Law and economics
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Law and economics, or economic analysis of law, is the application of
History
This section needs additional citations for verification. (September 2022) |
Origin
The historical antecedents of law and economics can be traced back to the
Historians Robert van Horn and
Founding
In 1958, Director founded
In 1962, Aaron Director helped to found the Committee on a Free Society. Director's appointment to the faculty of the University of Chicago Law School in 1946 began a half-century of intellectual productivity, although his reluctance about publishing left few writings behind.
Later development
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.[10] Ultimately, Manne established a center at George Mason, which became a center for the education of judges — many never previously exposed to the concepts of law and economics. Manne also attracted the support of the John M. Olin Foundation; Olin centers (or programs) for Law and Economics now exist at many universities.
Chicago School notable figures
Modern forerunners of economic thought developed at the Chicago School include Adam Smith, David Ricardo, and Frédéric Bastiat.
Founders include:
- Aaron Director, University of Chicago[9][11]
- Ronald Coase, University of Chicago, 1991 Nobel Memorial Prize in Economic Sciences[12]
- Richard Posner, University of Chicago[13][14]
- The Costs of Accidents: A Legal and Economic Analysis (1970) has been cited as influential in its extensive treatment of the proper incentives and compensation required in accident situations.[17]Calabresi took a different approach in Ideals, Beliefs, Attitudes, and the Law (1985), 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).
- Henry Manne, George Mason University[15]
Other notable individuals include:
- Nobel Memorial Prize–winning economist and a leader of the Chicago School of Economics[18]
- U.S. Court of Appeals for the Seventh Circuitjudge
- Andrei Shleifer
- Robert Cooter
- Harold Demsetz
- Hans-Bernd Schäfer
- William Landes
- W. Kip Viscusi
- A. Mitchell Polinsky
- Michael Trebilcock
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
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
A common 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. A weaker 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.
Nonetheless, the possibility of a clear distinction between positive and normative analysis has been questioned by Guido Calabresi who, in his book on "The future of Law and Economics" (2016: 21-22), believes that there is an "actual - and unavoidable - existence of value judgments underlying much economic analysis"[19]
Uri Weiss proposed this alternative: "It is common in law and economics to search for the law that will lead to the optimal outcome, providing the maximum size 'pie,' and to think about maximizing happiness instead of minimizing pain. We prefer another approach: We do not try to identify games that will lead to the optimal result but to prevent games in which it is in the best interests of the players to come to an unjust result".[20]
Criminal law
In 1968, Gary Becker, who would later win the Nobel prize for economics, published Crime and Punishment: An Economic Approach.[21] This work relied on the economic concept of utility as the basic unit of analysis. In 1985, in An Economic Theory of the Criminal Law, Posner set out an alternative approach that relied instead on wealth as the basic unit of analysis.[22]
Relationship to other disciplines and approaches
As used by lawyers and legal scholars, the phrase "law and economics" refers to the application of microeconomic analysis 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, constitutional economics and political science.
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 and the sociology of law considers many of the same fundamental issues as does work labeled "law and economics", though from a vastly different perspective. The law and political economy movement also analyzes similar concepts using an entirely different approach.[23]
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 governance and public policy (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.
Law and economics is closely related to jurimetrics, the application of probability and statistics to legal questions.
Applications
- Coate-Loury model)
- Herfindahl–Hirschman Index)
- Calculus of negligence
- Congestion pricing
- Corporate governance[24][25][26]
- Cost–benefit analysis
- Crime enforcement[29][30]
- Deregulation (Airlines, communications, energy, surface freight)
- Design of contracts (Contract theory)
- Discrimination
- Drug policy (Iron law of prohibition)
- Evidence[31][32]
- Evolution of the common law[33][34] (Evolutionary game theory[35])
- Financial regulation (Efficient market hypothesis)
- Fraud-on-the-market theory
- Governance of the commons[36]
- Institutional origins
- The Colonial Origins of Comparative Development: An Empirical Investigation
- Constitutional economics
- Legal origins theory
- Property rights[37][38]
- Intellectual property (Economics and patents)
- Natural monopoly regulation (Averch–Johnson effect)
- Peltzman effect
- Principal–agent problem
- Quarantine measures for public health[39][40]
- Prudent investor rule[41] (Modern portfolio theory)
- Rent control[42][43]
- Rent-seeking[44]
- Transaction costs (Coase theorem)
- Value of a statistical life[45][46]
- Voting systems (Social choice theory)
- Water law[47][48]
Influence
The economic analysis of law has been influential in the United States as well as elsewhere. Judicial opinions use economic analysis and the theories of law and economics with some regularity, in the US but also, increasingly, in Commonwealth countries and in Europe. The influence of law and economics has also been felt in legal education, with graduate programs in the subject being offered in a number of countries. The influence of law and economics in civil law countries may be gauged from the availability of textbooks of law and economics, in English as well as in other European languages (Schäfer and Ott 2004; Mackaay 2013).
