Tuesday, December 22, 2009

What is the Economic Analysis of Law?

This is part of my series on the Economic Analysis of Law (EAL). I am trying to explain why I went from being an EAL-sceptic to a modest supporter.  In this post, I want to give the general gist of EAL.

EAL is obviously an attempt to use the tools of economic analysis in the legal arena. In my introductory post, I mentioned that EAL has descriptive, analytical, and normative dimensions. Let me elaborate on each of these:
  • Descriptive EAL: tries to show how economic principles and ideas (such as the idea of "efficiency") are already embedded in legal decision-making. This take on EAL is most readily apparent in some of Richard Posner's early work. I think it is best categorised as a brand of legal formalism. This is a topic which will probably only be of interest to a handful of legal philosophers. Nonetheless, I will give it an airing in an appendix to this series.
  • Analytical EAL: this is the core dimension of EAL ("analysis" is right there in title). It is the use of the assumptions, methods and techniques of economics to sharpen and deepen our understanding of legal disputes, disagreements and dissensions.
  • Normative EAL: this is the most contentious aspect of EAL, and what switches most people off. You see EAL, which rose to prominence in the 1960s and 70s, was touted, in the main, by those associated with the Chicago School of Economics. As such, EAL took on the normative excrescences of this school -- i.e. pro-free market. I'll explain roughly what this entails later.
It is the analytical and normative dimensions that I think are the most important aspects of EAL. You can think of these as the two main "chunks" of the theory. As it happens I think that the analytical chunk can survive the cutting-loose of the normative chunk. And this fact is what persuaded me to reverse my position on EAL. Not that I am particularly opposed to free market principles. There's a time and a place...

    Four Key Propositions
    Although EAL consists of two main chunks, four key propositions can be adduced from these chunks. These four propositions form a very inexact and informal argument. Still, I will use them to structure the remainder of this series.

    The propositions are:
    1. People are rational.
    2. The interactive "games" played by rational people can lead to all sorts of problems.
    3. Law can be used to solve these problems.
    4. But we can go too far in proposing legal solutions; sometimes, the market can find the most efficient solution.
    As you can see, these four propositions marry the analytical and normative dimensions of EAL. Roughly: propositions 1 and 2 cover the analytical dimension, while propositions 3 and 4 cover the normative.

    That's it for now. In the next post I will tease out the complexities of the first proposition: are people really rational and what on earth could this mean?

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