Shavell's Economic Analysis of Law
Economic Analysis of Law summarizes the work of Harvard Professor Steven Shavell, who has studied the intersection of law and economics for more than 35 years. It also is the title of a textbook written by Shavell, applying the basics of economic analysis to an understanding of various areas of the law, including tort, contract and property law.
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Identification
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Dr. Steven Shavell is the Samuel R. Rosenthal Professor of Law and Economics at the Harvard Law School. He also is director of the John M. Olin Center for Law, Economics and Business at Harvard. Shavell has taught at Harvard since the 1970s, starting as an economics professor. Shavell joined the law school faculty in 1980, teaching law and economics.
Function
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In a 2000 discussion paper at the Harvard Law School, Shavell wrote that the economic analysis of law seeks to identify the effects of legal rules on behavior and to evaluate the extent to which those effects are socially desirable. Economic analysis methods, such as comparing costs and benefits or costs and outcomes, can help answer these questions, thus determining the desirability of new laws and regulations.
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Types
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Shavell writes in his 2000 paper that economists and legal scholars can apply economic analysis to many areas of the law, including accidents (torts), property and contracts. Analysis of accident law considers such issues as liability, insurance and compensation of victims. In property law, economic analysis examines the justification for private property rights, use of private property and the government taking private property under eminent domain.
Features
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Applying economic analysis to accident law, Shavell examines liability for accidents, safety incentives, insurance and compensation of accident victims and the costs of litigation, such as legal fees and related costs. Overall, Shavell writes that legal rules, such as a liability system, are socially beneficial if the system's benefits outweigh litigation costs. With a liability system, Shavell notes that lower accident rates are the main social benefit. If the reduction in accidents exceeds the costs of litigation, then a liability system is worthwhile from an economic analysis perspective.
Benefits
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According to Shavell, a liability system for industrial pollution may be worthwhile if the desire to avoid liability induces industries to reduce emissions of pollutants. In intellectual property law, he concludes that a system of patents and copyrights has the benefit of spurring innovations that produce social and economic benefits. In issues of private and public property, Shavell states that eminent domain is a desirable power from an economic perspective when governments have undue difficulty purchasing land for public use.
Effects
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Economic analysis of the law also considers the economic issue of externalities, or effects that arise from the use of private property. Externalities can be positive or negative. Land beautification is an example of a positive externality, Shavell writes, while pollution is a frequently-cited example of a negative externality.
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