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.[49]
Criticisms
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 drawn from other, competing frameworks, though there are numerous internal critiques as well.[50] Yet other schools of economic thought have emerged and have been applied to the work of law and economics in, for example, the work of Edgardo Buscaglia and Robert Cooter in the book "Law and Economics of Development".[51]
Rational choice theory
Critics of the economic analysis of legal questions 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 law and economics come from the critical legal studies movement, in particular Duncan Kennedy[52] and Mark Kelman. Jon D. Hanson, of Harvard Law School, argues that our legal, economic, political, and social systems are unduly influenced by an individualistic model of behavior based on preferences, instead of a model that incorporates cognitive biases and social norms.[53]
Pareto efficiency
Additional criticism has been directed toward the assumed benefits of law and policy designed to increase
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 antitrust 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.
Essentially, the "first-best" neoclassical analysis fails to properly account for various kinds of general-equilibrium feedback relationships that result from intrinsic Pareto imperfections.[54]
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)".
"Internal" analytical criticisms
Relatedly, legal scholarship also has criticized the movement for allowing its framing of models to dictate its results, for over-emphasizing or under-emphasizing specific incentives and costs, and for building models that do not degrade "gracefully" (and therefore have difficulty modeling reality).[55] In other words, the law and economics movement may not achieve "efficiency", even to the extent allocative efficiency is the goal of the law.[56]
Criminal methodology
Cullerne Bown has criticised Posner's approach on methodological grounds. He concludes that Posner's approach to evaluating policies in the criminal process is methodologically invalid and that "these failings in turn make the entirety of his conclusions on the criminal process unreliable".[57]
Responses to criticism
Law and economics has adapted to some of these criticisms and been developed in a variety of directions. One important trend has been the application of
Property rights, which are analyzed using economic analysis, are seen as fundamental human rights by defenders of law and economics.[61]
See also
- Competition policy
- Contract theory
- Constitutionalism
- Constitutional economics
- Cost–benefit analysis
- Economic imperialism (economics)
- Economics
- Iron law of prohibition
- Islamic economical jurisprudence
- Jurimetrics
- Legal origins theory
- Legal theory
- Microeconomics
- New institutional economics
- Occupational licensing
- Political economy
- Property rights (economics)
- Public choice theory
References
- The New Palgrave: A Dictionary of Economics, v. 3, p. 144.
- Ronald Coase (1996). "Law and Economics and A.W. Brian Simpson," The Journal of Legal Studies, v. 25, p. 103-104.
- ^ Kristoffel Grechenig & Martin Gelter, The Transatlantic Divergence in Legal Thought: American Law and Economics vs. German Doctrinalism, Hastings International and Comparative Law Review 2008, vol. 31, p. 295–360; Martin Gelter & Kristoffel Grechenig, History of Law and Economics, forthcoming in Encyclopedia on Law & Economics.
- Alan Ebenstein, Palgrave Macmillan, 2003, pages 164–165. Retrieved November 10, 2022.
- ^ Kristoffel Grechenig & Martin Gelter, The Transatlantic Divergence in Legal Thought: American Law and Economics vs. German Doctrinalism, Hastings International and Comparative Law Review 2008, vol. 31, p. 295–360
- S2CID 222331226. Archived from the original(PDF) on 2019-08-07. Retrieved 2019-09-08. This issue was actually published in 1961.
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- ^ a b "Aaron Director, Founder of the field of Law and Economics". www-news.uchicago.edu. Retrieved 2019-09-04.
- ^ "Spotlight: Henry G. Manne ROBERT POOLE, Reason, May 1976. Retrieved October 7, 2022.
- ^ "Aaron Director". Mises Institute. 2014-06-20. Retrieved 2019-09-04.
- ^ "Ronald H. Coase". Econlib. Retrieved 2019-09-04.
- ^ "Swan Song of a Great Colossus: The Latest from Richard Posner". Law & Liberty. 2019-05-13. Retrieved 2019-09-25.
- ^ "Posner, Richard Allen". www.jewishvirtuallibrary.org. Retrieved 2019-09-25.
