he Olin Foundation recently announced one of the largest gifts in Harvard Law School history: $6 million to be distributed over the next four years. The Olin funds will expand the programs of the John M. Olin Center for Law, Economics, and Business, with particular emphasis on increasing support and academic guidance for students. A 1985 Olin grant helped launch the Program in Law and Economics at the School, and the Foundation’s continuing support led to the 1995 opening of the Olin Center, now the world leader in educating students, training academics, and promoting scholarship in law and economics. The economic approach to analyzing law, with its systematic focus on determining how legal rules affect the behavior of relevant individuals, firms and other organizations, and markets, "has changed the nature of legal scholarship, influenced legal practice, and already proven its tremendous value in policymaking and business," says Professor Steven Shavell, who directs the Center (see sidebar). The impact of HLS graduates in government and business as well as in the law is immense. Shavell calls attention to a recent Forbes magazine story noting that more of the nation’s CEOs went to Harvard Law School than anywhere except Harvard and Stanford Business Schools. Yet few incoming HLS students have any serious training in economics or business, and the majority of new 1Ls have never even heard of law and economics. "But if we’re going to prepare our students for the crucial role lawyers play in business and politics as well as law," says Shavell, "it’s essential to instruct them in the economic analysis of legal fields including corporate law, contracts, financial institutions regulation, litigation, negotiation, environmental law, as well as basic economic and business topics." Example of L&E Reasoning: Trading Pollution Rights "Suppose a rich country like the United States would have to spend $50 billion annually to reduce its carbon dioxide emissions by some amount, whereas China could reduce its emissions by this same amount more cheaply, at a cost of $5 billion (say, by installing simple smoke scrubbers in its coal-burning factories). If trade in emissions credits were allowed, both China and the United States would be better off. The United States could pay China $30 billion for the right to emit carbon dioxide. This would make China $25 billion better off: it would receive $30 billion and spend only $5 billion to prevent the emissions. The United States would pay $30 billion rather than $50 billion to abate the emissions. And trade would probably lead ultimately to less pollution. When countries know that they can make profits or that ceilings on pollution are easier to meet, they will be more likely to agree to reduce the total amount of permitted pollution over time." Professor Steven Shavell, excerpted from a letter to the editor, The New York Times One way the new Olin gift will benefit students is by funding curriculum development. The gift will also assist in supporting a Harvard College undergraduate course on law and economics, which Shavell helped institute a few years ago. The Olin funds will also expand the John M. Olin Fellowships in law, economics, and business to meet the rise in serious student interest, including from J.D. students pursuing Ph.D.s in economics, and foreign graduate students. Additional fellowships will enable more HLS students to produce original law and economics scholarship. "Our Olin Fellows have a remarkable publishing record," Shavell says. "Last year alone two-thirds of our Fellows published their papers, which is an amazing achievement." He adds that the Law School’s law and economics program leads the nation in the number of its graduates entering academia. The number of HLS professors conducting influential law and economics scholarship is also unmatched. According to Shavell, the economic analysis of legal rules offers many unexplored avenues of inquiry, with empirical study still in its infancy. "There’s a great deal to accomplish," he says. "Under Professor Kip Viscusi’s leadership the Center’s new empirical research program is already thriving and we plan to expand it substantially." Shavell notes that five HLS faculty with Ph.D.s in economics are deeply involved in the program, and many other faculty incorporate economic analysis in their teaching. Incoming Professor Mark Ramseyer ’82 will add to the mix his law and economics perspective, especially in the study of Japanese legal institutions in which he is expert. "This aggregation of faculty expertise sets us apart from other schools," says Shavell. "There’s a unique momentum to law and economics at Harvard."