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Encyclopedia > Economic analysis of law

Law and economics, or Economic analysis of law, is the term usually applied to an approach to legal theory that incorporates methods and ideas borrowed from the discipline of economics. Historically, it has been strongly tied to the University of Chicago. This article is about law in society. ... Buyers bargain for good prices while sellers put forth their best front in Chichicastenango Market, Guatemala. ... The University of Chicago is a private university located principally in the Hyde Park neighborhood of Chicago, Illinois. ...

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. British barrister 16th century painting of a civil law notary, by Flemish painter Quentin Massys. ...


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 do not 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. Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. ... Political science is an academic and research discipline that deals with the theory and practice of politics and the description and analysis of political systems and political behavior. ... Neoclassical economics refers to a general approach (a metatheory) to economics based on supply and demand which depends on individuals (or any economic agent) operating rationally, each seeking to maximize their individual utility or profit by making choices based on available information. ... Marxism is the philosophy, social theory and political practice based on the works of Karl Marx, a 19th century German socialist philosopher, economist, journalist, and revolutionary. ... In the humanities and social sciences, critical theory has two quite different meanings with different origins and histories, one originating in social theory and the other in literary criticism. ... Max Horkheimer (front left), Theodor Adorno (front right), and Jürgen Habermas in the background, right, in 1965 at Heidelberg The Frankfurt School is a school of neo-Marxist social theory (which is more akin to anarchism than communism), social research, and philosophy. ... Critical legal studies refers to a movement in legal thought that applied methods similar to those of critical theory (the Frankfurt School) to law. ...


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" (Coase, Journal of Law & Economics Vol.3, No.1 (1960) (This issue was actually published in 1961)) and "Some Thoughts on Risk Distribution and the Law of Torts" (Calabresi, Yale Law Journal, Vol.70 (1961)). This can been seen as the starting point for the modern school of law and economics (see Richard Posner, The Economics of Justice 1983, p.4). (17th century - 18th century - 19th century - more centuries) As a means of recording the passage of time, the 18th century refers to the century that lasted from 1701 through 1800. ... Adam Smith, FRSE, (baptised June 5, 1723 – July 17, 1790) was a Scottish political economist and moral philosopher. ... Mercantilism is the economic theory that a nations prosperity depended upon its supply of gold and silver, that the total volume of trade is unchangeable. ... 1961 (MCMLXI) was a common year starting on Sunday (the link is to a full 1961 calendar). ... Ronald Coase (born December 29, 1910) is a British economist. ... Judge Guido Calabresi (born 1932 in Milan, Italy) is currently a judge on the United States Court of Appeals for the Second Circuit. ... The Yale Law Journal, published continuously since 1891, is by far the oldest and most widely known of the eight law reviews published by students at Yale Law School. ... Judge Richard Allen Posner (born January 11, 1939, New York City) is currently a judge on the United States Court of Appeals for the Seventh Circuit. ...


In the early 1970's, 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 thrive at Harvard, Yale, Chicago, Stanford, Georgetown, Michigan, and more. Considered a founder of the Law and economics discipline. ... John M. Olin Foundation was a grant-making foundation established in 1953 by John M. Olin, president of the Olin Industries chemical and munitions manufacturing businesses. ...


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. In the common law, a tort is a civil wrong for which the law provides a remedy. ...


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. The weakest concept of efficiency used by law and economics scholars is Pareto efficiency. 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. (By weak, economists mean that Pareto efficiency makes very few normative assumptions, not that it is supported by weak arguments.) A stronger conception of efficiency is Kaldor-Hicks efficiency. A legal rule is Kaldor-Hicks efficient if it could be made Pareto efficient by a side payment. Economic efficiency is a general term for the value assigned to a situation by some measure designed to capture the amount of waste or friction or other undesirable economic features present. ... Pareto efficiency, or Pareto optimality, is an important notion in economics with broad applications in game theory, engineering and the social sciences. ... Pareto efficiency, or Pareto optimality, is an important notion in economics with broad applications in game theory, engineering and the social sciences. ... Kaldor-Hicks efficiency is a type of economic efficiency that occurs only if the economic value of social resources is maximized. ...


Important Scholars

Many important figures in law and economics have been associated with The Law School at the University of Chicago. These include the Nobel Prize winning economists Ronald Coase and Gary Becker, Richard Posner (currently a judge on the United States Court of Appeals for the Seventh Circuit) and William Landes. Guido Calabresi also played a seminal role. His 1970 book, The Costs of Accidents: A Legal and Economic Analysis, had an enormous impact on modern thought on the subject. Sir Edward Appletons medal Photographs of Nobel Prize Medals. ... Ronald Coase (born December 29, 1910) is a British economist. ... Gary Stanley Becker (born December 2, 1930) is an American economist. ... Judge Richard Allen Posner (born January 11, 1939, New York City) is currently a judge on the United States Court of Appeals for the Seventh Circuit. ... The United States Court of Appeals for the Seventh Circuit is a federal court with appellate jurisdiction over the following United States district courts: Central, Northern, and Southern Districts of Illinois Northern and Southern Districts of Indiana Eastern and Western Districts of Wisconsin The court is based at the Dirksen... William M. Landes is an economist who has written widely about the economic analysis of law. ... Judge Guido Calabresi (born 1932 in Milan, Italy) is currently a judge on the United States Court of Appeals for the Second Circuit. ...


