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Economic analysis of law

In: Handbook of Public Economics


  • Kaplow, Louis
  • Shavell, Steven


This is a survey of economic analysis of law, that is, of the emerging field under which the standard tools of microeconomics are employed to identify the effects of legal rules and their social desirability. Five basic subject areas are covered. The first is legal liability for harm. Here we discuss liability rules as incentives to reduce risk, issues of risk-bearing and insurance, and the costs of the liability system. Second, we consider property law, where we address the nature and justification of property rights, public property, the acquisition and transfer of property, externalities surrounding the use of property, and intellectual property. Third, we examine contract law, including the formation of contracts, their interpretation, and remedies for their breach. We focus on production contracts but also discuss other types, including donative contracts. Fourth, we treat the subject of civil litigation, that is, the bringing of lawsuits, and their settlement or disposition at trial. We also mention the appeals process, alternative dispute resolution, the provision of legal advice, and several additional topics relating to litigation. Fifth, we consider public enforcement of law, focusing on the level of law enforcement effort, the magnitude of sanctions, and other issues relevant to criminal law. Finally, we discuss criticisms that are commonly made by legal academics of economic analysis of law and offer concluding remarks.

Suggested Citation

  • Kaplow, Louis & Shavell, Steven, 2002. "Economic analysis of law," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 25, pages 1661-1784, Elsevier.
  • Handle: RePEc:eee:pubchp:3-25

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    JEL classification:

    • H0 - Public Economics - - General


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