The Process and Theoretical Foundations of the Approach of Economic Analysis of Law and its Impact on Economic Growth

دانشنامه حقوق اقتصادی

Article 3, Volume 26, Issue 15, July 2019, Pages 55-76   

Document Type: Scientific research

DOI: 10.22067/le.v26i16.73538

Authors

mohammad zaman rostami^{* 1}; Mohammad Hadi Rostami²

¹qom

²shahid motahari

Abstract

Introduction
Law and economics are closely intertwined and cannot be studied as two separate issues. Every economic activity is based on a legal contract, and every legal contract has an economic effect and creates a level of utility for the parties to the contract. The economy evolves in the context of Law, and with the evolution of economics, Low must also evolve. A perfect legal system is a factor in progress, and an incomplete legal system is a hindrance to progress. The economic analysis of law has transformed the legal system in line with the fundamental principles of economics, efficiency, productivity, growth and prosperity. This approach seeks to utilize existing facilities in light of limitations and shortcomings in a way that results in the highest growth and prosperity.
Theoretical frame work and Methodology
This essay examines the trends, foundations, principles, main criteria of this approach and its impact on the evolution of legal systems in support of the industrial system. With a descriptive analytical approach, it answers the question of how the relationship of law and economics can contribute to economic progress. It posits that the economic analysis approach of law, by incorporating the element of efficiency and productivity into the foundations of the legal system, and obliging it to support the pioneers of the economy, can help the economic progress. The innovation of the paper is that it explains more accurately, economically and practically, the theoretical foundations, the main criteria and the impact of this approach on the evolution of the legal system in support of economic transformations.
Results & Discussion
After the industrial revolution, all the institutions of european countries, including the legal entity, began to serve the industrial developments. Gradually, ideas and schools emerged that helped transform the legal system to support industrial development and economic growth. In the nineteenth and early twentieth centuries, the economic approach to law is found in the Thoughts of legal realists, institutionalists, and schools such as Chicago, Yale, Virginia, and Austria. Realists believed that low cannot be understood without reference to economic conditions and that judges must be aware of the economic conditions affecting their legal course and the impact of their judgments on the economy so that their judgments can contribute to efficiency, productivity and growth. They believe that in society, every individual strives to sacrifice the interests of others for his own benefit. It is the duty of law to fulfill maximum needs and most prosperity at the least cost by supporting efficient people, entrepreneurs and productive sectors. Another approach was the economic analysis approach of law that began at the University of Chicago and Studied those legal entities that were of an economic nature, such as tax, bank, insurance, import, export, bankruptcy, stock exchange, labor law and public welfare, with economic methods and instruments. The economic approach to law, by employing economic tools, methods, and analyzes in the field of law, sought to combine legal logic with economic logic. This approach has made several claims. One is that humans act upon the benefits and costs of an action and, therefore, we can influence people's behavior by changing laws. Second, law must serve productivity, efficiency and economic growth and give more freedom to those who are more productive, especially those who can act as pioneers of development. Economic analysis of Low seeks legal solutions that maximize efficiency by minimizing costs and maximizing public wealth. This approach does not claim that maximizing wealth is against justice. On the other hand, justice is compatible with efficiency and efficiency can be considered part of justice. Efficiency is associated with lower costs and increased productivity. Reducing costs avoids wasting resources and increasing productivity means the potential for individuals and objects to flourish. Both can be part of justice.
 
Conclusions & Suggestions
The economic analysis of law has transformed the legal system in line with the fundamental principles of economics, efficiency, productivity, growth and prosperity. Economic analysis of law is the use of techniques, analyzes, and economic values to explain legal relationships and understand the reaction of individuals to legal rules. Relying on the element of efficiency, productivity, and rational behavior, this approach seeks to utilize existing facilities in light of limitations and shortcomings in a way that results in the highest growth and prosperity. The main result of this article is that our country must first develop a clear and coherent economic system for economic development and then reform the legal system to support it.
It is recommended that all legal entities that have an economic nature such as tax, bank, insurance, import, export, bankruptcy, stock exchange, labor law and public welfare and then other areas of law, such as property rights, contractual freedom, contract law, efficient breach of contract, Incomplete contracts, imposed conditions, contractual damages, company law, civil liability law, family law and quasi-crime, be studied through the economic analysis approach of law.
 

