Note: I am not an attorney. The following are generalizations only based on my study of copyright law and are not meant to be construed as legal advice. If you have a question, consult a competent attorney specializing in copyrights and intellectual property law.
If you do not hold copyright or prior permission to copy a protected work, you may not do it. Even though they are common in the music world, the following are violations of the fair use clauses:
Kinko's Copy Center got in a huge amount of trouble - - plus enjoyed a lawsuit - - for making such a reader several years ago at an American university. Not for compiling and violating all the copyrights (which the professor did), but just for physically making the copies. (This is why copyright notices - - and even brochures - - are prominent in Kinko's locations.)
Of course, if you do have permission from all copyright holders, you're in the clear. Fire away. Be sure to take the written confirmation from each copyright holder with you when you take your reader down to be copied.
Textbooks and other materials are always a problem because often the book you'd like to have students buy does not exist at all. You can't, however, just "construct" a book from various sources ("a chapter from this one, a composition from that one," etc.).
Since you cannot construct a reader and still feel you cannot in good conscience ask your students to purchase all these books they'd need if you didn't make a reader, you have several options that do not violate copyright protection.
If freebies are not offered, there is another option you might explore: purchase a license from the copyright holder. That is, you agree to pay the copyright holder a specific sum in return for the privilege of making 20 copies (or whatever number) for your class. You agree not to sell them to others or to use them outside this class for this term. Liscensed material plus non-paid-permission material might make it feasible for students to purchase "real" books for the rest of the texts you want them to use.
To arrange for a license, write to the copyright holder and suggest this arrangement. How many pages are in the "real" book? What's the retail price in the bookstore? What's the "cost" of the pages you'd like to use? Suggest this price plus a bit more, multiplied by the number of copies you want to make. You might be refused, but at least you've worked all the angles!
Incidently, if you are legally authorized to make such a compilation, charge students only your costs for production, probably photocopying and some sort of binding (such as plastic combs). Do not arrange to make a profit on the venture, even if you feel you deserve some "pay" for your trouble. The exception to production-only cost would be the license fees you had to pay in order to photocopy. These should be divided equally among the number of copies you made.
Remember: The authors gave you permission to copy only, not to sell!
Ultimate solution: Write that book you have been unable to find!
copyright 1996-2003, Martha Beth Lewis, Ph.D.