The New Economic Analysis of Law: Legal Rules as Incentives
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By general agreement, the new economic analysis of law began with the near-simultaneous publication roughly 25 years ago of “The Problem of Social Cost” and “Some Thoughts on Risk Distribution and the Law of Torts”. Though no one doubts the subsequent flourishing of the endeavor, many question its significance, and most cannot articulate its fundamental challenge to more traditional understandings and analyses of law. Frequently, critics have considered fundamental to economic analysis of law the claim either that the law ought to be or was in fact efficient. Occasionally, critics have dismissed the endeavor as obfuscation through the introduction of a new technical jargon and formal mathematical techniques into the verbal tangle of the law. This essay offers a different interpretation of the challenge and contribution of the new economic analysis of law to legal studies. This new analysis elaborates an economic theory of how individuals (or “agents”) behave in response to legal rules. Sometimes this theory is developed explicitly; often, articles urging that some doctrine is or ought to be efficient rely implicitly on this economic theory of behavior. In every instance, this attention to the behavior of primary actors (as opposed to judges, legislators, or lawyers) constitutes a radical development in legal studies. While that development has matured, it promises further, dramatic changes in traditional legal understanding. Prior to the emergence of the new economic analysis of law, assumptions concerning the effects of legal rules on behavior were generally implicit rather than explicit, often ad hoc, occasionally inconsistent, and almost always “naive.” According to the tacit, naive theory that underlay, and continues to underlie, much discussion and debate of law, individuals conform their behavior to that required by the legal rule. Thus, under the naive theory, evaluation of a legal rule reduces to an inquiry of what society wants or requires. Economic analysis of law offers a more complex understanding of the effects of legal rules on behavior under which every agent will only rarely conform his/her conduct to that required by the legal rules. Thus, if one believes that the appraisal of legal rules requires evaluation of their consequences, this shift from the naive to the economic behavioral theory implies that our appraisal and understanding of legal rules must extend beyond a discussion of what is socially desirable or necessary to an effort to “see through” the legal rules to the behavior that they induce. An assumption of relentless and calculated pursuit of self-interest characterizes a theory of legally induced behavior as an economic theory. Economic analysis of law currently offers at least three distinct paradigms of the influence of legal rules on behavior. According to the economic analysis of legal duties, agents consider the consequences of violation of a legal rule in choosing their actions. The economic analysis of property rights argues that different distributions and bundling of entitlements will induce different behaviors. The public choice perspective focuses on the agents' attempts to determine the legal rules they face. In section 1, after outlining in somewhat more detail the contours of each of these three paradigms, I suggest that their varying emphases derive from different conceptions of law as directive or as nondirective. In section 2, the economic analysis of legal duties are considered in more detail. This section does not provide a comprehensive, or even haphazard, survey of the numerous analyses of legal rules and doctrine that the analysts have studied. Rather, it attempts to identify key features of the economic structure of analysis. The naive theory that agents will (generally) conform their behavior to that required by the legal rule rests on the idea that the legal rule itself provides a compelling reason for action. Despite the elaboration of the economic analyses of property rights and legal duties, legal scholars still resist the idea that these economic motivations can replace (or exhaust) the concept of law's normative force. Section 3 attempts both to make more precise the concept of normative force and to suggest how economic analysis of law might model those aspects of it that escape the current formulation of the economic theory. Section 4 offers some concluding remarks.
Source Publication
Law and Economics
Source Editors/Authors
Nicholas Mercuro
Publication Date
1989
Recommended Citation
Kornhauser, Lewis A., "The New Economic Analysis of Law: Legal Rules as Incentives" (1989). Faculty Chapters. 1046.
https://gretchen.law.nyu.edu/fac-chapt/1046
