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What Is Involved in the Economic Analysis of Law?

Economic analysis of law uses economic principles to evaluate legal issues.
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  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 05 November 2014
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Economic analysis of law uses economic principles to evaluate legal issues. Practitioners in the field of law and economics believe that the significant intersections between these areas of study can be exploited to view the law through an economic lens. Laws inherently promote some form of efficiency, including economic efficiency. Many of the formulas and concepts developed to look at markets can be used in legal discussions as well.

Legal scholars in the 1700s first began looking at law from an economic perspective, and considerable scholarship on this topic was published in the 20th century. In the economic analysis of law, researchers look at how society responds to the law, and how laws shape social structures. For example, many nations have liability laws which have a demonstrated economic impact. Businesses attempt to avoid behaviors that could create liability, as they might be faced with a suit and damages.

Both civil and criminal law can be subjected to economic analysis. While the economic impacts of civil law are often readily identifiable, criminal law can also play into economic equations. For example, game theory can be used to look at how and why people commit crimes, and what role the law plays in criminal activity or decisions to abstain. A robber may decide, for example, that a crime is not worth it in a region with strict punishments for theft.

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Another part of the economic analysis of law can determine whether laws work, and if they work as intended. Sometimes laws create unexpected consequences that may not be desirable. This could range from a pollution statute that leads many businesses to close rather than adjusting their activities to a tough criminal law that ends up increasing prisoner populations unexpectedly. Economic analysis of law can be helpful in these settings, as it allows scholars to apply formulas to the data they assess in order to generate objective overviews.

Some law schools and legal research institutions provide training in economic analysis of law and may publish trade journals and participate in scholarship on this subject. It is occasionally a topic of debate, as some researchers have very differing theories about how to use economics in the legal field and how to analyze laws appropriately and effectively. This research is also used in government agencies, where regulators may want to consider the potential impact of proposed rules and regulations to determine whether they should move forward with planned activities.

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