Law and Economics

Main assumption:

People are rational actors who seek to maximize their material self-interest (wealth-maximization).

Positive claim of law and economics:

The common law is efficient.

(There are several definitions of efficiency including: Pareto efficiency and Kaldor-Hicks efficiency.)

Normative claim of law and economics:

Law should be efficient.

Criticisms of the law and economics approach:

1) People do not always behave rationally.

2) Wealth is a crude measure of the things people really care about (utility is not necessarily measured by wealth) and so may not reflect what our laws should emphasize.

3) Wealth-maximization is amoral.

4) Some of the things that people would be willing to pay for are illegitimate (commodification of things that should not be commodified).