1. Introduction - Why should economists care about law? Flashcards
Relationship between law and economics
- economy develops through the combination of land, firm servives, financial and human capital
- A firm is a cluster of: financial property (capital), intellectual property (copyright), industrial property (trademarks, patents), contracts outside and inside it
- everything implies a legal assessment
- real world entities rooted in social environment mostly designed by law
- Costs and benefits of any economic activity depend on the legal framework within which they are exercised
- Law influences efficient allocation and distribution of resources among individuals
What law does that is the opposite of economics?
Discourage breach of contract, even defying Pareto optimality
(effective is not equivalent to fair)
Define effective breach
voluntary breach of contract and payment of damages by a party who would incur in greater economic loss by performing under contract
Define economics analysis of law
looks at legal rules as tools apt to incentivize individuals to undertake activities that are beneficial for the society at large
=> welfare economics: branch of economics that uses microeconomic techniques to evaluate wellness at the aggregate level
Welfare maximisation and the law
- Market failures: Market equilibrium is exposed to different risks of failure, which may detract it from maximizing the social and economic welfare of society
- Market regulation: Legal rules may be interpreted as ways to correct market failures
Different types of market failures and its relation to law
- Negative externalities (pollution) -> Tort law - internalisation of costs achieved by compensation of damages
- Information asymmetry -> Contract law
- Bounded rationality -> Consumer law
=> private law
2 types of EAL
- Descriptive economic analysis of law: predicts the effects of various legal rules (How would individuals react, given a certain legal framework?)
- Normative economic analysis of law: suggests policy recommendations (How to interpret or change a given rule in order to achieve a more efficient outcome?)
Definition of law
The definition of law was proposed by Immanuel Kant in 1795; the philosopher made a distinction between two basic questions about law:
- Quid ius? (what is law), referring to the definition of law as such
- Quid iuris? (what is the law?), which is the responses given by law as to cases shall be decided.
Ius was the latin for “law”; it probably derived from iussum (what has been commanded), from which we derived words such just, justice, jurisprudence, jurist…
Peace of Westphalia
What was it?
- series of treaties to end European wars of religions, ended:
- Thirty Years’ War - Catholic vs. Protestants
- Eight Years’ War - Spain and Dutch Republic
- principle of int’ law that each nation has sovereignty over its territory and domestical affairs to exclusion of all external powers
What caused it?
- the Holy roman empire and the Roman church were not states in a modern sense: they claimed universal institutions, whose powers were not confined within a territory with definite borders.
What was the consequence?
- emergence of National states, replacing the universality of the Empire.
- Domestic law:
- the state’s sovereignty entitles it to bind its own citizens by enacting legal rules
- the way to legal nationalism was thus opened and led to the major codifications of private law of the 19th century.
- International law:
- The State’s sovereignty can be voluntarily self-limited by means of agreements with other States
- Each contracting State has a duty to give execution to the international agreements it has entered into
Define comparative law
A branch of legal science specifically investigates the comparison between a national law and another
Define int’ private law
a branch of each legal system addressed at collisions of state law
What is ius civile?
- Western legal tradition
- considered the main source of law. That was so not because a sovereign ordered it (non ratione imperii), but because legal thought was deemed to be endowed with an inner rationality (sed imperio rationis)
- due to the tremendous changes in society occurring at the time, political institutions urged for a mighty effort of creative interpretation and adaptation of those ancient texts: the combination of Roman law collected in the Justinian compilation and the apparatus of its “scientific” interpretations by scholars (communis opinion doctorum) became the generally applicable law in Western Europe.
What is Ius canonicum, ius commune?
adopted by the Catholic church which was organized as a political institution hence needed a law of its own.
=> Students in law of the time had therefore to study both civil law and canonical law; those two branches together formed “common law”, the matrix of the Western legal tradition
Particular characteristics of common law
- Common law develops through a case approach by courts
- Rule of “stare decisis”, pursuant to which precedents are binding for
- Common law is not based upon acts approved by the Parliament, particularly it is not codified courts
Particular characterisitcs of civil law
fully implemented the doctrine of separation of powers into:
- Legislature
- Executive
- Judiciary
