ECONOMICS

ASSIGNMENT

TOPIC:- RELATION BETWEEN

ECONOMICS AND
LAW

SUBMITTED BY :- SUBMITTED TO
:-
NAME :- AVINASH KUMAR MISHRA Dr. SAFIA
COURSE : - B.A.LL.B (HONS)(1ST YEAR)
SEMESTER :- 1ST
SECTION :- A

ACKNOWLEDGEMENT

I am using this opportunity to express my gratitude to everyone who

supported me throughout the course of this ECONOMICS ASSIGNMENT . I am
thankful for their aspiring guidance, invaluably constructive criticism and friendy
advice during the project work. I am sincerely grateful to them for sharing their
truthful and illuminating views on a number of issues related to the project.
I express my warm thanks to my economics mam Dr. safia for his
exemplary guidance.
I also take this opportunity to thank the staff of JAMIA MILIA ISLAMIA
who supported me very much in making of this project specially the LIBRARY
members who guided me in searching and providing the right book.
Lastly I want to thank my friends and family who are with me and supported
me whenever I needed to complete this project,and without whose help this
assignment might not be so fruitful .
 Thank you,
AVINASH KUMAR MISHRA
 CONTENTS :-

AN INTRODUCTION :- - ECONOMICS
- LAW
LAW AND ECONOMICS

 RELATION BETWEEN ECONOMICS AND LAW

 POSITIVE AND NORMATIVE LAW AND ECONOMICS

 THE ECONOMIC ANALYSIS OF LAW

 DEVELOPMENTS OF ECONOMICS AND LAW

 WHAT DOES ECONOMICS HAVE TO DO WITH LAW?

 WHAT THE LAW HAS TO TEACH ECONOMISTS?

 THE THREE ENTERPRISES OF LAW AND ECONOMICS

  UNDERSTANDING LAW AND ECONOMICS: A
PRIMER FOR JUDGES

INTRODUCTION :-

Economics

Economics is the social science studying the production, distribution and consumption of
goods and services. Economics is the study of how we work together to transform
scarce resources into goods and services to satisfy the most pressing of our infinite wants
and how we distribute these goods and services among ourselves. The term
‘ECONOMICS’ owes its origin to Greek word ‘OIKONOMIA’ meaning
‘HOUSEHOLD’.

ECONOMICS is ……

 Science of wealth.

 Science of material well-being.

 Science of choice-making.
 Science of dynamic growth and development.

LAW
Law is, generally, a system of rules which are enforced through social institutions to govern
behaviour. Laws can be made by legislatures through legislation (resulting in statutes), the
executive through decrees and regulations, or judges through binding precedents (normally in
common law jurisdictions). The law shapes politics, economics, and society in various ways and
serves as a mediator of relations between people.

SALIENT FEATURES OF LAW

1. The laws are made in form of rules & acts and they are universal in character.
2. The laws are made by legislature and issued by the sovereign authority in the form
of commands;
3. The laws forbid certain types of action which are harmful;
4. The laws prescribes penalty or punishment for breaking them and they are
enforced by sanctions;
5. The law confirm rights and creates obligations in specific relation;
6. The laws have to be obeyed not as optional but as obligations;
Laws is enacted to regulate the social and economic actons of individual .
The ultimate aim of law is social and economic welfare.

Law and economics or economic analysis of law is the application of economic theory
(specifically microeconomic theory) to the analysis of law. Economic concept are used to
explain the effects of laws, to assess which legal rules are economically efficient, and to predict
which legal rules will be promulgated

As used by lawyers and legal scholars, the phrase "law and

economics" refers to the application of microeconomic analysis to legal problems.
Because of the overlap between legal systems and political systems, some of the issues in
law and economics are also raised in political economy, constitutional economics and
political science.
No other analytical framework in the social sciences has been
used with a sufficiently fair degree of application as law and economics. Although
sociology and law, for example, has been used for more than a hundred years, it has been
the tightness of economic analysis which has allowed its application to the fullest range
of legal situations. The ability of economics to abstract from reality as a theoretical
framework and arrive at generalizations is in fact, its greatest strength.
The most predominant use of law and economics, as a disciplinal tool,
has been by the neoclassical economists and the political conservatives. Although this
paper is not intended to evaluate the correctness of these ideologies, it is observed that for
purposes of coming up with a predictive theory of behavior, the neoclassical approach
must at the very least be understood.

