- Code ECON2120
- Unit Value 6 units
- Offered by Research School of Economics
- ANU College ANU College of Business and Economics
- Course subject Economics
- Areas of interest Economics
- Academic career UGRD
- Mode of delivery In Person
Law and Economics applies the concepts and techniques of microeconomics to the law itself, focusing on the doctrines, rules and remedies of the common law: the dominant source of legal rules in Australia. The course does not assume any prior legal knowledge, nor does it provide any legal training.
The Course employs basic price theory – rational maximization, the law of demand, opportunity costs, and the idea that voluntary exchange allows resources to gravitate toward their highest- valued uses – to predict the consequences of legal rules: how they affect the behaviour of individuals and groups; and uses welfare economics to evaluate legal rules, especially their efficiency effects. Legal issues examined in the course include property rights, tort law, contract law, criminal law, law enforcement and punishment, litigation and settlement, product liability, pollution control, the interaction of tort law and insurance, principal-agent liability, and regulation v tort law as ways to control externalities.
The approach is non-technical, using the tools of Micro 1 to introduce one of the most exciting and vibrant fields of legal scholarship and applied economics. The emphasis in this course is on “thinking like an economist” to understand legal issues from an economic perspective, with a focus on a clear understanding of the logic and underlying economic intuition rather than just the results.
Law and Economics is designed for both economics and law students. For economics students, it is an interesting application of the economic way of thinking to real world problems and policy issues. Examining actual legal cases gives students experience in relating abstract economic models to practical problems and demonstrates their direct relevance.
Although economics can help explain law, the influence of the law on the economy is far more important. Legal and political foundations underlie economic performance. The law is an important social institution and incentive structure that provides a foundation for the economic order and plays a central role in determining social outcomes, yet economists often take it for granted.
Understanding law helps us better understand the workings of the economic system. Economic analysis rests on a bedrock of legal relations that law and economics explicitly analyses. Free markets do not exist within a vacuum, but need a legal framework that protects property, enforces contracts and allows free exchange to flourish. Law provides the framework in which firms and individuals decide on their actions in the economic sphere.
For law students, Judge Richard Posner (one of the founders of law and economics) explains the benefits of law and economics well: “The law is divided into numerous fields, each of which has a complex structure of rules. The fields are traditionally studied in isolation from one another, and within each field the rules tend also to be studied as a separate, often self-enclosed bodies of thought. Yet it turns out that a relative handful of economic doctrines – such as decision under uncertainty, transactions costs, cost benefit analysis, risk aversion, and positive and negative externalities – can, by repeated application across fields of law and legal rules, describe a great deal of the legal system and enable the student to develop a more coherent sense of the system – to grasp the relation of its parts and understand its essential unity.”
The ‘economic approach’ to law provides a unified vision of the law, tying together diverse areas of law into a common theoretical structure. The logic of the problems the law exists to solve is the same across all the standard fields, making it possible to understand a wide variety of legal issues in terms of one central set of interrelated concepts. Understanding the economics of property helps you understand torts and contracts, rather than treating them as isolated fields.
The important interdependencies between law and economics mean understanding law improves economic analysis and economic analysis is a useful tool for understanding law and for devising laws that improve society and economic performance.
A. Mitchell Polinsky 2011 “An Introduction to Law and Economics”, 4th edition
David Friedman 2000 “Law’s Order: What Economics Has to do with Law and Why It Matters” http://www.daviddfriedman.com/Laws_Order_draft/laws_order_ToC.htm
Upon successful completion, students will have the knowledge and skills to:
- - Recognise the economic issues in a legal problem and apply the economic way of thinking to analyse it.
- - Assess the efficiency effects of legal rules and policies
See the course outline on the College courses page. Outlines are uploaded as they become available.
- Two 1-hour in-term examinations, and a 3-hour final examination. (100) [LO 1,2]
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WorkloadTwo lectures and one tutorial per week.
Requisite and Incompatibility
Prescribed TextsA. Mitchell Polinsky 2011, An Introduction to Law and Economics, 4th Edition
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- 6 units
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