Law and Economics

“The economic analysis of law (also known as law and economics) is an analysis of law applying methods of economics.” The concept of economics is being used to give explanation regarding the effects of laws and to evaluate which legal rules are reasonably competent, and also to envisage which legal rules will be promulgated.

Lawyer’s point of view in law and economics:

According to legal scholars and lawyers, the turn of phrase "law and economics" refers to the relevance of the methods of economics to problems that are present legally. Since there is an overlap sandwiched between the political systems and the legal systems, a few issues in the law and economics are in addition raised in political science, political economy and constitutional economics.

As an introduction to this law and economics in the year 1961, Guido Calabresi and Ronald Coase independently published two articles that were most groundbreaking: "Some Thoughts on Risk Distribution and the Law of Torts” and "The Problem of Social Cost".

Law and economics has its development in a variety of directions. An important development to solve the legal problems is the application of the game theory.

Two subfields in law and economics:

• Positive law and economics
• Normative law and economics

Positive law and economics: It uses the economic analysis to envisage the possessions of an assortment of legal rules. Positive law and economics has also at times alleged to give explanation about the improvement of the legal rules.

Normative law and economics: This type of economics is one step ahead and makes a policy recommendation which has its base on the economic consequences of a variety of policies. The main concept that is being involved in the normative economic analysis is efficiency, especially, allocative efficiency.

Common concept in law and economics:

One of the common concepts of efficiency that is used by law and economics scholars is Pareto efficiency. A legal rule is Pareto efficient whereas the weaker conception of efficiency is that of Kaldor-Hicks efficiency.

Questions:

• What is meant by Pareto efficiency?
• What are the other developments in the law and economics?