RELATION BETWEEN ECONOMICS AND

LAW

The study of Law without the knowledge of other related social

sciences i.e., Political theory, Sociology and Economics, etc, is incomplete. In any
law curriculum the study of Economics and Law and their interaction is
increasingly found necessary.
As Law influence Economics, Economics also influence Law. Economics
derives its aims and objectives from the study of man and must derive at least a large part
of its methodology from a study of Nature. Legal Economics is a vital part in
understanding the interactional dimension of Law and Economics.
How modern Economics can be used to illuminate a number of
legal problems. It is not sufficiently realised that the economic analysis can aid our
understanding of the Law and how economic factors limit and shape the operation of
crime control and legal systems. Economic considerations have varied and widespread
effects on the costs and benefits that prospective offenders may expect from crime, on
decisions to litigate or to settle out to court, on the significance of legal costs the practical
problems of legal administration and the provision of legal services.
 ECONOMIC INEQUALITY AND LAW
Every society contains a range of diversities . A major sources of diversities is economic
inequality .The purpose of law is to promote relative equality of citizens .To remove
economic inequality government uses the tool of fiscal measures.For this govt enacts the
progressive tax laws such as income tax Act ,the Wealth tax Act ,the Gift Tax Act, the
Estate Duties Act.
Monopoly power leads to economic concentration and inequalities.
To control and regulate the monopoly power the government enacted the monopolies and
restrictive Trade Protection Act .
Thus the removal of economic inequlities is the basis for the above enacted
laws.
ECONOMIC GROWTH AND LAW
Mostly economic growth depends on the factors of
protection ,poroductivity and trade .To regulate trade trade Indian Contract Act ,The
Partnership Act,etc. are enacted. These act are based on the concept of economic growth
through expansion of trade.
The economic growth depends on the industrial trade also.To trgulate the foreign
trade such acts as the Foreign exchange Regulation act , the Cusomes act ,the Indian
arbitration Act are made
The economics growth depends on the avaibility capital . To provide capital to
businessman ,commercial banking system came into existence.For sound operation of
money market some act such as Indian Banking Act ,the Insolvecy Act,negotiable
Instrument Act. Etc. are made.

CONSUMER PROTECTION AND LAW

Consumer welfare depends on their achievement of maximum

satisfaction. Consumer protection is a group of laws and organizations designed to ensure
the rights of consumers as well as fair trade, competition and accurate information in the
marketplace. The laws are designed to prevent businesses that engage in fraud or
specified unfair practices from gaining an advantage over competitors. They may also
provide additional protection for those most vulnerable in society. Consumer protection
laws are a form of government regulation, which aim to protect the rights of consumers.
A consumer is defined as someone who acquires goods or services for direct use or
ownership rather than for resale or use in production and manufacturing.
Consumer interests can also be protected by promoting competition in the
markets which directly and indirectly serve consumers, consistent with economic
efficiency, but this topic is treated in competition law.
Consumer protection can also be asserted via non-government organizations
and individuals as consumer activism.

ECONOMIC CRIMES AND LAW

Most of the civil and criminal cases arise due to dispute of land
and other properties.The law has to punish the crimes .Even artha sasthra of kautilya
explains the principles of administr5ations and gives the scale of punishment foe various
crimes- socilal and economic.
Such other laws and statues enacted to curb anti social activities that
hinder economic development. Economic concepts and policies are the basis for many
statutary and policies are the basis for many statutory laws and at the same time the Act
are intended for the economic welfare.Thus economic strands as the means and end of
law.
Law is a system of rules and procedures which are imposed through social
foundations to govern behavior amongst society. Laws are made by governments;
specifically by .their legislatures. The constructions of laws themselves are influenced by
the constitution and the rights encoded in there. The law shapes politics, economies and
society in countless ways and serves as a social mediator of relations between people.
When there is offense done to the law, it is called criminality. Criminality is also dealt
with the laws that are made by the legislature itself.

