Economic analysis of law

Three early contributions were central to the development of economic analysis of law. First, Coase (1960) initiated a discussion of property rights from a market perspective, stressed the reciprocity of torts and introduced the criterion of efficiency for common­law judges.

In 1972, Posner published the first edition of his Economic Analysis of Law, summing up the core of this theory. He applies rational choice theory to every domain of law (from property to contracts law, from torts to criminal law). Legal rules are studied from the point of view of their consequences in terms of economic efficiency. Posner’s normative thesis, according to which the only objective of legal rules should be to maximize wealth, accompanies a positive thesis that common law actually does maximize wealth. The aim of the law is to promote efficiency through two means: “mimicking the market” (allocat­ing the right to the person who would pay the most for it, since this person will use it in the way that maximizes the output value) and diminishing transaction costs. In other words, Posner equates justice with efficiency, itself defined as Kaldor-Hicks efficiency.

Posner’s book (1972) was addressed to lawyers, explaining economic tools and apply­ing them to all traditional fields of law. This approach was vehemently criticized by Coase as an example of economics invading other social sciences with its analysis of human choice. For his part, Coase (1960) was addressing economists and focused on the impact of the law on the economic system.

Economic analysis of law was also criticized for focusing on formal law and neglect­ing social norms or informal institutions that can be explained by contractual perspec­tives (see Greif 1989 or Ellickson 1991) or non-cooperative games of coordination (see Schotter 1981 or Sugden 1986).

The schools studied in this first group are deductive and formalized, far from the empiricism and pragmatism of old institutionalism, which a modern institutionalism tried to revive.