Everything about Law And Economics totally explained
Law and Economics, or
economic analysis of law is an approach to
legal theory that applies methods of
economics to law. It includes the use of economic concepts to explain the effects of laws, to assess which legal rules are
economically efficient, and to predict which legal rules will be
promulgated.
Relationship to other disciplines and approaches
As used by
lawyers and legal scholars, the phrase "law and economics" refers to the application of the methods of economics to legal problems.
Because of the overlap between legal systems and political systems, some of the issues in law and economics are also raised in
political economy and
political science. Most formal academic work done in law and economics is broadly within the
Neoclassical tradition. Approaches to the same issues from
Marxist and
critical theory/
Frankfurt School perspectives usually don't identify themselves as "law and economics". For example, research by members of the
critical legal studies movement considers many of the same fundamental issues as does work labeled "law and economics". The one wing that represents a non-neoclassical approach to "law and economics" is the Continental (mainly German) tradition that sees the concept starting out of the
Staatswissenschaften approach and the German Historical School of Economics; this view is represented in the
Elgar Companion to Law and Economics (2nd ed. 2005) and - though not exclusively - in the
European Journal of Law and Economics. Here, consciously non-neoclassical approaches to economics are used for the analysis of legal (and administrative/governance) problems.
Origin and history
As early as in the 18th century,
Adam Smith discussed the economic effect on
mercantilist legislation. However, to apply economics to analyze the law regulating nonmarket activities is relatively new. In 1961,
Ronald Coase and
Guido Calabresi independently from each other published two groundbreaking articles: "The Problem of Social Cost" and "Some Thoughts on Risk Distribution and the Law of Torts". This can been seen as the starting point for the modern school of law and economics.
In the early 1970s,
Henry Manne (a former student of Coase) set out to build a Center for Law and Economics at a major law school. He began at Rochester, worked at Miami, but was soon made unwelcome, moved to Emory, and ended at George Mason. The latter soon became a center for the education of judges -- many long out of law school and never exposed to numbers and economics. Manne also attracted the support of the
John M. Olin Foundation, whose support accelerated the movement. Today, Olin centers (or programs) for Law and Economics exist at many universities.
Positive and normative law and economics
Economic analysis of law is usually divided into two subfields, positive and normative.
Positive law and economics
Positive law and economics uses economic analysis to predict the effects of various legal rules. So, for example, a positive economic analysis of
tort law would predict the effects of a strict liability rule as opposed to the effects of a negligence rule. Positive law and economics has also at times purported to explain the development of legal rules, for example the common law of torts, in terms of their economic efficiency.
Normative law and economics
Normative law and economics goes one step further and makes policy recommendations based on the economic consequences of various policies. The key concept for normative economic analysis is
efficiency, in particular,
allocative efficiency.
A common concept of efficiency used by law and economics scholars is
Pareto efficiency. A legal rule is Pareto efficient if it couldn't be changed so as to make one person better off without making another person worse off. A stronger conception of efficiency is
Kaldor-Hicks efficiency. A legal rule is Kaldor-Hicks efficient if it could be made Pareto efficient by some parties compensating others as to offset their loss.
Important scholars
Important figures include the
Nobel Prize winning economists
Ronald Coase and
Gary Becker,
U.S. Court of Appeals for the Seventh Circuit judges
Frank Easterbrook and
Richard Posner, and
William Landes.
Guido Calabresi, judge for the U.S. Court of Appeals for the Second Circuit, author of the 1970 book,
The Cost of Accidents: A Legal and Economic Analysis, wrote in depth on this subject, with
Costs of Accidents being cited as influential in its extensive treatment of the proper incentives and compensation required in accident situations.
Calabresi took a different approach in his 1985 book,
Ideals, Beliefs, Attitudes, and the Law, where he argued, "who is the cheapest avoider of a cost, depends on the valuations put on acts, activities and beliefs by the whole of our law and not on some objective or scientific notion (69)."
Influence
In the United States, economic analysis of law has been extremely influential. Judicial opinions utilize economic analysis and the theories of law and economics with some regularity. The influence of law and economics has also been felt in legal education. Many law schools in North America, Europe, and Asia have faculty members with a graduate degree in economics. In addition, many professional economists now study and write on the relationship between economics and legal doctrines. Anthony Kronman, former dean of Yale Law School, has written that “the intellectual movement that has had the greatest influence on American academic law in the past quarter-century [ofthe 20th Century]” is law-and-economics.
