Law the science of rational choices in a world

Law as a social science
is closely related to many cognates’ disciplines in the social and natural
sciences. Moreover the law does not operate in vacuum. Its relevance must relate
to the overall values of society. Economics, it is said, is the science of
rational choices in a world of limited resources. And the term ‘resources’ here
does not relate only to money but can be of any type.

Economics is the
branch of knowledge concerned with the production, consumption and transfer of
wealth. It is the condition of a region or group as regards material prosperity.
It is the social science that analyzes the production, distribution and
consumption of goods and services. Further, the economics is a science of that
social phenomenon which is due to wealth getting and wealth using activities of
Man. The word ‘Economics’ is derived from the Greek word ‘Oikonomos’ that means
to manage the house. So it means the management of a household especially in
those matters, which are relating to the income and expense of the family.
After sometimes, political economy term was also used for this topic and slowly
political economy adopted the shape of Economics. There are numerous definition
of Economics offered from time to time but there is no clear and concise
definition. Keeping in view this situation, it is been rightly stated that,
‘Political Economy is said to have strangled itself with definition.’

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Law and
economics is the application of economic methods to analysis of law. Economic
concepts 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.  In other words it is
economic analysis of law differs from the other forms of legal analysis in two
main ways. First, the theoretical analysis focuses on efficiency. The second characteristics
of law and economics are its emphasis on incentive and people’s response to
these incentives. A legal situation is said to be efficient if a right is given
to the party who would be willing to pay the most for it. There are two
distinct theories of legal efficiency states that the common law is efficient,
while the normative theory is that the law should be efficient. It is important
that the two theories remain separate and most economists accept both.


Interaction of Law and Economics

Law is set of rules
established by authority to regulate the behavior of members of a community, society
or country.1
Law is a system of rules, usually enforced through a set of institutions. It
shapes politics, economics and society in numerous ways and serves as a primary
social mediator of relations between people. Law in its sense, prescribes what
must, what may and what may not be done. It is an instrument designed to
regulate human behavior and order in the society. The theoretical analysis
focuses on efficiency. In simple terms, a legal situation is said to be
efficient if a right is given to the party who would be willing to pay the most
for it. There are two distinct theories of legal efficiency, and law and
economics scholars support arguments based on both. The positive theory of
legal efficiency states that the common law is efficient; while the normative
theory is that the law should be efficient. An important fact is that law and
economics stresses that markets are more efficient than courts.

Economic analysis
of law is usually divided into two subfields: positive and normative. Positive law
and economics uses economic analysis to predict the effects of various legal
rules. 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. According to the positive theory, a legal system
will force a transaction into the market. When this is impossible, the legal
system attempts to “mimic a market” and guess at what the parties would have
desired if markets had been feasible.

The second
characteristic of law and economics is its emphasis on incentives and people’s responses
to these incentives. Law and economics shares with other branches of economics
the assumption that individuals are rational and therefore respond to
incentives. If penalties for an action increase, people will undertake less of
that action. Law and economics is more likely than other branches of legal
analysis to use empirical or statistical methods to measure these responses to
incentives. For efficiency purposes the private legal system must perform three
functions, all related to property and property rights. The system must define
property rights, must allow for transfer of property and to protect property
rights. These are the major issues studied in law and economics.

The fundamental
and basic laws of economics are discoverable in nature of things by a series of
rigorous exercises in abstract thinking. The observation and study of concrete
data are primarily valuable for the confirmation of general principles
deductively reached. These economic laws being of the natural order of things
control and ultimately give expression to these economic laws. Economic laws
and economic life being prior to legal system, determine the form of laws.
Absence of harmony between economic theory and law is more a matter concern to
the lawyer than to the economist. As economics is the basic, fundamental
subject lying back of law and ultimately determining the form and content of
law, there appears to be no need of a detailed study of existing legal systems.

The value of law
to economics may be merely pedagogical or because of its subject-matter. There
can be no doubt that the material of the law and the method of studying the
growth and development are of the highest pedagogical value. The extended study
of numerous concrete controversial situations and the development of general
principles therefrom afford an excellent means of acquiring the mental acumen
essential to the successful solution of economic problem.


Legal Education and its Role

The primary
function of our law school continues to be the teaching of men to practice the
law as it is. Still the successful performance of this function will not
prevent the study and presentation of law historically, philosophically and
scientifically, as one of the basic social science. With the development within
our universities of faculties of law and jurisprudence there has come a truer
conception of the nature of law. Economists as well as others have not always
perceived accurately the true nature and function of law. For example, while
writing treatise on economics,2
discussing the relation of political economy to other social sciences, says of
law : ‘Law treats of the percepts and regulations in accordance with which  the actions of men are limited by the state.’
This is very narrow, partial view of the law. It is an expression of the
imperative or mandatory theory and limits law to commands or prohibitions
emanating from the state.

