economic analysis of law

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A theory of law, usually seen as a modern form of utilitarianism, based largely on the proposition that a rational human being will always act to maximize his satisfactions: if he wants something badly enough, he will therefore be prepared to pay for it. Richard Posner (1939– ), one of the leading exponents of this approach, attempts to demonstrate that the development of a great many common law rules can be explained by this simple fact. Judges frequently decide hard cases by choosing an outcome that will maximize the wealth of society. Thus, in the development of the law of negligence, Posner argues, the imposition of liability normally depends on what is most efficient economically. By “wealth maximization” Posner means a situation in which goods and other resources are in the hands of those people who value them most (i.e. those who are willing and able to pay more to have them); society maximizes its wealth when all its resources are distributed in such a way that the sum of everyone's transactions is as high as possible. For Posner and other adherents of the so-called Chicago School this is as it should be; their analysis is thus both descriptive and normative. See also Coase theorem; Kaldor-Hicks efficiency; Pareto efficiency.

Subjects: Law.

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