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Economic Analysis
Economic Analysis
Economic Analysis
Richard Posner, one of the Chicago School, runs a blog with Bank of Sweden
Prize winning economist Gary Becker.[54]
The most prominent economic analyst of law is 1991 Nobel
Prize winner Ronald Coase, whose first major article, The Nature of
the Firm (1937), argued that the reason for the existence of firms
(companies, partnerships, etc.) is the existence of transaction
costs.[55] Rational individuals trade through bilateral contracts on open
markets until the costs of transactions mean that using corporations to
produce things is more cost-effective. His second major article, The
Problem of Social Cost (1960), argued that if we lived in a world
without transaction costs, people would bargain with one another to
create the same allocation of resources, regardless of the way a court
might rule in property disputes.[56] Coase used the example of
a nuisance case named Sturges v Bridgman, where a noisy
sweetmaker and a quiet doctor were neighbours and went to court to
see who should have to move.[57]Coase said that regardless of
whether the judge ruled that the sweetmaker had to stop using his
machinery, or that the doctor had to put up with it, they could strike a
mutually beneficial bargain about who moves that reaches the same
outcome of resource distribution. Only the existence of transaction
costs may prevent this.[58] So the law ought to pre-empt
what would happen, and be guided by the most efficient solution. The
idea is that law and regulation are not as important or effective at
helping people as lawyers and government planners believe. [59] Coase
and others like him wanted a change of approach, to put the burden of
proof for positive effects on a government that was intervening in the
market, by analysing the costs of action.[60]