Economics and Law

RE: Law and Economics, 6th edition (PDF, 570 pages) by Robert Cooter and Thomas Ulen.

From Chapter One: An Introduction to Law and Economics:

UNTIL RECENTLY, LAW confined the use of economics to antitrust law, regulated industries, tax, and some special topics like determining monetary damages...

Beginning in the early 1960s, this limited interaction changed dramatically when the economic analysis of law expanded into the more traditional areas of the law, such as property, contracts, torts, criminal law and procedure, and constitutional law...

Economics has changed the nature of legal scholarship, the common understanding of legal rules and institutions, and even the practice of law. As proof, consider these indicators of the impact of economics on law. By 1990 at least one economist was on the faculty of each of the top law schools in North America and some in Western Europe. Joint degree programs (a Ph.D. in economics and a J.D. in law) exist at many prominent universities. Law reviews publish many articles using the economic approach, and there are several journals devoted exclusively to the field... The field received the highest level of recognition in 1991 and 1992 when consecutive Nobel Prizes in Economics were awarded to economists who helped to found the economic analysis of law—Ronald Coase and Gary Becker...

The new field’s impact extends beyond the universities to the practice of law and the implementation of public policy. Economics provided the intellectual foundations for the deregulation movement in the 1970s, which resulted in such dramatic changes in America as the dissolution of regulatory bodies that set prices and routes for airlines, trucks, and railroads. Economics also served as the intellectual force behind the revolution in antitrust law in the United States in the 1970s and 1980s. In another policy area, a commission created by Congress in 1984 to reform criminal sentencing in the federal courts explicitly used the findings of law and economics to reach some of its results...

Cooter and Ulen think this is great. I think, if there is a fly in the ointment of economics, using it on the law may harm society. I think, maybe we must look askance at the law because of the econ problems. Just sayin.


From Chapter One, Part One: What Is the Economic Analysis of Law?:

Why has the economic analysis of law succeeded so spectacularly, especially in the United States but increasingly also in other countries? Like the rabbit in Australia, economics found a vacant niche in the “intellectual ecology” of the law and rapidly filled it. To explain the niche, consider this classical definition of some kinds of laws: “A law is an obligation backed by a state sanction.”

Lawmakers often ask, “How will a sanction affect behavior?” For example, if punitive damages are imposed upon the maker of a defective product, what will happen to the safety and price of the product in the future? Or will the amount of crime decrease if third-time offenders are automatically imprisoned? Lawyers answered such questions in 1960 in much the same way as they had 2000 years earlier—by consulting intuition and any available facts.

Economics provided a scientific theory to predict the effects of legal sanctions on behavior.

"Like the rabbit in Australia"? Really? That's the analogy?

To economists, sanctions look like prices, and presumably, people respond to these sanctions much as they respond to prices... Economics has mathematically precise theories (price theory and game theory) and empirically sound methods (statistics and econometrics) for analyzing the effects of the implicit prices that laws attach to behavior.

Many people today would challenge those bold assertions.

Economics generally provides a behavioral theory to predict how people respond to laws. This theory surpasses intuition just as science surpasses common sense.

Unless, you know, the theory is wrong.

Efficiency is always relevant to policymaking, because public officials never advocate wasting money.

You laughing yet?

Besides efficiency, economics predicts the effects of laws on another important value: the distribution of income. Among the earliest applications of economics to public policy was its use to predict who really bears the burden of alternative taxes. More than other social scientists, economists understand how laws affect the distribution of income across classes and groups. While almost all economists favor changes that increase efficiency, some economists take sides in disputes about distribution and others do not take sides.

Ah, "the distribution of income." That's interesting. You see inequality as a problem to be fixed? You're gonna have to unwind the law back to the 1960s and rewind it right.