The level and
spread of legal education has not only been an important pre-condition for
sustained economic growth, but it has also played a critical facilitative role
in the demographic, social and political transition of different societies.
Creation, application and adaptation of new technologies, lower fertility, better
nutritional and health status of children, reproductive health and empowerment
of women, all have visible linkages with legal education attainments

The other aspect
of legal education is legal literacy among citizens. Legal literacy means
making people aware of their rights .The term ‘law’ evokes a variety of
reactions and responses. The development sector, at least in India, is on the
one hand extremely vigorous in court action, but on the other, minimally
informed about the legal system. The myth surrounding law and legal terminology
is perhaps the biggest reason for pending litigation and lack of enforcement
measures, especially in rural areas. Legal literacy is commonly understood as
knowing the primary level in law. When citizens, particularly marginalized or
underprivileged groups, know what the law has to offer them, they can recognize
and challenge injustices much more forcefully.


Significance for Economic Growth

If it is not
possible to demonstrate as a matter of theory that a reasonably well functioning
legal system is a necessary condition of a nation’s prosperity, there is empirical
evidence showing that the rule of law does contribute to a nation’s wealth and
its rate of economic growth.3 It
is plausible, at least, that when law is weak or nonexistent, the enforcement
of property and contract rights frequently depends on the threat and sometimes
the actuality of violence,4 on
family alliances that may be dysfunctional in the conditions of a modern
economy, and on cumbersome methods of self-protection.


there may be a chicken and egg problem: a poor country may not be able to
afford a good legal system, but without a good legal system it may never become
rich enough to afford such a system. Gray argues that legal and economic reform
should be pursued simultaneously.5
She notes that without economic reform, demand for legal reform may be weak
because the most powerful economic actors will have alternatives to obtain
their ends, such as prohibitive tariffs and government bailouts. Economic
reform is thus important on both the demand and supply sides of legal reform:
to stimulate the former and to generate the resources necessary for the latter.


Criticism on
Eco-Legal Studies

A legal system
does more than enforce contract and property rights; it may also enforce bad laws
that reduce economic efficiency.6 Informal
substitutes for the legal enforcement and protection of property and contract
rights. These include arbitration, with or without the legal enforcement of the
arbitrator’s award; reputation, which may be accompanied by retaliation (such
as blacklisting people who default on their contracts); merger (so that
disputes between independent firms become purely internal); bilateral monopoly,
which can provide a substitute for legally enforceable employment contracts;
strong-arm tactics, such as those used in illegal markets; and altruism, which
enables many family-owned firms to operate effectively outside a legal



The law is the
strength of our society and an essential medium of revolution. It is the only
profession which deals with the society as a whole and its problems. Society is
undergoing rapid transformation and the pace of change is likely to gather
speed. In the context of change ahead, it will be important to devote thought
on how to adopt our legal education to modern conditions so that the coming
generation may fit in the new society that is envisaged. Role of a Lawyer in a
social welfare liberal democratic state is not an easy task for him, or his
profession. Profession, which obligates him a sense of social responsibility
and expects from him to work towards social development not only filling his
own purse or coffees but shouldering a joint or collective obligation to do
justice in a society. Legal education is the basic, which only would create
such responsible and responsive social lawyering. Every society has its
contingent demands now need to be fulfilled by an instrument of law, which is
purposive human enterprise. The socio-economic development of the nation and
economic justice to the citizen can be ensured through the sensitive lawyers,
which are the product of the legal education.

1 Makaha
Rutendo (2011), “Principles of Law PART 1” available at
Visited on 15.03.2016.

Fetter, The Principle of Economics, p.6, 1911.

3 Barro,
Robert J. 1991. “Economic Growth in a Cross Section of Countries.” Quarterly
Journal of Economics 106:407–43.

4 McGrory,
Daniel. 1995. “Civilizing the Russian Underground Economy: Requirements and
Prospects for Establishing a Civil Economy in Russia.” Transnational Law and
Contemporary Problems 5(1):65–98.

5 Gray,
Cheryl W. 1991. “Legal Process and Economic Development: A Case Study of
Indonesia.” World Development 19(7):763–78.


6 This
may explain the negative correlation across countries between the number of
lawyers and the rate of economic growth. The correlation is misleading because
much of the output of lawyers consists of nonmarket goods; but these may not be
as important in poor countries as in wealthy ones.