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Economic Analysis of Law

Indrani Roy Chowdhury

Edited by Satish K. Jain
Oxford University Press, Readers in Economics, Delhi, 2010, pp. 325, Rs. 785.00


Law and Economics is a relatively new sub-discipline straddling as the name suggests both economics and law. Although it was as early as the 18th century that Adam Smith discussed the economic effects of mercantilist legislations the subject really took off only in the 1960s. It was around this time that there was a surge of interest in the application of economic theory to analyse the laws regulating market and non-market activities. The catalyst for this surge was the publication of the two pathbreaking articles:The Problem of Social Cost by Ronald Coase (1960) in the Journal of Law and Economics, and 'Some Thoughts on Risk Distribution and the Law of Trots' by Guido Calabresi (1961) in the Yale Law Journal. Gradually the economic analysis of law percolated to the more traditional areas of law such as property contracts torts criminal law and procedural and constitutional law. The field received the highest degree of recognition in 1991 1992 when consecutive Nobel prizes in Economics were awarded to two economists Ronald Coase and Gary Becker whose outstanding contributions helped build a solid foundation of this discipline. Why has the economic analysis of law drawn so much interest? Economists provided a formal theory to predict the effects of legal sanctions on agents behaviour. To economists a sanction is basically an implicit price that provides incentives to people to change their behaviour. Consequently people respond to stricter legal sanctions by restraining from the sanctioned activities. Thus economic theory provides some basis for predicting how people respond to changes in law. It helps to understand law as a policy instrument aimed at achieving efficiency and distribution of income across classes and groups. The general theory is that law is best viewed as a social tool that promotes economic efficiency and efficiency as an ideal can guide legal practice. It also considers how legislation should be used to improve market conditions. The bringing together of legal theory and economic reasoning has also created new research agendas in the fields of behavioural economics. It talks about how rationality affects peoples behaviour within legal scenarios and how collective behaviour should have an effect on legislation. Further game theory and information economics helps in understanding strategic action in a legal context. The volume on Law and Economics edited by Satish K. Jain is a valuable compilation of some landmark articles in the field of law and economics. The introduction by Professor Jain ...

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