Economics, Law And

The Origins of Law and Economics

The origins of law and economics are traceable to Adam Smith's (1723–1790) discussion of the economic effects of legislation regulating economic [Page 452]activities and Jeremy Bentham's (1748–1832) theory of legislation and utilitarianism. Yet, despite such notable antecedents, it was not until the mid-twentieth century, through the work of Henry Simons, Aaron Director (1902–2004), Henry Manne, George Stigler, Armen Alchian, Gordon Tullock, and others, that the links between law and economics became an object of serious academic pursuit. The regulation of business and economic law fell within the natural interest of economists, so that the first applications of economics to law tended to focus on areas related to corporate law, tax law, and competition law.

In the 1960s, the pioneering work of Ronald Coase and Guido Calabresi brought to light the pervasive bearing of economics in all areas of the law. The methodological breakthrough occasioned by Coase and Calabresi allowed immediate extensions to the areas of tort, property, and contract. The analytical power of their work did not confine itself to these fields, however, and subsequent law and economics contributions demonstrate the explanatory and analytical reach of its methodology in several other areas of the law.

A difference in approach can be detected between the law and economics contributions of the early 1960s and those that followed in the 1970s. While the earlier studies appraise the effects of legal rules on the normal functioning of the economic system (that is, they consider the impact of legal rules on market equilibrium), the subsequent generation of studies used economic analysis to achieve a better understanding of the legal system. Indeed, in the 1970s, several important applications of economics to law gradually exposed the economic structure of every aspect of a legal system, from its origin and evolution to its substantive, procedural, and constitutional rules.

An important ingredient in the success of law and economics research has come from the establishment of specialized journals. The first such journal, the Journal of Law and Economics, appeared in 1958 at the University of Chicago. Its first editor, Aaron Director, should be credited for this important initiative, successfully continued by Coase. Other journals emerged in the following years: (1) Richard Posner founded the Journal of Legal Studies (1972), also housed at the University of Chicago; (2) Richard Zerbe Jr. founded

Research in Law and Economics (1979); (3) Charles Rowley and Anthony Ogus established in the United Kingdom the International Review of Law and Economics (1981), later joined by Robert Cooter and Daniel Rubinfeld; (4) Peter Aranson began the Supreme Court Economic Review (1982), later joined by Harold Demsetz and Ernest Gellhorn; (5) Jerry Mashaw and Oliver Williamson founded the Journal of Law, Economics and Organization (1985), later joined by Roberta Romano; (6) Jürgen Backhaus and Frank Stephen launched the European Journal of Law and Economics (1994); (7) Orley Ashenfelter and Posner founded the American Law and Economics Review (1999); and most recently, (8) Theodore Eisenberg, Jeffrey Rachlinski, Stewart Schwab, and Martin Wells established the Journal of Empirical Legal Studies (2004) and (9) Robert Cooter, Ben Depoorter, Lewis Kornhauser, Gerrit De Geest, Nuno Garoupa, and Francesco Parisi founded the Review of Law and Economics (2005). These specialized journals provided—and continue to provide—an extremely valuable forum for the study of the economic structure of law.

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