Relation between Economics and Law Essay

The study of fairness without the noesis of other related loving sciences i.e., Political theory, Sociology and political rescue, etcetera is incomp allowe. In any truth curriculum the study of Economics and Law and their interaction is increasely put necessary.As Law influence Economics, Economics also influence Law. As a matter of fact Economics forms the basis of the study of Law. Economics reflects the socio- frugal ethos of the country in weakenicular and valet in customary. It becomes out of get wind and mis makeing if the Economic ethos change. But it was proved to be wrong by Dalton. The organisation, industrial structure and performance buzz off changed in the thirty years. E.g. form _or_ system of government goals, form _or_ system of government instrument, Economic institutions.Economics totals 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 spanking part in pinch the interactional dimension of Law and Economics, i.e., how modern Economics post be stintingalal consumptiond to illuminate a number of legitimate problems. It is non sufficiently realised that the sparing analytic thinking support aid our down the stairsstanding of the Law and how economic factors limit and shape the operation of crime hear and police forceful systems. Economic considerations have varied and widespread effects on the costs and eudaimonias that prospective offenders may expect from crime, on decisions to litigate or to settle out to court, on the signifi kittyce of sanctioned costs the matter-of-fact problems of effectual administration and the provision of legal live on. Law and legal policy help to adjust the behavior of the economy. There argon extensive legal constraints on the altogetherocation and the distri thation of resources and on cut into and housing merc turnises.The amicable functions of Law ar broadly classified int o three(1) Encouraging substantially behaviour and discouraging bad behaviour.(2) Facilitating the people to transactions among themselves in nonionic legal system.(3) Distributing and re-distributing level-headednesss and services to the people.Law normally enters the scene in d execration guises as public impartiality, and as private beneficialice. The range extent of stir intervention depends on the socio-economic ethos of each country. Western countries for a long age believed in laissez bring togethither position, i.e. republic interference in the economy will lead to misallocation of resources, economic inefficiency and a net riches loss. Areas of law such as tangency, tort and consumer protection legislations have obvious effects on pecuniary dealings.In this changing scenario, there is need for guidance on the economic policy decisions by the legislature and courts which atomic number 18 increasingly involved with policy questions. Policy making courts need a behavioural theory of call up responses to change in Law and to evaluate these responses systematically according to prescriptive standard.Ours is a foodstuff place-oriented economy based on private enterprise. This implies devil conditions- first, that all property force out be privately own and second, that people atomic number 18 economically free, i.e. subject to obedience to the law, they are free to use their age and means as they like. This is however, subject to the laws and regulations made by the society for the general good, otherwise it will lead to favorable cost.The classical economists, such as Adam Smith and his followers Marshall, Ricardo, Marthus, etc, believed that in a market economy perfect competition operates and through price mechanism (invisible hand) supply and take on of goods and services will reach equilibrium. Therefore, any interference in the market mechanism by the disk operating system will lead to economic counterbalance and result in the economic inefficiency. Perfect competition operates lonesome(prenominal) if the followers conditions are satisfied(1) Too legion(predicate) buyers and sellers,. They are price-takers and non price-givers(2) dear knowledge of the products transacted in the market(3) Homogeneity of products (product dissimilariation is not possible) and(4) cypher or negligible transaction costs.However, due to fast economic outgrowth after the Industrial Revolution, the conditions mentioned above did not operate resulting in orbit Depression and complete collapse of the market system (in 1930s). In these circumstances, J.M. Keynes, a well known economist propounded a new theory. He tell the invisible hand relied upon by classical economists had developed arthritis and the visible hand of the Government was needed to cover the malady. He, therefore, advocated limited State intervention to correct the defects in the market mechanism so that the market operations lav be revived and equil ibrium achieved. He had faith in the market oriented economy. Later it was realised by the welfare and the third knowledge base economists that limited State intervention will not work and full intervention is necessary for the following reasons(1) buckram increase in the dissimilarity surrounded by private goods and well-disposed goods, i.e., economic development results in rapid industrialisation which in turn increases the tempo of urbanisation.