Keywords

Key words: institutionalism; legal realism; economic approach to rights; law and economy; productivity

References

[1] Abdali, Mehrzad. (2019). The Position of Ethics in Economic Analysis of Laws, Comparative Laws (Nameh-e-mofid): Vol.6 (16). N.2 (82); 101-126

[2] Aghaee, Moslem. (2013). Economic Analysis of Law, Legal Studies, 2

[3] Babaei, Iraj. (2007). Theoretical Foundations of the Law of Economic Analysis Approach, Law and Politics, 23

[4] Baker, Lynn & Robert E. Emery. (1993). When Every Relationship Is Above Average: Perceptions and Expectations of Divorce at the Time of Marriage, Law and Human Behavior, Vol 17(4)

[5] Bicks, Bryan. (2010). Theory of Legal Theory, Translated by Mohammad Rasekh, Tehran: Ney

[6] Calabresi, Guido. (1961). Some Thoughts on Risk Distribution and the Law of Torts, Yale Law, 70(4)

[7] Calabresi, Guido. (1984). first party, third party, and product liability systems: Can economic Analysis of Law tell us anything about them? Iowa Law Review, 69(4)

[8] Coase, Ronald. (1937). The Nature of the Firm, Economica, 4(16)

[9] Coase, Ronald. (1960). The Problem of Social Cost, Law and Economics, 3(1)

[10] Cooter, Robert. (1994). Law and Prices: How Economics contributed to Law by misunderstanding Morality, Working Paper No. 94–2, Program in Law and Economics

[11] Cooter, Robert and Ulen, Thomas. (2016). Law and Economics, 6th edition

[12] Dadgar, Yadollah. (2006). A Preview on the Synthesis of Law and Economics, Legal Research, 43

[13] Dadgar, Yadollah. (2010). The Essential Components and Dimensions of Law and Economics, Tehran: Tarbiat Modarres Institute of Economics and Noor Alam Publications

[14] Ghasemi Hamed, Abbas. (2015). Economic Law, Legal Research, 70

[15] Horwitz, Morton. (1980). Law and Economics: Science or Politics, Hofstra Law Rev, 8(4)

[16] Hume, David. (2009). A Search for Ethics, Translated by Majid Davoodi, Tehran: Markaz

[17] Kaplow, Louis & Shavell, Steven. (1994). Why the Legal System Is Less Efficient Than the Income Tax in Redistributing Income, J. Legal Stud. 23

[18] Kaplow, Louis & Shavell, Steven. (2002). Fairness versus Welfare, Cambridge: Harvard University Press

[19] Kaviani, Cyrus. (2007). An Introduction to Economic Analysis of Law, Law and Politics, 9(23). 61-102

[20] Kelly, John. (2003). A Brief History of Legal Theory in the West, Translated by Mohammad Rasekh, Tehran: tarh-e-no

[21] Kitch, Edmund. (1983). The Fire of Truth: A Remembrance of Law and Economics at Chicago, 1932-1970, Law and Economics, 26(1)

[22] Langevoort, Donald. (1998). Behavioral Theories of Judgment and Decision Making in Legal Scholarship: A Literature Review, Vand. L. Rev. 51

[23] Latin, Howard. (1985). Problem-Solving Behavior and Theories of Tort Liability, California Law Rev. 73

[24] Llewellyn, Karl. (1925). The Effect of Legal Institutions Upon Economics, The American Economic Review, 15(4)

[25] Lyons, David. (1973). In the Interest of Governed: A Study in Bentham’s Philosophy of Utility and Law, Oxford, Oxford University Press

[26] Mackaay, Ejan, History of Law and Economics, in Bouckaert, Boudewijn and De Geest, Gerrit. (2000). Encyclopedia of Law and Economics, Chentelham: Edward Elgar Publishing, Vol. 1

[27] Mercuro, Nicholas and Medema, Steven. (2006). Economics and the Law: from Posner to Postmodernism and beyond, Princeton University Press

[28] Mercuro, Nicholas and Steven G. Medema. (2003). The Jurisprudential Niche of Law and Economics, Legal Studies Research Paper, No. 03 – 20

[29] Naimi, Morteza. (2012). Background to the Law of Economic Analysis Approach, Free Legal Research, 16

[30] Paul, Robin and Evensky, Jerry. (1995). Adam Smith and the Philosophy of Law and Economics, Kluwer Academic Publications

[31] Posner, Richard. (1975). The Economic Approach to Law, Texas Law Review, 53

[32] Posner, Richard. (1979). Utilitarianism, Economics, and Legal Theory, J. Legal Studies 8

[33] Posner, Richard. (1981). The Economics of Justice, Cambridge: Harvard University Press

[34] Pound, Roscoe. (1928). Social and Economic Problems of the Law, Annals of the American Academy of Political and Social Science, vol.136

[35] Rowley, Charles. K. (2005). The Origins of Law and Economics: Essays by the Founding Fathers, Edward Elgar Publication

[36] Safaei Farahani, Seyyed Hossein. (2015). Relationship between Law and Economics, Tehran: Lecture at the meeting of Humanities Department

[37] Shahabi, Mehdi. (1979). Economic Analysis of Law in the Struggle of Legal Modernity and Legal Postmodernity, Economic Analysis of Law, 9(1). 257-283

[38] Shavell, Steven. (2003). Economic Analysis of Welfare Economics, Morality and the Law, NBER Working Paper, No. 9700

[39] Shawl, Steven. (2009). Foundations of Economic Analysis of Law, Tehran: Parliament Research Center

[40] Smith, Adam. (1978). Lectures on Jurisprudence: The Glasgow Edition, Oxford University Press