Law and Economics: Theoretical Puffery, Exaggerated Claims and Counterfactual Models

Abstract

Economic analyses of law predominate in the United States because they can claim to be objective and scientific thus verifiable and the basis of predictions and reproducible experiments. However, several of the claims of economic analysis of law go too far and are unrealistic. This explains why economic analysis of law has not been taken up outside of the U.S. to the extent it has in the U.S. This article points out the unrealistic presumptions within law and economics theory (homo economicus and efficient markets, mostly) and the unrealistic claims of law and economics (that the law is and should be a mirror of the economy). Economic analysis of law cannot and should not serve as a general basis of legal decision making. However, as a special theory applicable as a method for determining certain issues, economic methods can well inform legal decision making, helping judges to do justice. This article exposes the competing schools within law and economics and presents a defensible version of economic methodology applied within legal discourse.