Economic Efficiency in Law and Economics

Zerbe's new book concerns the proper role of benefit-cost analysis in societal decisions such as legal judgements (including precedents), government regulations, and even common law. He improves on earlier concepts of benefit-cost analysis in two major ways: by including transactions costs (like the incidental costs of a sale made inevitable by a change in law or regulation) in calculating the cost to society of a change in the rules, and by acknowledging the fact that we tend to value rights or possessions we already own more highly than those we might acquire. Therefore the cost of giving up a right or possession tends to be greater than the benefit of gaining one. Just the same, Zerbe fails to solve a major flaw of benefit-cost analysis: because costs and benefits must be calculated in terms of amounts of money a party would be willing to spend to gain or retain a right or property, the relatively affluent tend to be favored in such analysis, as they can more easily pay more. Most interestingly, Zerbe shows how common law tends to be economically efficient and changes as societal conditions change so that common law can remain efficient. Despite juicy examples (slavery, cannabilism, rape), Zerbe's book is not really very entertaining and is often difficult. A non-expert on the subject matter must be somewhat determined in order to get through it.