Critics of economic analysis of legal issues have argued that normative economic analysis fails to capture the importance of human rights and concern for distributive justice. Some of the harshest criticisms of law and economics come from the movement of critical legal studies, particularly Duncan Kennedy[50] and Mark Kelman. Jon D. Hanson of Harvard Law School argues that our legal, economic, political, and social systems are too influenced by an individualistic model of behavior based on preferences, rather than one that incorporates cognitive biases and social norms. [51] The second step of the cost-benefit analysis is more problematic. In order to aggregate the individual willingness to pay, the cost-benefit analysis simply summarizes the individual willingness to pay. One can immediately see several difficulties with this procedure. First, each order of precedence is ordinal; Numbers have no meaning beyond order. Suppose that if he uses the status quo Q as a reference, K assigns a number 2 to Directive X, a number 4 to Directive Y and a number 16 to Directive Z, whereas when he uses Directive P as a reference, he assigns a number 3 to Directive X, a number 9 to Directive Y and a number 27 to Directive Z.
Since the representations are ordinal, nothing can be deduced from the preference intensity of K; Their Q representation of their preferences “evaluates” the difference between Z and Y as six times the difference between Y and X, while their P-based representation of their preferences thinks that the difference between Z and Y is only three times greater than the difference between Y and X. The choice of reference level may therefore have an impact on the choice of policy. While it was common to talk about markets or hierarchies, the first meaning decentralization and second central planning, this has changed. Now it is more common to talk about markets and hierarchies. This involves much more than replacing the conjunction “or” with “and”. It represents a real fundamental change in the way in which economic organization is studied. The combined study of law, economics and organization described here involves (a) comparative institutional analyses in which economics is the main case and action lies in the attributes of human actors, transactions and governance structures, (b) produces many refutable implications, (c) invites empirical analysis, (d) has many implications for public policy, and (e) calls for progressive formalization. Many economists are now convinced that the study of economic organization must be studied in a combined way in which law, economics and organization are linked. Legal scholars have incorporated many of these ideas into contract law, corporate governance, antitrust enforcement, and regulation. And organizational theorists have come to appreciate the pervasive scope of economic thinking. While critics are right that doctrinal analysis does not consider the bilateral structure of private law to be essential, it can nevertheless explain both how it came about to be and why it persists.
At the time of the emergence of private law, states were relatively small and had little capacity to monitor and enforce rules and regulations. In fact, Henry II arguably introduced the common law courts to exercise his power more widely in England. At the time of the emergence of these private law institutions, there were no alternative institutions to elicit the desired behavior. Modern precursors of economic thought developed at the Chicago School include Adam Smith, David Ricardo, and Frédéric Bastiat. It turns out that reward systems were used to a reasonable extent in England in the late 1700s and 1800s. Moreover, reward systems played out one of the most intense political debates in economics in the 1860s and 1870s; They have been discussed everywhere by economists – in articles, books, pamphlets and lectures. By this time, the patent system had come under heavy attack throughout Europe and was considered likely to be repealed (Otto von Bismarck had recommended its repeal in Prussia and England had set up reform commissions); In some countries (e.g. the Netherlands and Switzerland), the patent system has even been rejected for some time. Obviously, the patent system eventually prevailed, and the whole issue of rewards as a fundamental alternative to intellectual property rights almost disappeared for economists. The previous section identified a plethora of legal terms. On which of these concepts is the economic analysis of law based? Which of these concepts does it illuminate? This section deals with these issues in relation to the doctrinal concept of law, which is at the heart of legal practice.
The following section deals with these issues in relation to the sociological concept of law, which could play a role in the development of social theory. The attack on this rehabilitated legal concept was initiated primarily in the United States and came from two sources associated with opposite ends of the American political spectrum. The first was the Law and Economics movement, derived from the Chicago School of Microeconomics, which shared its basic premise that all social action is a rational attempt to maximize the actor`s material self-interest (see Law and Economics). According to this analysis, legislators are motivated solely by their desire to be re-elected (provided that effective sanctions against open corruption are in place); Therefore, the laws that produce them have no inherent logic and no necessary reference to the public interest. While these laws may suit the preferences of voting citizens, they are more likely to reflect the distorting influence of special interest groups, which can organize and raise funds more effectively than the general public (Olson, 1965). A judge who interprets such laws cannot be guided by their internal logic; all it can do is enforce the agreement reached by interest groups or interpret the law restrictively out of respect for public values (Easterbrook 1983, Macey 1986). Posner first asserted that, unlike statutory law, the common law represents a coherent doctrine that implements social policy of efficiency (Posner 1972). Other legal and economic writers quickly abandoned this implausible assertion and devoted their efforts to analyzing the self-serving motivations that lead private parties to engage in or avoid litigation and to encourage or discourage them from settling cases or adopting specific litigation strategies (Priest and Klein 1984).
This work suggests that common law, like statutory law, has no conceptual coherence and is merely the product of economic forces.