Critique
Despite its influence, the law and economics movement has been criticized from a number of directions. This is especially true of normative law and economics. Because most law and economics scholarship operates within a neoclassical framework, fundamental criticisms of neoclassical economics have been applied to work in law and economics.
Rational choice theory
Within the legal academy, law and economics has been criticized on the ground that
rational choice theory in economics makes unrealistic simplifying assumptions about human nature (see
rational choice theory (criminology)); Posner's application of law and economic reasoning to rape and sex may be an example of this. Liberal critics of the law and economics movements have argued that normative economic analysis doesn't capture the importance of
human rights and concerns for
distributive justice. Some of the heaviest criticisms of the "classical" law and economics come from the
critical legal studies movement, in particular
Duncan Kennedy(External Link
) and
Mark Kelman.
Pareto efficiency
Relatedly, additional critique has been directed toward the assumed benefits of law and policy designed to increase
allocative efficiency; when such assumptions are modeled on "first-best" (
Pareto optimal) general-equilibrium conditions. Under the
theory of the second best, for example, if the fulfillment of a subset of optimal conditions can't be met under any circumstances, it's incorrect to conclude that the fulfillment of
any subset of optimal conditions will necessarily result in an increase in allocative efficiency.
Consequently, any expression of public policy whose purported purpose is an unambiguous increase in allocative efficiency (for example, consolidation of
research and development costs through increased
mergers and acquisitions resulting from a systematic relaxation of anti-trust laws) is, according to critics, fundamentally incorrect; as there's no general reason to conclude that an increase in allocative efficiency is more likely than a decrease.
Essentially, the "first-best" neoclassical analysis fails to properly account for various kinds of general-equilibrium feedback relationships that result from intrinsic Pareto imperfections.
Another critique comes from the fact that there's no unique optimal result. Warren Samuels in his 2007 book,
The Legal-Economic Nexus, argues, "efficiency in the Pareto sense can't dispositively be applied to the definition and assignment of rights themselves, because efficiency requires an antecedent determination of the rights (23-4)."
Responses
Law and economics has adapted to some of these criticisms (see "contemporary developments," below). One critic, Jon D. Hanson of Harvard Law School, argues that our legal, economic, political, and social systems are unduly influenced by an individualistic model that assumes "dispositionism" -- the idea that outcomes are the result of our "dispositions" (economists would say "preferences"). Instead, Hanson argues, we should look to the
"situation", both inside of us (including cognitive biases) and outside of us (family, community, social norms, and other environmental factors) that have a much larger impact on our actions than mere "choice." Hanson has written many
law review articles on the subject and has books forthcoming.
Contemporary developments
Law and economics has developed in a variety of directions. One important trend has been the application of
game theory to legal problems. Other developments have been the incorporation of
behavioral economics into economic analysis of law, and the increasing use of
statistical and
econometrics techniques. Within the legal academy, the term
socio-economics has been applied to economic approaches that are self-consciously broader than the
neoclassical tradition.
Universities with law and economics programs
Almost every major American law school offers courses in law and economics and has faculty working in the field; until 2005, many of these programs received funding from the
John M. Olin Foundation, which was an early supporter of the field.
Two of the leading Law Schools focusing on Law and Economics are the
University of Chicago Law School, whose distinguished faculty includes Judge
Richard A. Posner,
Ronald Coase and
Gary Becker, and the
George Mason University School of Law, whose faculty includes Nobel laureate
Vernon Smith, and perennial Nobel finalist,
Gordon Tullock. In the spring of 2006,
Vanderbilt University Law School announced the creation of a new program to award a
Ph.D. in Law & Economics.
In Europe, a consortium of universities from ten different countries is running the
European Master Program in Law and Economics which is the leading European program in the field since 1990. A newer
European Doctorate program in Law and Economics is operated by three leading European centers in Law and Economics.