POSITIVE AND NORMATIVE LAW AND

ECONOMICS
Economic analysis of law is usually divided into two subfields: positive and normative.

POSITIVE LAW AND ECONOMICS

Positive law and economics uses economic analysis to predict the effects of various legal
rules. So, for example, a positive economic analysis of tort law would predict the effects
of a strict liability rule as opposed to the effects of a negligence rule. Positive law and
economics has also at times purported to explain the development of legal rules, for
example the common law of torts, in terms of their economic efficiency.

NORMATIVE LAW AND ECONOMICS

Normative law and economics goes one step further and makes policy
recommendations based on the economic consequences of various policies. The key
concept for normative economic analysis is efficiency, in particular, allocative efficiency.
A common concept of efficiency used by law and economics scholars is
Pareto efficiency. A legal rule is Pareto efficient if it could not be changed so as to make
one person better off without making another person worse off. A weaker conception of
efficiency is Kaldor-Hicks efficiency. A legal rule is Kaldor-Hicks efficient if it could be
made Pareto efficient by some parties compensating others as to offset their loss.

DEVELOPMENTS OF ECONOMICS AND LAW

 Law and economics has developed in a variety of directions. One important
trend has been the application of game theory to legal problems. Other developments
have been the incorporation of behavioral economics into economic analysis of law, and
the increasing use of statistical and econometrics techniques.
The Future of Law and Economics: by Scholars

The most prevailing view among those who predict the future of law and
economics is that it will become more technical, more rigorous, and more mathematical.
Just like its mother discipline, economics.
It is also a misguided view. It predicts, in other words, that law and economics will
become less accessible to its core audience, lawyers and policy makers, and will probably
lose its relevance to legal practice (and to most of legal academia).
Because so many people believe that this high-tech trend is the inevitable
direction of law and economics, let’s briefly understand the logic and the evidence
supporting this prediction. The logic is the law of decreasing marginal returns. Having
exhausted the pool of basic legal issues that law and economics can illuminate, scholars
in the field now need fancy machinery to reach the higher-hanging fruit.
But the future of law and economics is in taking its mature discipline and stock
of ideas and exporting them to new frontiers.

THE ECONOMIC ANALYSIS OF LAW

Economic analysis of law applies the tools of microeconomic theory to
the analysis of legal rules and institutions.
Two Strands of Thought within Economic Analysis of Law
The vast literature of economic analysis of law is not easily characterized. As the
set of distinct claims suggests, the literature contains a large number of different projects.
We identify two distinct strands of thought within economic analysis of law. We shall
call one strand policy analysis and the second strand political economy.
 These two strands may be differentiated along a number of dimensions.

1. policy analysis generally focuses on analysis of the effects of legal rules

and institutions on outcomes. An outcome usually consists of the “objective” effects
of the rule or institution on the behavior of “private” individuals. By contrast, political
economy generally investigates the operation of political institutions such as courts,
legislatures, the executive and administrative agencies; it usually focuses on the
behavior of the public officials within those institutions. Ideally, one would trace the
effects of different institutional rules and structures through the behavior of public
officials to the effects on the behavior of private individuals.

2. Related to the first, policy analysis generally assumes that public

officials in general and judges in particular, are conscientious. Judges thus enforce the
legal rules as they are announced, regardless of the judge's own view of the
desirability of the legal rule or its impact on her personally. Political economy, by
contrast, assumes that public officials have the same motivation as private individuals;
they are self-interested. In the context of adjudication, as will be elaborated below, the
political economist interprets self-interested judicial behavior as decisions that
promote the policy preferences of the judge.

3. Policy analysis generally adopts a welfarist stance towards evaluation of

legal rules while political economy has evolved from a more contractarian tradition.
Political economy, however, has to a large extent emerged from an economic
tradition, exemplified by James Buchanan , that rejects the maximization of social
welfare as a criterion and seeks to evaluate political institutions on grounds of consent
or, more generally, within the contractarian tradition

4. We might understand the distinction between policy analysis and

political economy as a difference in the view of the instrumentalism of law.
 “Instrumentalism” here means that an agent designs the law to promote some
collective goal. A more careful definition would specify the agent who designs, the
meaning of design, what counts as “law,” and what is a collective purpose.
These differences in the level at which law is instrumental, if the law is
instrumental at all, suggest that the two strands of economic analysis of law will adopt
different approaches to the study of adjudication.

