Introduction to Law and Economics

L ike the universe in its infancy, law and economics had much force and little form when we began developing this book more than 20 years ago.In the intervening years, legal theory has assimilated many economic concepts, such as incentive effects, opportunity costs, risk aversion, transaction costs, free-riding, the prisoner's dilemma, asymmetric information, open-access resource, median rule, regulatory capture, rent-seeking, credible commitment, adverse selection, and so forth.More recently, economists have realized that effective property and contract rights are fundamental to economic growth and development.This realization has opened economics to legal concepts, such as litigation costs, property rules, liability rules, default rules, strict liability, independent judges, third-party enforcers, corruption, judgment-proof injurers, reliance damages, priority in bankruptcy, insider-trading, norms, internalized values, and non-monetary sanctions.These two developments-the greater use of economics to examine the law and the economy-have brought the two fields of law and economics closer together.We expect further convergence in three ways.First, we expect continued refinement of the analysis of private law (the fruits of which appear in each new edition of this book) and continued expansion of the economic analysis of public law in areas such as corporations, bankruptcy, legislation and voting, international public law, and constitutional law.Second, as knowledge of quantitative methods diffuses, we foresee increasing use and sophistication of empirical methods in legal scholarship.We cite some new empirical literature in this edition and on our website.The third development is the burgeoning literature on how actual human behavior sometimes differs from the predictions of rational choice theory.We began to cite some of that important literature in the previous edition of this book; here, we cite even more.A senior scholar is someone who remembers what his students read about.Now that we are senior scholars, we like to think that our book has matured with COOTMF01_0321336348 pp3.