Functional Law and Economics: The Search for Value-Neutral Principles of Lawmaking

20 Pages Posted: 16 Sep 2003 Last revised: 28 Jan 2010

See all articles by Francesco Parisi

Francesco Parisi

University of Minnesota - Law School; University of Bologna

Jonathan Klick

University of Pennsylvania Carey Law School; Erasmus School of Law; PERC - Property and Environment Research Center


Functional law and economics, which draws its influence from the public choice school of economic thought, stands as a bridge between the strictly positivist and normative approaches to law and economics. While the positive school emphasizes the inherent efficiency of legal rules and the normative school often views law as a solution to market failure and distributional inequality, functional law and economics recognizes the possibility for both market and legal failure. That is, while there are economic forces that lead to failures in the market, there are also structural forces that limit the law's ability to remedy those failures on an issue-by-issue basis. The functional approach then uses economic tools to analyze market and legal behavior in order to create meta-rules which limit the extent of the failures in each realm. These meta-rules are designed to induce individuals to reveal their preferences in cases where collective choices are necessary, and to internalize the effects of their actions generally. This mechanism design or functional approach to law and economics focuses on ex ante social welfare maximization, rejecting both the ex post corrective function of law assumed by the normative school of thought and the naturally evolving efficient system view espoused by the positive school.

Keywords: functional law and economics, public choice

JEL Classification: K000

Suggested Citation

Parisi, Francesco and Klick, Jonathan, Functional Law and Economics: The Search for Value-Neutral Principles of Lawmaking. Chicago-Kent Law Review, Vol. 79, p. 431, 2004, George Mason Law & Economics Research Paper No. 03-39, Available at SSRN: or

Francesco Parisi (Contact Author)

University of Minnesota - Law School ( email )

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Minneapolis, MN 55455
United States

University of Bologna ( email )

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Jonathan Klick

University of Pennsylvania Carey Law School ( email )

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United States
2157463455 (Phone)

Erasmus School of Law ( email )

3000 DR Rotterdam

PERC - Property and Environment Research Center

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United States

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