1. Introducción a Law and Economics
Law & Economics: Foundational Concepts
Economy: The study of rational human action.
Limited by available information.
Motivated by the incentives of the operating system.
Law: Comprises rules designed to resolve conflicts between individuals.
Necessary due to the rivalry of economic goods.
Economy in Law: Involves applying economic tools to design effective legal norms.
Aims to calculate social utility and study incentives created by rules.
Rationality and Incentives
Key Assumption: People act rationally, including criminals, judges, legislators, and victims.
Rationality is not perfection; it encompasses systematic errors but still relies on predictable human behavior directed towards achieving purposes.
Purpose: To analyze legal systems by predicting the consequences of rules, given that rational individuals will modify their actions in response to those rules.
Example: If the punishment for armed robbery and armed robbery plus murder is the same, there's no additional disincentive for murder.
Forward-looking Perspective: Economic analysis primarily examines future effects and how rules modify future conduct, rather than just punishing past actions.
Economic Efficiency
Definition (Marshall's Approach): A criterion where an improvement occurs if total benefits exceed total costs, measured in terms of willingness to pay.
This approach sums up benefits and costs by asking how much people would pay for a gain or to avoid a loss, using dollars as a common unit of value.
Revealed Preference: Economic value is inferred from observed behavior (what people actually pay), not what they say they would pay.
Apple Example: If Mary values an apple at 50 cents and John at $1, its transfer to John (even if stolen) represents a 50-cent net gain in value, regardless of the price or transfer method. The efficiency lies in the apple going to the person who values it most.
Pareto Efficiency: A more restrictive definition where an improvement benefits someone and injures nobody.
Limitation: This is rarely achievable in complex societies, as most changes create both winners and losers. Marshall's approach is generally more practical.
Advantages: Operability and predictability. Offers a precise and applicable way to evaluate changes in legal rules.
Critiques/Limitations:
Ignores Justice: Focuses solely on consequences, not non-consequential criteria like fairness or justice.
However, many principles of justice (e.g., "thou shalt not steal") often correspond to efficient rules, suggesting they might be "rules of thumb" for efficiency.
Individual Values: Assumes all values (e.g., insulin vs. heroin) are equivalent if someone is willing to pay for them, as determined by their actions.
Wealth Disparity: Assumes a dollar's value is the same for everyone, but a dollar may mean more to a poor person than a rich person (marginal utility of income).
Response: In large groups, these differences tend to average out. Also, general legal rules are often ineffective at redistributing wealth; other tools like taxation are better.
Common Law and Efficiency (Posner's Thesis)
Richard Posner's Conjecture: The common law (judge-made law based on precedents) tends to be economically efficient.
Reasons:
Judges might prioritize efficiency (maximizing the "size of the pie") because redistribution through legal rules is often difficult and illusory (e.g., changes in one contract term can be offset by changes in others).
Inefficient rules tend to generate more litigation, which eventually leads to changes in those rules, suggesting an adaptive process towards efficiency.
Applications and Examples
Standards of Proof:
Civil Cases: "Preponderance of the evidence" (lower standard) is used because errors typically result in transfers (e.g., cash payments) which, on average, impose no net societal cost.
Criminal Cases: "Beyond a reasonable doubt" (higher standard) is used because errors (e.g., wrongful conviction leading to imprisonment or execution) are net costs to society, not just transfers.
Non-waivable Warranty of Habitability: Legal doctrine mandating certain apartment features.
Economic Analysis: While intended to benefit tenants, it can make rentals more costly for landlords, potentially increasing rents and making poorer tenants worse off if the mandated features cost more than the tenants value them.
Property Rights: Ownership is not simple but a "bundle of rights".
Coase Theorem (Implication): External costs (e.g., a new hotel shading a pool) are jointly produced by the decisions of both parties. Defining clear property rights allows for trade to achieve efficient outcomes, regardless of who initially holds the right.
Three Enterprises of Law and Economics:
Predicting Effects: Analyzing what consequences legal rules will have.
Explaining Existence: Understanding why particular legal rules exist (e.g., Posner's thesis on common law efficiency).
Deciding What Law Should Be: Using economic analysis as a normative criterion to determine optimal legal rules.
Conclusion: Economics provides powerful tools for understanding and improving the law, primarily by focusing on the incentives rules create and their consequences. While efficiency is a very useful measure, it is not the only one.