The Collegio Carlo Alberto in Turin, Italy hosts an
International Ph.D. Program in Institutions, Economics and Law. Members of the teaching staff come from various academic institutes in Europe and the United States. A separate Doctoral Program in Law and Economics is currently run by the School of Economics at the
University of Siena.
Switzerland's
University of St.Gallen has a
Law and Economics Program on both the undergraduate (Bachelor of Arts in Law and Economics) and graduate levels (Master of Arts in Law and Economics). The graduate program was initiated in October 2005 at the first international scientific conference on Law and Economics by the President of the University, Ernst Mohr and the St.Gallen Professor and leading business lawyer
Peter Nobel. The Law and Economics Program is supported by an
International Academic Council lead by leading experts in the field of law and economics, such as
Richard A. Posner, Ronald J. Gilson, Victor Goldberg or Geoffrey P. Miller.
Operating outside this particular framework, the
Utrecht University offers students the possibility to major in law and economics as part of their undergraduate studies, or to specialize in law and economics in a one-year post-graduate programme.
University of Economics, Prague, namely Department of Institutional Economics at the Faculty of Economics and Public Administration, offers Law and Economics as a possible specialization for graduate students, while complete graduate program is being prepared.
The University of Cambridge also has a specific course called 'Land Economy', who combines law, economy and the environment into one discipline.
(External Link) Nottingham University Business School and City University Law School, London both have undergraduate courses in Law and Economics.
In India, the National University of Juridical Sciences (NUJS) offers two courses in Law and Economics to its undergraduate students.
(External Link) In the National University of Singapore, a highly selective
Double Honours Programme in Law and Economics was launched in 2005, whereby students complete two Bachelors' degrees in five years.
Journals
Regional and international associations
Asia - Asian Law and Economics Association
Australia - Australian Law and Economics Association
Austria - Verein zur Pflege der Rechtsökonomik / Joseph von Sonnenfels Center for the Study of Public Law and Economics
Canada - Canadian Law and Economics Association
China - MILES Institute of Law and Economics
Europe - European Association of Law and Economics
Finland - Finnish Association of Law and Economics
Germany - Gesellschaft für Recht und Ökonomik
Greece - Greek Association of Law and Economics
Israel - Israeli Association for Law and Economics
Italy - Italian Society of Law and Economics
Japan - Law & Economics Association of Japan
Korea - Korean Law and Economics Association
New Zealand - Law and Economics Association of New Zealand
Scandinavia - Scandinavian Association of Law and Economics
Switzerland - Master in Law and Economics Foundation, University of St.Gallen The Swiss Law and Economics Students' Society, St. Gallen, Switzerland
USA - American Law and Economics Association
USA - Midwestern Law and Economics Association
Bibliography
Boudewijn Bouckaert and Gerrit De Geest, eds., Encyclopedia of Law and Economics (Edward Elgar, 2000) Online version.
Ronald Coase, The Firm, The Market, and the Law (Chicago: University of Chicago Press, reprint ed. 1990) ISBN 0-226-11101-6.
Robert Cooter and Thomas Ulen, Law and Economics (Addison Wesley Longman, 3rd edition, 2000) ISBN 0-321-06482-8
David Friedman (1987). "law and economics,", v. 3, pp. 144-48.
Duncan Kennedy, "Law-and-Economics from the Perspective of Critical Legal Studies" (from The New Palgrave Dictionary of Economics and the Law (1998)) (External Link)
Richard Posner, Economic Analysis of Law (Aspen, 7th edition, 2007) ISBN 978-0-735-56354-4 .Further Information
Get more info on 'Law And Economics'.
|
External Link Exchanges
Do you know how hard it is to get a link from a large encyclopaedia? Well we're different and will prove it. To get a link from us just add the following HTML to your site on a relevant page:
<a href="http://law_and_economics.totallyexplained.com">Law and economics Totally Explained</a>
Then simply click through this link from your web page. Our crawlers will verify your link, extract the title of your web page and instantly add a link back to it. If you like you can remove the words Totally Explained and embed the link in article text.
As long as your link remains in place, we'll keep our link to you right here. Please play fair - our crawlers are watching. Your site must be closely related to this one's topic. Any kind of spamming, dubious practises or removing the link will result in your link from us being dropped and, potentially, your whole site being banned. |