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- ^ "The Fourth Generation in Chicago". Economic Principals. 2014-11-16. Retrieved 2019-09-25.
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- ^ "The Regressive Effect of Legal Uncertainty" Uri Weiss, Journal of Dispute Resolution, 2019, page 152. Retrieved October 23, 2022.
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- ^ "Toward a Manifesto". LPE Project. Retrieved 2021-07-26.
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- ^ Mueller, John; G, Stewart Mark (2014–2015). "Secret without Reason and Costly without Accomplishment: Questioning the National Security Agency's Metadata Program" (PDF). I/S: A Journal of Law and Policy for the Information Society. 10: 407.
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- ^ Posner, Richard A. (1999). "An Economic Approach to the Law of Evidence". John M. Olin Law & Economics Working Paper No. 66. University of Chicago Law School.
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- ^ "Modern Portfolio Theory". LII / Legal Information Institute. Cornell Law School. Retrieved 2019-12-23.
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- ^ Anthony T. Kronman, The Lost Lawyer 166 (1993).
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- ^ "Essays on Law and Economics". www.duncankennedy.net.
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- ^ a b Markovits, Richard (1998). Second-Best Theory and Law & Economics: An Introduction. Vol. 73. Chicago-Kent Law Review.
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- ^ Cullerne Bown, William. (2022-12-23). "An epistemic theory of the criminal process, Part II: Packer, Posner and epistemic pressure". Law, Probability and Risk.
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- ^ Martin Gelter & Kristoffel Grechenig, History of Law and Economics, forthcoming in Encyclopedia on Law & Economics.
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Further reading
- Kai Purnhagen Never the Twain Shall Meet? – A Critical Perspective on Cultural Limits Between Internal Continental Dogmatism and Consequential US-Style Law and Economics Theory in Klaus Mathis Law and Economics in Europe (Springer Science), pp. 3–21, available at [1]
- ISBN 978-8834892718.
- Bouckaert, Boudewijn, and Gerrit De Geest, eds. (2000). Encyclopedia of Law and Economics (Edward Elgar, Online version.
- ISBN 0-226-11101-6.
- ISBN 0-321-33634-8
- The New Palgrave: A Dictionary of Economics, v. 3, pp. 144–48.
- _____ (2000). Law's Order. (Princeton University Press). Chapter links. links.
- _____ (2001). Law's Order: What Economics Has to Do with Law and Why It Matters. ISBN 978-0691090092.
- Martin Gelter & Kristoffel Grechenig, History of Law and Economics, forthcoming in Encyclopedia on Law & Economics.
- ISBN 0-521-82681-0).
- Kristoffel Grechenig & Martin Gelter, The Transatlantic Divergence in Legal Thought: American Law and Economics vs. German Doctrinalism, Hastings International and Comparative Law Review 2008, vol. 31, pp. 295–360
- Kennedy, Duncan (1998). "Law-and-Economics from the Perspective of Critical Legal Studies" (from The New Palgrave Dictionary of Economics and the Law PDF
- Kornhauser, Lewis (2006). "The Economic Analysis of Law," Stanford Encyclopedia of Philosophy.
- ISBN 978-3-16-149276-1.
- ISBN 978-1848443099; softcover forthcoming 2014 [2]
- Mas-Colell, Andreu; Whinston, Michael D.; Green, Jerry R. (1995). Microeconomic Theory. New York, NY: Oxford University Press.
- Polinsky, A. Mitchell, and Steven Shavell (2008). "law, economic analysis of," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract and pre-publication copy.
- ISBN 978-0735594425.
- _____ (2006). "A Review of Steven Shavell's Foundations of Economic Analysis of Law," Journal of Economic Literature, 44(2), pp. 405–14[permanent dead link] (press +).
- ISBN 1843762773
- Shavell, Steven (2004). Foundations of Economic Analysis of Law. Harvard University Press. Description and scroll to chapter-preview links.
- Robé, Jean-Philippe The Legal Structure of the Firm, Accounting, Economics, and Law: Vol. 1 : Iss. 1, Article 5, 2011. Jean-Philippe Robé
- Viscusi, W. Kip; Vernon, John M.; Harrington Jr., Joseph E. (2005). Economics of Regulation and Antitrust. MIT Press. ISBN 978-0-262-28732-6.
- Stojanovich A., Silvestri P. (Eds.), "Special Issue: On 'The Future of Law and Economics' by Guido Calabresi: An Interdisciplinary Dialogue", Global Jurist, 19(2019), 3.