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The Elgar Companion to Law and Economics, Second Edition

Edited by Jürgen G. Backhaus

This thoroughly updated and revised edition of a popular and authoritative reference work introduces the reader to the major concepts and leading contributors in the field of law and economics. The Companion features accessible, informative and provocative entries on all the significant issues, and breaks new ground by bringing together widely dispersed yet theoretically congruent ideas.
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Chapter 33: Towards an Ideal Economic Analysis of a Legal Problem

Jürgen G. Backhaus


Jürgen G. Backhaus Introduction Economic analyses are needed for a variety of different applications. Their format will therefore differ according to the application for which they are needed. In this ‘how-to’ guide, a survey of the most important applications is offered, followed by a discussion of the steps necessary for an economic analysis of a legal problem at a professionally acceptable level. Three types of analysis In principle there are three different kinds of analysis: an evaluative analysis, a positive analysis of legal structures (economic reconstruction of legal argument), and a normative (welfare) economic analysis. These three types differ in the economic method and approach to the problem. An evaluative analysis tries to analyse, on the basis of an economic model, the consequences of a particular legal decision or set of decisions, or else an act. A positive analysis aiming at reconstructing the structure of a legal argument or doctrine aims at illuminating complex legal reasoning that cannot be reduced to one or a few organizing principles of legal doctrine. Hence a legal theory is replaced by an economic theory. While these first two types of analysis differ in their level of abstraction, they both belong to the realm of positive (and therefore not normative) analysis. This implies that the analytical conclusions are in principle testable and therefore need to be presented in a testable form. Although it will not always be possible to run empirical tests for all the relevant conclusions of an economic analysis, an appropriate test...

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