Influence of the Law and Economics Movement

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 doctrine.


Criticisms of Law and Economics

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. 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 [1] may be an example of this. 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. Some of the heaviest criticisms of the "classical" law and economics come from the critical legal studies movement, in particular Duncan Kennedy[2] and Mark Kelman. It has been suggested that this article or section be merged with Decision theory. ... In criminology, the Rational Choice Theory restates the Utilitarian belief that man is a reasoning actor who weighs means and ends, costs and benefits, and makes a rational choice. ... Human rights are rights which some hold to be inalienable and belonging to all humans. ... Distributive justice - Wikipedia, the free encyclopedia /**/ @import /skins-1. ... Critical legal studies refers to a movement in legal thought that applied methods similar to those of critical theory (the Frankfurt School) to law. ... Duncan Kennedy (*1942 in Washington, D.C.) is the Carter Professor of General Jurisprudence at Harvard Law School. ...


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, economics, 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, and 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. Game theory is a branch of applied mathematics that studies strategic situations where players choose different actions in an attempt to maximize their returns. ... Nobel Prize in Economics winner Daniel Kahneman, was an important figure in the development of behavioral finance and economics and continues to write extensively in the field. ... For Wikipedia statistics, see m:Statistics Statistics is the science and practice of developing human knowledge through the use of empirical data expressed in quantitative form. ... Econometrics literally means economic measurement. It is a combination of mathematical economics, statistics, economic statistics and economic theory. ... Socioeconomics is the study of the social and economic impacts of any product or service offering, market intervention or other activity on an economy as a whole and on the companies, organization and individuals who are its main economic actors. ... Neoclassicism (sometimes rendered as Neo-Classicism or Neo-classicism) is the name given to quite distinct movements in the visual arts, literature, theatre, music, and architecture. ...


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. John M. Olin Foundation was a grant-making foundation established in 1953 by John M. Olin, president of the Olin Industries chemical and munitions manufacturing businesses. ...


Two of the leading Law Schools focusing on Law and Economics are the University of Chicago Law School, whose distinguished faculty includes Judge Richard Posner and Ronald Coase, and the George Mason University School of Law. In the spring of 2006, Vanderbilt University Law School announced the creation of a new program to award a Ph.D. in Law & Economics. The University of Chicago Law School is a part of the University of Chicago. ... Judge Richard Allen Posner (born January 11, 1939, New York City) is currently a judge on the United States Court of Appeals for the Seventh Circuit. ... Ronald Coase (born December 29, 1910) is a British economist. ... George Mason University School of Law is the law school of George Mason University, a state school in the Commonwealth of Virginia, located in Arlington, Virginia, across the Potomac River from Washington, D.C. ABA approved since 1980, GMU School of Law is among the nations top and youngest... The Vanderbilt University Law School is the law school at Vanderbilt University in Nashville, Tennessee. ...


Journals

Open access (OA) is the free online availability of digital content. ...

Regional and International Associations

  • Asia - Asian Law and Economics Association
  • Australia - Australian Law and Economics Association
  • 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
  • Greece - Greek Association of Law and Economics
  • Israel - Israeli Association for 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
  • 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.
  • Robert Cooter and Thomas Ulen, Law and Economics (Addison Wesley Longman, 3rd edition, 2000) ISBN 0321064828
  • Richard Posner, Economic Analysis of Law (Aspen, 6th edition, 2002) ISBN 0735534748.
  • Ronald Coase, The Firm, The Market, and the Law (Chicago: University of Chicago Press, reprint ed. 1990) ISBN 0226111016.
  • Duncan Kennedy, "Law-and-Economics from the Perspective of Critical Legal Studies" (from The New Palgrave Dictionary of Economics and the Law (1998)) [3]

Judge Richard Allen Posner (born January 11, 1939, New York City) is currently a judge on the United States Court of Appeals for the Seventh Circuit. ... Ronald Coase (born December 29, 1910) is a British economist. ... Duncan Kennedy (*1942 in Washington, D.C.) is the Carter Professor of General Jurisprudence at Harvard Law School. ...

