Introduction to Economic Analysis of Law
Economic analysis of law is thought to be the “most significant development in legal thought in the United States since legal realism petered out a half century ago,” stated Richard A. Posner in a lecture given at the University of Chicago Law School on January 6, 1998. ... Economic analysis of law analyzes legal rules and institutions using the tools of macroeconomic theory. The economic analysis of law tries to explain and predict the behavior of participants in and persons regulated by the law. ... “Most economic analysis consists of tracing out the consequences of assuming that people are more or less rational in their social interactions.” In the case of law, these people may be criminals, prosecutors, parties to accidents, tax collectors or law students. An economic analysis might formulate the theory: students treat grades as prices. An analysis of this will show that unpopular professors sometimes compensate students by giving higher grades to keep their enrollment up, unless the university administration intervenes. ... This is an example of an economic analysis applied to people and the consequences of their actions. Applying this type of economic analysis to law will show the consequences or implications of laws and actions.