Chapter 5 - Law and Economics: Law as Efficiency

Abstract

Law and economics is an approach to law, developed primarily in the United States but currently being actively pursued in research centers in many countries. The central claim of law and economics is that law serves the goal of economic efficiency: law is best seen as a tool for wealth-maximization in society. This is especially so for branches of the common law such as the law of torts, contract, and property, but also for criminal law; I briefly examine all four.

In part because law and economics is a relatively new field, and in part because economic theory itself is far from settled, the law and economics label encompasses many different views. In what follows, I offer a fairly ambitious version of this broad approach to the study of law. Much of what I say here follows the views of Richard A. Posner, an American judge and jurisprudent who has been the principal advocate of the economic analysis of law. However, the view presented is not that of any particular representative of the theory, including Posner himself, and many defenders of the economic approach to law might disagree with some of the details of my exposition. My goal is merely to present an overview of the general approach, to illustrate the kinds of questions it raises as much as to describe the specific answers it might give to them.

Keywords: Law and Economics, Efficiency, Rationality, Social Wealth, Posner, Pareto Superiority