence: Creating Incentives for Reasonable Behavior
by Tort Defendants
Influencing Plaintiffs' incentives: Defenses to Negligence
The Role of Insurance in Negligence Law
Chapter Summary
Questions and Problems

CHAPTER 11 Torts II: Strict Liability
An Alternative to Negligence
The Elements of Strict Liability
Why Strict Liability?
Defenses to Strict Liability
Strict Liability Versus Negligence
Historical Context of the Debate
The Comparative Ethics of Negligence and Strict Liability
Com parative Institutional Analysis
The Costs of Administering the Torts System
Choosing the Legal Rule
The Costs of Estimating Damages
The Costs of Evaivating Ex Ante Precautions and Potential Precautions
Chapter Summary
Questions and Problems

CHAPTER 12 Torts III: Reform
The Case for Tort Reform
The Current Tort System Produces Net Social Costs
Tort Reform Recommendations
The Case Against Tort Reform
Fact, Fiction, and the Tort System
Is the Cure Worse Than the Disease?
Experiences in Tort Reform
Caps on Punitive Damages
Límitations on Joint and Several Liability
Ceilings on Mal practice Liability
Coilateral Source Rules
Federal Tort Reforms
Economic Consequences of Tort Reform
The No-Fault Alternative
Workers' Com pensation and No-Fault Auto Insurance in the Llnited States
Com prehensive No-Fault Insurance in New Zealand
Chapter Summary
Questions and Problems

CHAPTER 13 Crime and Punishment
Criminal Wrongs
Crime and Criminal Law
Criminal Procedure
Society Criminalizes Certain Wrongful Acts, But Not Others
The Economics of Crime
Crime and Its Economic Consequences in the United States
Why People Commit Crimes
The Economics of Crime Prevention, Criminal Prosecution, and Punishment
Data on Law Enforcement, Arrests, Convictions, and Punishments
Selecting the LeveIs of Crime Prevention and Law Enforcement
The Economics of Criminal Punishment
Selected Issues in Crime and Punishment
The "War on Drugs"
The Death Penalty
Gun Control
Chapter Summary
Questions and Problems

CHAPTER 14 Antitrust and Regulated Industries
Introduction
The Problem of Monopoly
Antitrust Law
The Sherman Act
Expansion of Antitrust Law
The Microsoft Case
Regulated Industries
The Theory of Natural Monopoly
The Deregulation Movement
California's Power Crisis
Chapter Summary
Questions and Problems

CHAPTER 15 Environmental Protection
What Is Poilution?
Poliution as an Economic Problem
Poliution as a Negative Externality
Environmental Amenities as Public Goods
Transaction Costs and Poilution
Poliution and the Common Law
Environmental Nuisances
The Costs and Benefits of Environmental Regulation
Environmental Instrument Choice
Types of Regulatory Approaches
Com pliance Cost Advantages of Economic Instruments
Monitoring and Enforcement Costs of Environmental Regulation
Technological Constraints on Emissions Momtoring
Chapter Summary
Questions and Problems

Index