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Law and economics is the study of law using economic principles. Attorneys use this process to determine what changes might be made in a legal framework to improve the economic impact of law. This study of law considers the law as a social tool and how it works functionally. These scholars are interested in how the law can be used to make the most efficient use of means to reach the largest gain for society as a whole.
Reviewing the trade-offs between the costs and benefits of a law or a set of laws is one of the primary purposes of the law and economics movement. Legal scholars work through this analysis to determine the best way to improve efficiency in the way a law is implemented. Many business people use this same analysis to determine the best terms to include within a contract or other transaction. The business organization is interested in getting the largest return on its investment in a given transaction, so this type of analysis helps the company determine what to include in its contract.
Law schools teach the process of law and economics differently, depending upon the jurisdiction. The primary economic theories in the jurisdiction are used by legal scholars to determine if a specific legal framework is functioning as efficiently as possible. Socialist countries will study this process based upon socialist economic theories, whereas capitalist countries are likely to begin with capitalist theories. Scholars in these countries might also study the legal functionality using other forms of economic theories in order to show the discrepancies between the different economic theories.
Studying legal frameworks from a law and economics perspective is much more business oriented than the regular practice of law. In order to determine the best functionality and return on investment of a legal framework, one must review the legal framework from a business perspective. This type of study might be difficult for certain attorneys; as in many other areas of the law, there are specialists who focus on this process. These specialists might be used as consultants by other attorneys in a given case or transaction.
Certain studies of law and economics are centered on how to avoid market failure. Industries that have seen the rise and fall of monopolies are considered to have had economic market failures. Legal scholars have studied ways in which to decrease the chance of the formation of a monopoly in these industries. The legal framework in these industries is implemented in a manner to make monopoly formation difficult to complete or maintain.