Many of the great advances in recent legal scholarship are traceable to the widely successful law and economics movement, an incisive nexus of research that analyzes legal issues using technologies borrowed from economics. In Foundations of Economic Analysis of Law, Steven Shavell puts into sharp relief the complexities of this particular method. Re-examining and clarifying the economic approach to the core dimensions of current legal practice, such as property, torts, contracts, litigation, and crime, Shavell's treatise is at once a principal reference book and a powerful map of scholarship delineating the frontiers of law and economics research.

Explaining the emergence and evolution of property rights, the first part of the book uncovers successfully the economic rationale behind the various legal codes and regulations concerning property ownership, control, and transfer. Shavell is unusually apt when he addresses how the use of property may sometimes generate negative externalities. He hints at bargaining as a possible solution to these problems. However, given the economic bent of this study, his analysis could have greater rigor. Although Shavell expands on the presence of costs and incomplete information in a typical bargaining framework, he does not incorporate collective action problems or power asymmetries in his analysis. For instance, assume that mercury emissions from a factory put a group of locals who consume fish at risk for disease. The injured parties would indeed incur some general bargaining costs and face informational barriers in their efforts to negotiate with the factory. More important, however, they would likely have difficulty overcoming free-rider problems to coordinate successful collective action for strategic bargaining. Furthermore, power asymmetries, say, their adversary's disproportionate political clout, might undercut the possibility of reaching otherwise optimal bargains. Developing welfare-maximizing laws would be next to impossible, if these additional bargaining problems received no attention.

Part II analyzes accident law as it pertains to liability and deterrence. Shavell's explanations of various types of negligence criteria as well as costs imposed on victims and injurers due to the imposition of different compensation standards are expansive in reach. Shavell is especially convincing in his overarching argument that legal and financial incentives determine whether agents are willing to reduce accident risk adequately in a given context. However, his discussion regarding how to address damages in situations of significant personal loss leave important questions unanswered. One problem is the reliance on the notion that adequate deterrence usually requires compensation in excess of the actual financial losses to the injured party. For instance, in the United States, oftentimes, in a wrongful-death suit against a hospital, the victim's family receives payments representing punitive as well as compensatory damages. This is partly because compensatory damages may be inadequate in creating incentives for likely injurers to reduce foreseeable risk. Perverse results of this condition are twofold. First, families may face strong incentives to file lawsuits even though such action may not be warranted. Second, and more important, the magnitude of punitive damages may have an undue negative impact on costs of medical care, increasing insurance costs for medical personnel and undercutting patients' ability to purchase medical treatments due to increased financial barriers. A better deterrent would be to introduce criminal punishment for the injurers. This solution would enhance incentives to reduce all foreseeable risk without inflating the cost of medical care and decreasing the overall social welfare. Shavell does not address this possible solution. Perhaps, there are barriers to employing this solution, but a discussion of why that is the case would help the book to address an oft-mentioned topic of discussion in recent policy debates.

Part III considers the main issues of Contract Law. Contract formation and dissolution as well as different types of contracts represent the main themes. Part IV expands on matters of litigation. Shavell addresses adeptly the three steps of the litigation process, namely, the initiation of a lawsuit, the decision to settle or go to trial, and the issue of expenditures in the event of a trial. Overall, Shavell provides valuable definitional and practical expositions of the law in both Part III and IV. But he does not explain adequately the economic logics behind certain core issues. Specifically, the analysis of incomplete contracting, extra-legal contract adjudication based on arbitration boards and the use of reputations, the choice of settlement versus going to trial, and shifting of legal fees to the loser at trial could receive a robust game-theoretic treatment. Under-utilization of game theory to analyze contract theory and the litigation process is perhaps due to the book's aim of appealing to a large audience. But the pendulum shift toward accessibility seems rather heavy-handed here, and the analysis exhibits a relatively lesser engagement of economics tools.

Part V centers on public law enforcement and criminal law. For Shavell, successful application of criminal law hinges on deterrence by monetary or non-monetary sanctions, depending on the specific crime in question. Monetary sanctions involve the imposition of fines to curb harmful behavior, while non-monetary sanctions mainly involve imprisonment for a set period of time. Shavell assumes implicitly that the larger the magnitude of a crime, the more relevant it is to impose non-monetary sanctions. However, this seems too static in addressing the variability of potential perpetrators' wealth levels. For a given crime, a specific amount of fines will deter inadequately wealthy perpetrators as compared to their much poorer counterparts. In fact, for the same crime, successful deterrence may require fining poor perpetrators while imprisoning wealthy perpetrators. Shavell does not consider the implications of this type of wealth effect for deterrence.

In Part VI, Shavell discusses the optimal structure of the law. To do so, he situates torts, safety regulations, injunctions, contract law, and criminal law within the fundamental dimensions of legal intervention. Specifically, he establishes which areas of law intervene before as opposed to after harm, various forms of intervention (i.e., whether it is monetary or not), and whether the intervention is private or public. This is a useful effort, but the placement of this part at the beginning rather than at the end of the book would have been more effective. Finally, Part VII presents an interesting but under-theorized discussion of welfare economics, morality, and the law. Shavell's review of morality and norms and their impact on laws seems to be an afterthought, even though such matters are potentially amenable to analysis from the economic viewpoint. In the final analysis, however, despite a few imperfections reasonably expected of a gargantuan volume, Shavell's magnum opus should serve law and economics students well.

M. Bilgehan Ozturk, The University of Chicago

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