What Does Economics Have to Do with Law ?

You live in a state where the most severe criminal

punishment is life imprisonment. Someone proposes that since armed robbery is a very
serious crime, armed robbers should get a life sentence. A constitutional lawyer asks
whether that is consistent with the prohibition on cruel and unusual punishment. A legal
philosopher asks whether it is just.
An economist points out that if the punishments for armed robbery and for
armed robbery plus murder are the same, the additional punishment for the murder is
zero—and asks whether you really want to make it in the interest of robbers to murder
their victims.
That is what economics has to do with law. Economics, whose subject,
at the most fundamental level, is not money or the economy but the implications of
rational choice, is an essential tool for figuring out the effects of legal rules. Knowing
what effects rules will have is central both to understanding the rules we have and to
deciding what rules we should have.
Rationality does not mean that a burglar compiles an elaborate
spreadsheet of costs and benefits before deciding whether to rob your house. An armed
robber does not work out a precise analysis of how shooting his victim will affect the
odds of being caught, whether it will reduce the chances by ten percent or twenty. But if
it is clear that it will reduce the risk of being caught without increasing the punishment,
he is quite likely to pull the trigger.
Whether armed robbers should get ten years or life is not a burning issue for
most of us. A question of considerably more importance is the standard of proof. In order
for you to be convicted of a crime or to lose a civil case and have to pay damages, just
how strong must the evidence against you be?
It is tempting to reply that nobody should be punished unless we are certain
he is guilty. But by that standard, nobody would ever be punished; the strongest evidence
establishes only a probability. How far short? Raising the standard of proof reduces
the chance of convicting an innocent defendant but increases the chance of acquitting a
guilty one.
Economics suggests a simple explanation. The typical result of losing a
lawsuit is a cash payment from the defendant to the plaintiff. The result of being
convicted of a crime may well be imprisonment or execution. A high error rate in civil
cases means that sometimes I lose a case I should have won and pay you some money
and sometimes you lose a case you should have won and pay me some money.
If my analysis of the effect of this legal doctrine seems implausible,
consider the analogous case of a law requiring that all cars be equipped with sunroofs and
CD changers. Some customers—those who would have purchased those features anyway
—are unaffected. Others find that they are getting features worth less to them than they
cost and paying for them in the increased price of the car.
This is a very brief sketch of a moderately complicated economic problem, and
the result is not quite so clear as the sketch suggests. In any particular law
case, it looks as though what is at stake is how the legal system will deal with this
particular set of events, all of which have already happened. From that backward-looking
point of view, it is often hard to make sense out of existing law. The reason is not that
law does not make sense but that we are facing in the wrong direction.
The economist offers a different response. The mistake is not in
looking at consequences but in looking at the wrong consequences, backward at a
murder that has already happened instead of forward at murders that may happen in
the future.

The Proper Application of Economics to Legal Theory

This is one explanation for the controversial nature of economics within

the legal academy. On the one hand, it offers the possibility of making sense out of what
legal academics do. On the other hand, it asserts that in order for legal academics to fully
understand what they are doing, they must first learn economics.
A second reason economic analysis is controversial is that it
sometimes produces conclusions with which many legal academics disagree. Scholars
who apply economic analysis to law are routinely charged with conservatism, not in the
literal sense of wanting to keep things unchanged (in that sense the traditional scholars in
any field are the conservatives and the challengers the radicals) but in the current political
sense.
There is some truth to this claim—more if "conservative" is
changed to "libertarian." Part of the reason is the economist's underlying assumption that
individuals are rational. While that assumption does not, as we will see, eliminate all
reasons for wanting to interfere with market outcomes, it does eliminate many. And while
rationality is an optimistic assumption when applied to individuals who are supposed to
be acting for their own interest—buying and selling, signing contracts, getting married or
divorced—it can be a pessimistic assumption when applied to people who are supposed
to be acting in someone else's interests, such as judges or legislators.
But while economists are more likely to get some answers and less likely to get
others than traditional legal scholars, the principal effect of economic analysis is to
change not the conclusions but the arguments—for both sides of any controversial issue.
 What the Law Has to Teach Economists?