See also

Public choice theory is a branch of economics that studies the decision-making behavior of voters, politicians and government officials from the perspective of economic theory, namely game theory and decision theory. ... New institutional economics is a school of heterodox economics, which builds on old institutional economics arguments about the embeddedness of economic activity in social and legal institutions, using Ronald Coases fundamental insight about the critical role that transaction costs play in determining economic structures and performance. ... Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. ... This article is about law in society. ... Buyers bargain for good prices while sellers put forth their best front in Chichicastenango Market, Guatemala. ... In economics, the Legal Origins Theory states that many aspects of a countrys economic state of development are the result of their legal system, most of all where a particular country received its law from. ...

External links

  • Philip Larson's Law School Outlines
Law
Legal systems Common law | Civil law | Customary law | Religious law | Socialist law | International law

Sources of law Statutory law (Legislation | Civil code | Statutory interpretation)
Non-statutory law (Custom | Case law | Equity)

Adjudication Adversarial system | Inquisitorial system | Criminal procedure | Civil procedure | Courts

Jurisprudence Philosophy of law | Legal positivism | Legal formalism | Legal realism | Legal interpretivism
Feminist legal theory | Law and economics | Critical legal studies | Comparative law
See also:List of areas of law


Law (from the late Old English lagu of probable North Germanic origin) in politics and jurisprudence, is a set of rules or norms of conduct which mandate, forbid or permit specified relationships among people and organizations, intended to provide methods for ensuring the impartial treatment of such people, and provide... Image File history File links Scale_of_justice. ... This article concerns the common-law legal system, as contrasted with the civil law legal system; for other meanings of the term, within the field of law, see common law (disambiguation). ... Civil law is a codified system of law that sets out a comprehensive system of rules that are applied and interpreted by judges. ... In law, custom, or customary law consists of established patterns of behaviour that can be objectively verified within a particular social setting. ... In the religious sense, law can be thought of as the ordering principle of reality; knowledge as revealed by God defining and governing all human affairs. ... Socialist law is the official name of the legal system used in Communist states. ... International law deals with the relationships between states, or between persons or entities in different states. ... Statutory law is written law (as opposed to oral or customary law) set down by a legislature or other governing authority such as the executive branch of government in response to a perceived need to clarify the functioning of government, improve civil order, answer a public need, to codify existing... Bold textJAMES CHECKLEY Legislation (or statutory law) is law which has been promulgated (or enacted) by a legislature or other governing body. ... A civil code is a systematic compilation of laws designed to comprehensively deal with the core areas of private law. ... Statutory interpretation is the process of reading and applying statutory law. ... Common Law, now often referred to as Non-statutory law is the foundation for justice in the Union States under our constitional scheme. ... In law, custom, or customary law consists of established patterns of behaviour that can be objectively verified within a particular social setting. ... Case law (precedential law) is the body of judge-made law and legal decisions that interprets prior case law, statutes and other legal authority -- including doctrinal writings by legal scholars such as the Corpus Juris Secundum, Halsburys Laws of England or the doctinal writings found in the Recueil Dalloz... The Court of Chancery, London, early 19th century This article is about concept of equity in Anglo-American jurisprudence. ... It has been suggested that this article or section be merged into Dispute resolution. ... To meet Wikipedias quality standards, this article may require cleanup. ... An inquisitorial system is a legal system where the court or a part of the court is actively involved in determining the facts of the case, as opposed to an adversarial system where the role of the court is solely that of an impartial referee between parties. ... Criminal procedure refers to the legal process for adjudicating claims that someone has violated the criminal law. ... Civil procedure is the body of law that sets out the process that courts will follow when hearing cases of a civil nature (a civil action). These rules govern how a lawsuit or case may be commenced, what kind of service of process is required, the types of pleadings or... A court is an official, public forum which a sovereign establishes by lawful authority to adjudicate disputes, and to dispense civil, labour, administrative and criminal justice under the law. ... Jurisprudence is essentially the theory and philosophy of law. ... Philosophy of law is a branch of philosophy and jurisprudence which studies basic questions about law and legal systems, such as what is the law?, what are the criteria for legal validity?, what is the relationship between law and morality?, and many other similar questions. ... Legal positivism is a school of thought in modern and contemporary jurisprudence and the philosophy of law. ... Legal formalism is a Positivist view in jurisprudence and the philosophy of law. ... Legal realism is a family of theories about the nature of law developed in the first half of the 20th century in the United States (American Legal Realism) and Scandinavia (Scandinavian Legal Realism). ... Interpretivism is a school of thought in contemporary jurisprudence and the philosophy of law. ... The study of feminist legal theory is a school thought based on the common view that laws treatment of women in relation to men has not been equal nor fair. ... Critical legal studies refers to a movement in legal thought that applied methods similar to those of critical theory (the Frankfurt School) to law. ... Comparative law has increased enormously in importance in the present age of internationalism, economic globalisation and democratisation. ... The following is a list of major areas of legal practice and important legal subject-matters. ...


 
 

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