Opportunities for and Limits to an Economic Analysis of International Economic Law

Abstract:     
Economics is not only a subject matter but also a specific methodological approach. Economic analysis in International Economic Law is therefore not confined to economic matters but can be extended to virtually all issues by drawing on the economic approach. It can be used both to explain the consequences of (International Economic) Law as well as the determinants of its creation.

Taking economics as a methodology, modern economic analysis uses political economy approaches, including game theory and contract theory, to explain states' behaviour in economic relations. Here, it is closely related to political science approaches using rational choice methodology and ever more empirical studies. This enables decision-makers in treaty drafting to take a more differentiated and informed view (external view). Beyond this, economics is also highly relevant to the interpretation of the law (internal view). Traditional quantitative economic approaches have their place in the application of the law where the law commands it, eg in damage calculation in trade or investment law. Furthermore, in teleological interpretation or proportionality analysis, that is means-end rationality, empirical investigations have sometimes overthrown economic textbooks assumptions of causalities – or certainly have led to a more differentiated view on economic interrelationships. If available, they should substitute legal intuition or economic textbook wisdom on causal relationships.

Clearly there are limits to economic analysis: foremost, economics cannot substitute for the hermeneutical methods of law. Furthermore, economic analysis cannot tell what goals should be achieved in an international legal order, but it can help to inform about the best legal tools to achieve given goals, eg sustainable development and possible trade-offs incurred. In short: economics can help lawyers to achieve a more fact-based law, without denying the counterfacticity and thus the normative force of law.

Number of Pages in PDF File: 31

Keywords: Economic analysis, international economic law, economics, political economy, game theory, contract theory, rational choice methodology, quantitative economics

JEL Classification: F02, F12, F15, K33

working papers series