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Law and Economics, or economic analysis of law is an approach to legal theory that applies methods of economics to law. Law is a system of rules enforced through a set of Institutions used as an instrument to underpin civil obedience politics economics and society Economics is the social science that studies the production distribution, and consumption of goods and services. 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. Economic efficiency is used to refer to a number of related concepts Promulgation or enactment is the act of formally proclaiming or declaring new statutory or Administrative law when it receives final approval [1]

Contents

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. A lawyer, according to Black's Law Dictionary, is "a person learned in the law as an attorney, Counsel or Solicitor; a person

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. Political economy originally was the term for studying production buying and selling and their relations with law custom and government Political science is a branch of Social sciences that deals with the theory and practice of Politics and the description and analysis of Political systems Most formal academic work done in law and economics is broadly within the Neoclassical tradition. Neoclassical economics is a term variously used for approaches to Economics focusing on the determination of prices outputs and income distributions in markets Approaches to the same issues from Marxist and critical theory/Frankfurt School perspectives usually do not identify themselves as "law and economics". Marxism is the political philosophy and practice derived from the work of Karl Marx and Friedrich Engels. In the Humanities and Social sciences, critical theory is the examination and critique of Society and Literature, drawing from knowledge across The Frankfurt School is a school of neo-Marxist Critical theory, Social research, and Philosophy. 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". For more on the abbreviation "Crit" see Crit (disambiguation Critical legal studies refers to a movement in legal thought 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. Adam Smith ( baptised 16 June 1723 – 17 July 1790) was a Scottish moral philosopher and a pioneer of Political economy. Mercantilism is the idea that a colony should export more goods than it imports and that a colony should sell at higher prices and buy at lower prices 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" [2] and "Some Thoughts on Risk Distribution and the Law of Torts". Ronald Harry Coase (born December 29, 1910) is a British Economist and the Clifton R Guido Calabresi (born October 18, 1932, Milan, Italy) is a US [3] This can been seen as the starting point for the modern school of law and economics. [4]

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. Henry Manne is an American writer and academic considered a founder of the Law and economics discipline 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. Not to be confused with the F W Olin Foundation or Spencer T Olin Foundation, founded by Olin's father and brother respectively 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. Tort law is the name given to a body of law that creates and provides remedies for civil wrongs that do not arise out of Contractual duties 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. Economic efficiency is used to refer to a number of related concepts Allocative efficiency is a situation in which the limited resources of a firm are allocated in accordance with the wishes of Consumers An allocatively efficient economy

A common concept of efficiency used by law and economics scholars is Pareto efficiency. Pareto efficiency, or Pareto optimality, is an important concept in Economics with broad applications in Game theory, Engineering and the A legal rule is Pareto efficient if it could not 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. Kaldor-Hicks efficiency (named for Nicholas Kaldor and John Hicks) is a measure of Economic efficiency that captures some of the intuitive appeal of 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. The Nobel Prize (Nobelpriset (Nobelprisen is a Swedish prize established in the 1895 will of Swedish chemist Alfred Nobel; it was first awarded in Peace, Literature Ronald Harry Coase (born December 29, 1910) is a British Economist and the Clifton R Gary Stanley Becker (born December 2, 1930) is an American Economist and a Nobel laureate. The United States Court of Appeals for the Seventh Circuit is a federal court with Appellate jurisdiction over the courts in the following districts Frank Hoover Easterbrook (born 1948 is Chief Judge of the United States Court of Appeals for the Seventh Circuit. Richard Allen Posner (born January 11 1939 in New York City) is currently a judge on the United States Court of Appeals for the Seventh Circuit in Chicago William M Landes is an Economist who has written widely about the economic analysis of law Guido Calabresi, judge for the U. Guido Calabresi (born October 18, 1932, Milan, Italy) is a US 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. The Costs of Accidents A Legal and Economic Analysis (1970 by Guido Calabresi is a very important work in the Law and economics tradition because [5] 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 [of the 20th Century]” is law-and-economics. [6]

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 [7] may be an example of this. Rational choice theory, also known as rational action theory, is a framework for understanding and often formally modeling social and economic behavior In Criminology, the Rational Choice Theory adopts a Utilitarian belief that man is a reasoning actor who weighs means and ends costs and benefits and makes a rational Liberal critics of the law and economics movements have argued that normative economic analysis does not capture the importance of human rights and concerns for distributive justice. Human rights refers to the "basic Rights and freedoms to which all humans are entitled Distributive justice concerns what is just or right with respect to the allocation of goods in a society Some of the heaviest criticisms of the "classical" law and economics come from the critical legal studies movement, in particular Duncan Kennedy[1] and Mark Kelman. For more on the abbreviation "Crit" see Crit (disambiguation Critical legal studies refers to a movement in legal thought Duncan Kennedy (b 1942 in Washington DC) is the Carter Professor of General Jurisprudence at Harvard Law School.

