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Law for Economics. Essay
Law and economics interact in many ways. While private law helps individuals and groups who wishes to enter into free market agreements, public law tries to correct the results of the free market system through economic and social regulation. Economists themselves should be informed about the legal environment in which economic activity should be carried out, and lawyers should be aware of the economic consequences of existing legal norms and the expected results under a different legal regime. Law and economics combine the two main social structures of society into one subject, which allows a complicated study of the significant problems that exist in each subject.
The economic analysis of law is the application of economic theories to the legal system. This leads to declarations about the impact of certain legal norms. In addition, at the next stage, the results gotten as a result of a positive analysis are normatively using the concept of effectiveness. In addition to sociological, philosophical and philological methods, economic analysis is another analytical method of law.
The origins of the economic analysis of law go back to modern economic classics: Adam Smith described the stimulating effect of laws in «An Inquiry of the Nature and Causes of the Wealth of Nations». His contemporary, David Hume, viewed laws in a world of limited resources as a set of principles that economic agents follow to help collaboration. Jeremy Bentham also studied how subjects behave in the presence of legal motivations. However, all these investigations did not lead to a systematic legal analysis using economic behavioral assumptions.
Since the 19th century, special legal considerations based on the preparatory work of the classics have become increasingly important. Marx, in particular, has criticized the dominant view that natural rights do not touch property rights. His method has led to the realization that property rights are given to economic and social realities in accordance with the individual and, therefore, can be changed by developing a law.
The breakthrough in research, also known as the legal and economic method, was successful only with the “second wave” in the 1960s. The second wave was presented in Coase's essay “The Problem of Social Costs”.
Methodologically, an economic analysis of the law of an economic behavior model serves as a tool for determining the consequences, and criteria for the effectiveness of the welfare economy as a tool for calculating the consequences.
The economic model of behavior describes a rational and selfish model of a person, the so-called homo economicus. This behavioral model is based on neoclassicism and means that economic agents are rational, fully informed, that the property is fully defined.
The main advantage of a model of economic behavior is that it makes behavior predictable. Therefore, predicting individual behavior, we can determine the consequences of changing the law. In the next step, this change in law will be calculated.
A later method to the economic analysis of law considers the law from the point of view of a behavioral economy, which no longer begins with an infinitely rational concept of man. An important area from the beginning of the 21st century has been the discussion about the justification and design of libertarian paternalism.
The law and economic movement apply economic theory and method to legal practice. It argues that the tools of economic reasoning provide the best opportunity for sound and consistent legal practice. Perhaps this is one of the dominant theories of jurisprudence. The legal and economic movement offers a general theory of law, as well as conceptual tools to clarify and improve its practice. The general theory is that law is best viewed as a social tool that promotes economic efficiency, and economic analysis and efficiency as an ideal can guide legal practice. It also addresses how legislation should be used to improve market conditions. The combination of legal theory and economic reasoning has also created new research programs in the field of behavioral economics: how rationality affects people's behavior in legal scenarios; the theory of public choice and how collective behavior should influence legislation; and game theory: an understanding of strategic action in a legal context.