Law and Economics

“Law and economics” is the economic analysis of the law. As Kaplow and Shavell state: [1]

Economic analysis of law seeks to answer two basic questions about legal rules. Namely, what are the effects of legal rules on the behaviour of relevant actors? And are these effects of legal rules socially desirable?

The field of economic analysis of law may be said to have begun with Bentham in the 18th and 19th centuries. However, it really developed as a discipline in the 1960s and 1970s, with key contributors being Coase, Becker, Calabresi and Posner.

The most obvious application of economics to law is in relation to competition law. However, the field is much wider. All government policy is rooted in laws so law and economics encompasses the economic analysis of regulation and public policy more generally. Topics include the behaviour of regulated firms, the political economy of legislation and legislative processes, law and finance, corporate finance and governance and industrial organisation, corporate law, liability for accidents, property law, contracts and litigation.

In the United States, most judges recognise that the importance of economic analysis for solving policy issues and analysing possible motives for business behaviour. The field of law and economics has become so important in the United States that many of the top law schools have PhD economists on their staff.

Click here for links to seminal papers from the field of law and economics.

[1] Kaplow, Louis and Steven Shavell (1999) “Economic Analysis of Law”, NBER Working Paper 6960