Economic analysis of law

Aims of the course

This course will introduce the basic concepts of law and economics. Economics has become an increasingly influential lens with which to view the law and it has become an important tool to understand the effect that legal rules have on people's behavior. Course will focus on applications of economics to the areas of tort, property and contract, but will also explore the way economics can be used to understand the workings of the legal system itself. Students will gain an overview of law and economics techniques, universally applicable economic insights of theory, practice and understanding of economic analysis of property law, contracts, intellectual property, criminal law and corporate law of different legal systems (US, French English and German legal systems). For each of these bodies of law, the economic approach will be described in non-technical terms and then this approach will be used to examine a key case or key issue within that body of law. Moreover, course will equip students with additional pool of possible solutions to related practical legal and economic problems.

Course syllabus

Economics is a powerful tool for analysing a vast range of legal questions, rules and institutions. The economic analysis of law is an interdisciplinary subject that brings together two great fields of study and facilitates a greater understanding of both. Economics helps students to perceive law in a new way, one that is extremely useful. The law and the economy interact in many ways. Whereas private law assists individuals and groups who are willing to enter into agreements in a free market, public law seeks to correct the outcomes of a free market system by means of economic and social regulation. Economists themselves should be informed about the legal environment in which economic activities must be conducted, while lawyers should be aware of the economic effects of current legal rules and the expected outcome under a different legal regime. Law & Economics meshes together two of society’s fundamental social constructs into one subject, allowing a multi-faceted study of significant problems which exist in each subject. Law & Economics, with its positive economic analysis, seeks to explain the behaviour of legislators, prosecutors, judges, and bureaucrats. The model of rational choice, which underlies much of modern economics, proved to be very useful for explaining (and predicting) how people act under various legal constraints. This positive analysis informs the normative branch of the discipline about possible outcomes. If effects of divergent legal rules and institutions are known, the normative analyst will be able to discern efficient rules from those that are inefficient and formulate reform proposals to increase the efficiency of the law.
This course offers an introduction to the basic concepts and methods of law and economics. It illustrates the broad utility of these tools by way of applications to the analysis of various core areas of law, property, contracts, torts, bankruptcy, corporations, and crime and punishment. By combining examples from various areas of law, students will learn that the economic approach to law provides a unified vision of the law, tying together diverse areas of the law into a common theoretical structure.

Course Structure

1. Introduction, Methods and Techniques
-Introduction
-Principle law and economics legal methods and techniques
-Positive and normative economic analysis of law
-Value, utility, efficiency
-Behavioral economics, Irrationality and hyper rationality
-Criticism of the economic approach to law
-Introduction to economic tools: incentive, transaction costs and risks analysis
-Introduction to basic economic concepts: allocative efficiency, welfare loss, welfare gain, externalities, scare resources
-Efficiency as uniform term of comparison

2. Property law and economics
-The economic theory of property rights: static and dynamic aspects
-Problems in the creation and enforcement of property rights
-Intellectual property: patents, copyrights, trademarks, trade secrets and privacy
-Trespass and eminent domain
-Pollution
-Problem in the transfer of property rights
-Possession
-Public lands
-Rights to future use

3. Contract law and economics I.
-The process of exchange and the economic roles of contract law
-Formation of contracts
-Mutual mistake and fraud
-Contracts as insurance
-Duress, form contracts, bargaining power and unconscionability
-Insurance contracts

4. Contract law and economics II.
-Fundamental principles of contract damages
-Penalties, liquidated damages and consequential damages
-Specific performance
-Implied contracts
-Impossibility and related doctrines
-Unilateral termination of contracts
-Treaties and other international agreements

5. Economic theory of tort law
-Defining tort law
-An economic theory of tort liability
-Economics of accidents and the Learned Hand
-Computing damages
-Strict liability
-Products liability
-Causation and foreseeability
-Damages for loss of earning capacity
-Damages for pain and suffering
-Intentional torts

6. Corporations and corporate governance
-The nature of the firm
-The corporation as a standard contract
-Corporate debt and secured debt
-Piercing the Corporate veil
-Separation of ownership and control
-The transfer of corporate control
-The compensation issue
-Insider trading
-Corporate scandals

7. Bankruptcy
-Corporate bankruptcy
-Personal bankruptcy
-Insolvency proceedings and financial restructuring

8. Economic theory of crime and punishment
-The traditional theory of criminal law
-An economic theory of crime and punishment
-Does punishment deter crime
-Efficient punishment
-The economics of addictive drugs and crime
-The death penalty
-The economics of corruption
-Searches, seizures and interrogations
-Corporate criminality

9. Applications - Paper presentations
Paper presentations

Course director(s)