Are people rational (in the economist’s sense) and reasonable (in the lawyer’s sense)? Whatever your answer to that question, does it matter?
The idea behind the collaboration between the two drastically different fields of law and economics is to ascertain the implication of hypothetical rational person’s response to rules and legislations. The economic analysis of law is perhaps a better description between the fusion of these two fields. To truly understand what this means one must first delve into the philosophical foundations of law and economics and in order to do this one must ask themselves four questions: is a body of law efficient?
Can the rules and principles of any or all of the law be rationalised or subsumed under an economic theory of legislation? How should law be formulated to promote efficiency? – in what ways must legal rights and duties be assigned and enforced so that the rules that assign and enforce them are efficient? Ought the law pursue economic efficiency? To what extent is efficiency a desirable legal value in particular, and a normatively attractive principle in general? P416
Modern economics studies rational behaviour, defined as the pursuit of consistent ends by efficient means. Ends and means are clearly involved in setting and administering the law. We draw from three classic areas of law- crime, nuisance and the economics of breach of contract- to show that economic analysis can be fruitfully applied to some interesting legal questions. (Dnes, 1996, p2). Crime: Some countries in the Far East impose death sentences on those convicted of smuggling hard drugs. Economic analysis shows why this might make sense. These countries are relatively poor and probably cannot afford to devote large amounts of money to detecting smugglers. If criminals are rational, they will respond to increases in the expected value of punishment by reducing their criminal activity. This response...