Economists have something to learn as well.

Economics applies its general theory largely to abstract
concepts—property, exchange, firms, capital, labor. Quite a lot of what lawyers
and law professors do involves dealing with the same concepts in their real-world
incarnation.
An economist can talk about someone owning a piece of land and assume that that
is the end of it. A lawyer dealing with property is brought face to face with the fact that
ownership of land is not a simple concept.
These issues show up in real cases that real judges and lawyers have
to deal with. The more you think about them, the clearer it becomes that what you
own is not a piece of land but a bundle of rights related to a piece of land . For
example … .
Someone builds a new hotel in Florida that shades the
swimming pool of the next hotel down the beach. The owners of the old hotel sue for
damages. Conventional economic analysis holds that they should win. The new hotel
imposes a cost on the old; making its builder liable forces him to include that cost—what
economists call an external cost or externality—in deciding whether or not the new hotel
is worth building. What we have are not costs imposed by one person on another but
costs jointly produced by decisions made by both parties.
THE THREE ENTERPRISES OF LAW AND ECONOMICS

Economic analysis of law comprises three closely

related enterprises:
Predicting what effect particular legal rules will have?
Explaining why particular legal rules exist?
Deciding what legal rules should exist?.

The first is the least controversial. While many people believe that the
consequences of a law are not the only thing determining whether it is good or not, very
few believe that consequences are irrelevant. To the extent that economic analysis helps
us perceive consequences of laws and legal decisions, especially consequences that are
not obvious, it is useful to anyone trying to make or understand law. If imposing a life
sentence for armed robbery results in more murders, that is an argument, although not
necessarily a decisive argument, against doing it. If restrictions on the terms of leases
make both landlords and tenants worse off, that is an argument, probably a decisive
argument, for letting them set the terms themselves.
The second enterprise is using economics to explain
the existence of the legal rules that we observe. This is a hard problem. Legal rules are
created by legislatures and courts—and we have no very good theory, economic or
otherwise, to explain the behavior of either. From a theoretical standpoint, the project is
part of the field of economics known as public choice theory, an area still very much on
the intellectual frontier.
There is, however, one conjecture about law that has played a central role in
the development of law and economics. This is the common law, that part of the law that
comes not from legislatures but from the precedents created by judges in deciding cases,
tends to be economically efficient.

UNDERSTANDING LAW AND ECONOMICS:- A PRIMER

FOR JUDGES

DECISION-MAKING AS APPLICATION OF LEGAL THEORY

Law-making, as practiced by both by the legislature and the judiciary

carries implicit beliefs about human existence and the nature of society. Each resolution
of a conflict, presupposes a theory about the nature of law. While there are predominant
schools of thought on the matter, the exercise of the judicial function requires a judicious
choice of a legal theory, in accordance with what the judge believes to be true and
represents the essence of the legal system. Some theories believe that law springs from a
source higher than human desire and choices. Some believe that law is nothing more than
the-external and objective manifestation of societal choices and is therefore value-free.
Since it is indisputable that a judicial decision affects the behavior of society, whether the
behavior of direct litigants in the case, those incidentally affected, and future actors, the
fact that decisions mold lives and societies inevitably impress the necessity of choosing a
theory which compels intellectual assent. In other words, it must be a choice which will
prove to be correct in the light of the experience and inner convictions of the law-maker
or the judge who interprets the law.
In turn, a good lawyer must understand the philosophical bias behind a
position, whether it be that of the Constitution, a particular judge, or a piece of
legislation, so that a more effective case can be made for his client cause. A good lawyer
can make use of the economic tools available in order to present his point. A judge, in
the same manner, will benefit from the same analytical tools to unlock the rock-bottom
position of litigants before her court.
BIBLIOGRAPHY : -

BOOKS REFERRED..
1. S. R. MYNENI (ECONOMICS FOR LAW STUDENTS)
2. THE INSTITUE OF C.A. OF INDIA (GENERAL ECONOMICS)

WEBSITE : -
1. http://www.google.com
2. http://www.wikipedia.org
3. http://www.lawindia.com
4. http://www.economics.com