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. Allocative efficiency is a situation in which the limited resources of a firm are allocated in accordance with the wishes of Consumers An allocatively efficient economy Pareto efficiency, or Pareto optimality, is an important concept in Economics with broad applications in Game theory, Engineering and the Under the theory of the second best, for example, if the fulfillment of a subset of optimal conditions cannot be met under any circumstances, it is incorrect to conclude that the fulfillment of any subset of optimal conditions will necessarily result in an increase in allocative efficiency. The Theory of the Second Best concerns what happens when one or more optimality conditions are not satisfied in an Economic model. [8]

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 is no general reason to conclude that an increase in allocative efficiency is more likely than a decrease. The phrase research and development (also R and D or more often R&D) according to the Organization for Economic Co-operation and Development, refers

Essentially, the "first-best" neoclassical analysis fails to properly account for various kinds of general-equilibrium feedback relationships that result from intrinsic Pareto imperfections. [8]

Another critique comes from the fact that there is no unique optimal result. Warren Samuels in his 2007 book, The Legal-Economic Nexus, argues, "efficiency in the Pareto sense cannot 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. Game theory is a branch of Applied mathematics that is used in the Social sciences (most notably Economics) Biology, Engineering, Other developments have been the incorporation of behavioral economics into economic analysis of law, and the increasing use of statistical and econometrics techniques. Behavioral economics and behavioral finance are closely related fields which apply scientific research on human and social cognitive and emotional factors to better Statistics is a mathematical science pertaining to the collection analysis interpretation or explanation and presentation of Data. Econometrics is concerned with the tasks of developing and applying Quantitative or Statistical methods to the study and elucidation of economic principles Within the legal academy, the term socio-economics has been applied to economic approaches that are self-consciously broader than the neoclassical tradition. Socioeconomics or socio-economics is the study of the relationship between economic activity and Social life. Neoclassical economics is a term variously used for approaches to Economics focusing on the determination of prices outputs and income distributions in markets

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. Not to be confused with the F W Olin Foundation or Spencer T Olin Foundation, founded by Olin's father and brother respectively

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. The University of Chicago Law School, having recently celebrated its centennial in the 2002-2003 school year has established itself as a high profile part of the University of Richard Allen Posner (born January 11 1939 in New York City) is currently a judge on the United States Court of Appeals for the Seventh Circuit in Chicago Ronald Harry Coase (born December 29, 1910) is a British Economist and the Clifton R Gary Stanley Becker (born December 2, 1930) is an American Economist and a Nobel laureate. George Mason University School of Law (Mason Law or GMUSL is the law school of George Mason University, a State university in the U Vernon Lomax Smith (born January 1, 1927) is professor of Economics at Chapman University School of Law and School of Business in Orange Gordon Tullock (born February 13, 1922) is a retired Professor of Law and Economics at the George Mason University School of Law in Arlington Virginia In the spring of 2006, Vanderbilt University Law School announced the creation of a new program to award a Ph.D. in Law & Economics. Vanderbilt University Law School (also known as VULS) is a Graduate school of Vanderbilt University.

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. Richard Allen Posner (born January 11 1939 in New York City) is currently a judge on the United States Court of Appeals for the Seventh Circuit in Chicago 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. Utrecht University ( Universiteit Utrecht in Dutch) is a University in Utrecht, The Netherlands.

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 Economics Prague, ( Czech: Vysoká škola ekonomická v Praze, abbreviated VŠE) is a University located in

The University of Cambridge also has a specific course called 'Land Economy', who combines law, economy and the environment into one discipline. [2] Nottingham University Business School and City University Law School, London both have undergraduate courses in Law and Economics. Nottingham University Business School (NUBS is the business school of the University of Nottingham, England situated on the university's Jubilee Campus In India, the National University of Juridical Sciences (NUJS) offers two courses in Law and Economics to its undergraduate students. [3] 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

Bibliography

See also

Notes

  1. ^ David Friedman (1987). In Economics, contract theory studies how economic actors can and do construct contractual arrangements generally in the presence of Asymmetric information. Economics is the social science that studies the production distribution, and consumption of goods and services. This is a sub-article of Fiqh and Law and economics. Islamic economics is Economics in accordance with Islamic law In Economics, the legal origins theory states that many aspects of a country's economic state of development are the result of their Legal system, most of all where Law is a system of rules enforced through a set of Institutions used as an instrument to underpin civil obedience politics economics and society New institutional economics (NIE is an Economic perspective that attempts to extend economics by focusing on the social and Legal norms and Political economy originally was the term for studying production buying and selling and their relations with law custom and government A property right is the exclusive authority to determine how a resource is used whether that resource is owned by government or by individuals Public choice in economic theory is the use of modern Economic tools to study problems that are traditionally in the province of Political science. David Director Friedman (born February 12, 1945) is a writer who became a leading figure in the anarcho-capitalist community with the publication of his "law and economics," The New Palgrave: A Dictionary of Economics, v. The New Palgrave A Dictionary of Economics (1987 is a 4-volume reference edited by John Eatwell, Murray Milgate and Peter Newman 3, p. 144.
  2. ^ Ronald Coase, "The Problem of Social Cost", The Journal of Law and Economics Vol. Ronald Harry Coase (born December 29, 1910) is a British Economist and the Clifton R The Journal of Law and Economics is an Academic journal published by the University of Chicago Press. 3, No. 1 (1960). This issue was actually published in 1961.
  3. ^ Guido Calabresi, "Some Thoughts on Risk Distribution and the Law of Torts", Yale Law Journal, Vol. Guido Calabresi (born October 18, 1932, Milan, Italy) is a US The Yale Law Journal is a student-run journal of legal scholarship affiliated to the Yale Law School. 70 (1961).
  4. ^ Richard Posner, The Economics of Justice 1983, p. Richard Allen Posner (born January 11 1939 in New York City) is currently a judge on the United States Court of Appeals for the Seventh Circuit in Chicago 4.
  5. ^ Litan, Robert (1988). Liability: Perspectives and Policy. Brookings Institution Press. ISBN 0815752717.  
  6. ^ Anthony T. Kronman, The Lost Lawyer 166 (1993).
  7. ^ ISBN 0-674-80280-2
  8. ^ a b Markovits, Richard (Vol. 73, 1998). Second-Best Theory and Law & Economics: An Introduction. Chicago-Kent Law Review.  
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