Normative Law and Economics: Asking the Right Questions
Hamburg Law Review (Forthcoming)
RILE Working Paper Series No. 2015/03
21 Pages Posted: 25 Mar 2015 Last revised: 28 Apr 2015
Date Written: March 23, 2015
The goal of this essay is to determine how – and to what extent – law and economics can be normative, namely inform policymakers about which legal rules are desirable for society. A review of the law and economics movement reveals three challenges. First, efficiency is not always sufficient to choose among legal rules (the efficiency vs. equity problem). Second, the knowledge of the effects of legal rules may be too limited to achieve efficiency (the policy problem). Third, the incentives underlying lawmaking may undermine the quest for efficiency (the political economy problem).
It is argued that these challenges can be overcome if law and economics asks the right questions. Law and economics should be concerned with questions that can be answered based on efficiency as measurable outcome. The quest for rules supporting economic growth is one such question. A focus on economic growth can arguably temper the conflict between efficiency and equity of law thanks to the magnitude of resources that growth makes potentially available for redistribution and other socially valuable goals. Moreover, economic growth can be measured by objective indicators, implying that both commitment to policies and their impact can be tested. Measurability of policy outcomes allows disciplining theorists, with respect to the means to achieve certain ends, and policymakers, with respect to the ends underlying the choice of means.
Keywords: EAL; law & economics; Pareto efficiency; Kaldor-Hicks efficiency; wealth; welfare; redistribution; growth; uncertainty; law & finance; constitutional political economy; public choice; empirical legal studies.
JEL Classification: K00; O16; O43
Suggested Citation: Suggested Citation