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As used by lawyers and legal scholars, the phrase "law and economics" refers to the application of the methods of economics to legal problems. Because of the overlap between legal systems and political systems, some of the issues in law and economics are also raised in political economy and political science. Most formal academic work done in law and economics is broadly within the Neoclassical tradition. Approaches to the same issues from Marxist and critical theory/ Frankfurt School perspectives usually do not identify themselves as "law and economics." For example, research by members of the critical legal studies movement considers many of the same fundamental issues as does work labeled "law and economics".
Economic analysis of law is usually divided into two subfields, positive and normative.
Positive law and economics uses economic analysis to predict the effects of various legal rules. So, for example, a positive economic analysis of tort law would predict the effects of a strict liability rule as opposed to a negligence rule.
Normative law and economics goes one step further and makes policy recommendations based on the economic consequences of various policies. The key concept for normative economic analysis is efficiency. The weakest concept of efficiency used by law and economics scholars is Pareto efficiency. A legal rule is Pareto efficient if it makes at least one person better off and it makes no person worse off. (By weak, economists mean that Pareto efficiency makes very few normative assumptions, not that it is supported by weak arguments.) A stronger conception of efficiency is Kaldor-Hicks efficiency. A legal rule is Kaldor-Hicks efficient if it could be made Pareto efficient by a side payment.
In the United States, economic analysis of law has been extremely influential. Among the key figures in the law and economics movement are the Nobel PrizeThe Nobel Prizes (pronounced no-BELL or no-bell are awarded annually to people who have done outstanding research, invented groundbreaking techniques or equipment, or made outstanding contributions to society. It is generally regarded as the supreme comme winning economist Ronald CoaseRonald Coase (born December 29, 1910) is a British economist. He attended London School of Economics and won the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel in 1991. Coase is best known for two articles in particular: The Nature of and Richard PosnerJudge Richard Allen Posner (born 1939) is currently a judge on the United States Court of Appeals for the Seventh Circuit. He is a major voice in the " law and economics" movement, which he helped start while a professor at the University of Chicago Law S, formerly a colleague of Coase at the University of ChicagoThe University of Chicago is a university located in Chicago, Illinois. Just over a century old, it includes departments and committees of: Physics, Economics, Music (theory), Sociology, Linguistics, Political Science, Social Thought, International Relati and currently a judge on the United States Court of Appeals for the Seventh CircuitThe United States Court of Appeals for the Seventh Circuit is a federal court with appellate jurisdiction over the following United States district courts: Central, Northern, and Southern Districts of Illinois Northern and Southern Districts of Indiana Ea. This influence has, in turn influenced legal education. Another prominent legal scholar from the Law and Economics movement is Robert BorkRobert Heron Bork (born March 1, 1927) is a well-known conservative legal scholar and former judge who advocates an originalist interpretation of the United States Constitution. Robert Bork, in books such as The Tempting of America argues that the Constit, a former Supreme CourtThe Supreme Court of the United States located in Washington, D. is the highest court (see supreme court) in the United States; that is, it has ultimate judicial authority within the United States to interpret and decide questions of federal law. It is he nominee. Many law schools in the North AmericaNorth America is the third largest continent in area and the fourth ranked in population. It is bounded on the north by the Arctic Ocean, on the east by the North Atlantic Ocean, on the south by the Caribbean Sea, and on the west by the North Pacific Ocea, Europe, and Asia have faculty members with a graduate degree in economics. In additon, many professional economists now study and write on the relationship between economics and legal doctrine.