Research Handbooks in Law and Economics series
Edited by Thomas J. Miceli and Matthew J. Baker
Economic analysis differs from other approaches to the study of law most notably in its use of formal models to describe human behavior, and in particular, how people will respond to different legal rules. The usefulness of models is that they allow the analyst to focus on answering a specific question with respect to the particular rule under scrutiny, and to derive a clear understanding of what its effects will be, much as a controlled laboratory experiment allows a researcher to isolate a specific physical or chemical effect. Of course, there is a necessary sacrifice of realism when undertaking a modeling exercise of this sort, but the hope is that those factors that are excluded from the model are peripheral to the question at hand, and so can be safely ignored, at least as a first approximation. The most important challenge in developing a ëgoodí economic model, of law or any social phenomenon, is therefore the decision of what factors to exclude. This is the role of the modelís assumptions, and as any economist knows, debates about the quality of a model, and the validity of its conclusions, generally center on the appropriateness of its assumptions. Once the assumptions are accepted, the results usually follow logically from the structure of the model. One of the most important (and controversial) assumptions underlying virtually all economic models of law is that individuals behave in a rational manner, meaning that they pursue their self-interests, however those interests are defined in the model.