LAW'S ORDER: WHAT ECONOMICS HAS TO DO WITH LAW AND WHY IT MATTERS by David D. Friedman. Princeton, NJ: Princeton University Press, 2000. 312 pp. Cloth $29.95.

Reviewed by Joseph L. Smith, Department of Political Science, Grand Valley State University.

The law provides incentives that motivate people to behave in certain ways. To use the book's dramatic opening example, if the punishment for armed robbery is life in prison, armed robbers will be motivated to kill their victims because killing the victim reduces their probability of getting caught while not increasing the penalty if they do get caught (assuming no capital punishment). Thus, instead of deterring armed robbery, this law ends up encouraging murder. This conclusion is the result of applying the economic method of analyzing law, which focuses on the way that rational individuals will be motivated to act by particular laws. The economic approach is useful both for predicting the effects of law on human behavior and for understanding the reasons that certain law or legal systems have evolved.

David D. Friedman's LAW'S ORDER is an interesting and lively introduction to the economic analysis of law. It begins by defining and explaining some key concepts of the economic approach, such as rationality, economic efficiency, risk allocation, transaction costs, and externalities. The concept of economic efficiency is central to Friedman's argument, which is that legal systems can be best understood and evaluated as attempts to achieve economic efficiency. Very roughly, a system of laws is economically efficient to the extent that it puts resources to their highest-value use, allocates the cost for harm to those who can avoid it at the lowest cost, and minimizes the transaction costs of getting to these efficient solutions.

It is inefficient, for example, for someone to spend more money taking precautions to prevent an accident than the expected cost of the accident, where the expected cost of the accident is the probability of the accident times the damage the accident would do, if it occurred. So, tort rules that give people incentives to take more or fewer precautions than would be justified by the expected cost of the accident are inefficient. Likewise, if pollution from a factory is harming a scenic area generally used for vacations, the economically efficient solution would be choose the lowest cost method of eliminating the harm. If the scenic area could be converted to a use that was unaffected by pollution for less money than the factory could be outfitted with pollution control equipment, that would be the efficient solution.

The utility of the economic approach to law depends on the ability to quantify the costs and benefits of actions precisely and completely. It is difficult to know the long-term costs of air pollution. A complete accounting would have to include damage to non-human species (valued in terms of the species utility to humans) and the effect of the pollution on long- term changes in the climate, among other things. Even if it were possible to measure these variables, it might

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very well cost more to tally up the cost of the pollution than it would to control the pollution in the first place. In this case, it would not be efficient to find out the true costs of the pollution. Thus, it is in no one's interest to find out the true cost of the pollution. I am not sure what the economic approach to law would recommend in this situation.

After laying out the basic principles of the economic approach, Friedman uses these tools to analyze many topics in law, including strict liability versus negligence as standards for determining tort liability; the effect of punishing people for engaging in potentially harmful activity even if they don't actually do any harm versus the effect of punishing people only after their activities have caused harm; and why harming someone's property is sometimes classified as tort and typically punished with fines, and sometimes classified as a crime and may be punished with jail time. These applications of the economic perspective to areas of law are really the meat of the book, and they give the reader a good sense of how the approach works in practice. These illustrations are informal, and the author jumps from example to example frequently. As I was reading, I often wished for both a more formal explanation of the principles being used, and for a more formal summing up of the conclusions of the economic approach with respect to particular areas of law.

To say this book is wide-ranging and provocative is an understatement. Friedman suggests, among other things, that if two hunters simultaneously shoot and kill a third hunter, neither of them should have to pay any damages; that many of the current problems with the adoption process could be solved by instituting a market for the buying and selling of babies; and that diamond engagement rings became a staple of American engagements only after courts stopped allowing abandoned brides to sue for breach of promise to marry. The ring serves as a bond of surety, which the woman can keep as damages from the cad who left her at the altar. If the chapter analyzing the economics of marriage, sex, and babies doesn't start a heated discussion in the classroom, your students must be unconscious.

One novel feature of this book is that it eschews footnotes and case citations in favor of icons in the margins. These icons direct the interested reader to Friedman's web site, on which he has placed material that would otherwise have been included in the text, such as citations to books, articles and legal cases, mathematical proofs, additional comments by the author, and problems that require the reader to review the main arguments of each chapter. Friedman explains this choice by saying that for one of his intended audiences, intelligent laymen, extensive footnotes and citations are likely to be unnecessary and annoying. Those who want the background information and references can find them at the web site. This solution makes the text less cluttered and certainly shaves many pages off the length of the book, but if the reader is not at a web-linked computer while reading, he or she is unlikely to track down the citation later, or to remember exactly what piqued his or her interest. The problems that Friedman includes on the web site strike me as very useful, and could serve as starting points for class discussions.

In level and subject matter, this book would be appropriate for upper- level undergraduate courses, law students, and political science or economics graduate students. It is not light reading. Because the logic of many of the examples is

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complicated, and Friedman's writing styles seems to assume a basic familiarity with economic price theory, I found myself having to go back and re-read sentences and paragraphs to make sure I was understanding the arguments. Despite this complexity, Friedman writes in an entertaining style that would probably appeal to students. He uses innumerable imaginative examples to illustrate the economic approach to law, many of which would provide excellent fodder for class discussions. Because of Friedman's informal presentation of the ideas, the instructor would have to lead the students toward general conclusions.

This text would be very useful in a legal theory course. It lays out the principles and values of economic analysis of law, and then proceeds to illustrate and defend that approach in a lively and competent manner. It may not convince every reader that economics provide the key to understanding law, but it makes the case competently and energetically.

Copyright 2000 by the author.