(2) Rise of monopolies lead to straining of the price system in the market economy through treatment of supply of products and selling standard products, etc.(3) Rise of advertisement and propaganda(4) Steady increase in the divergence between private cost and social cost.Therefore, the introduction of a number of laws to protect environmental pollution (air, body of water and sound) has become necessary. The second skylark of the market economy is the protection of property. obstinacy and ownership of property has been justifie d in economic theory because it is creative and contributes to economic growth. Propery pay offs are one of the incentives for efficient resource use. If there are no property rights, but parkrights, then economic behaviour takes a new form.Due to technological revolution and growth, the intangible, aspects of property surfaced and they had to be protected for economic development. Therefore, the definition of property has been widened to include not only physical property but also the intellectual property (i.e. goodwill, patents, copyright, etc). This wider definition of the property is attractive to economists and predates modern work on Demand speculation which in fact focuses on the characteristics of a goods rather than the goods it.The third feature of the market economy is vex. Under the classical judgments, contract between the two parties are binding and no third party can interfere. This, of crinkle is subject to the exceptions leaved in the Contract Act (i.e. co ntact by minors, lunatics, idiots, etc. Contracts obtained by fraud, coercion, undue influence are all void contacts).In India the sanctity of contract has been given go-by. The Supreme Court in many cases held that court can interfere in the contractual relations. For e.g., Justice Hidayatullah held that friendly evaluator is not based on contractual relations and is not to be enforced on the principles of contract of service. It is something outside these principles, and is invoked to do justice without a contract to back it.The right to personal security under the welfare State has been given to a greater extent social interpretation which includes(1) the right of the worker to be protected against the risk of sickness, unemployment and old age,(2) his right to be protected by social insurance, and(3) His right to enjoy the necessary services of Government loosely called Social Services.Another area in contract law which made inroads in the concept of sanctityof contract is con sumer protection law inas overmuch as changed role in freedom of contact is viewed as one of the foundations of a well organised society. Broadly, there are four reasons for the use of consumer protection laws(1) The doctrine of caveat emptor does not make sense in the modern world since information is unsymmetrically distributed.(2) The free market system does not lead to optional use of resources.(3) The value judgement implicit in the devil take the hindmost attitude to the parting of money from a fool is now much less widely held.The economic consequences of consumer protection laws are- the legislation produces a different outcome with respect to resource allocation, prices and income distribution to that which would otherwise occur, and it results in the companies devoting more resources to quality control or even withdraw from some markets resulting in higher market prices and different resource allocation.INTERNATIONAL DIMENSIONS OF LAW AND economicsThe marrying of Econo mics and Law is not new. According to Posner, much of the everyday law can be developed in economic price and all branches of common and statue law has been examined in the light of this theory. Empirical research has proved that law has developed according to the economic structure of the country. Economic analysis is part and parcel of several law courses. Besides, there are many courses this instant on Economics and Law (Legal Economics).At present it is probably fair to say that most attorneys find it quite difficult to see how they can make use of or even sense of such of the work done by economists on law however, there are increasing signs of legal writers taking explicit account of economic arguments. There be however considerable scope for further work on bridging the gaps between the disciplines. The high flown values that legal principles express are examined by legal economists in the light of their efficiency and their social effect and not just their self defined moral content.WHAT IS LAW? In laymans language law is the definition and enforcement of social norms.WHY LAW? To throw socio-economic equilibrium in the society. If viewed in the static sense, then the preservation of the lively rights in the society is the purpose of the law. That is why positive law defines and defends alive rights in the society. There are three casts followed by the non communist countries, i.e.(1) comminuted capitalist model in a market economy where the State plays no role and market forces decide how the market operates(2) Mixed thriftiness model with capitalist orientation, where state plays a minor role, corrects failures in the market operations and leaves the rest to the market forces, and(3) Mixed economy with socialist orientation, where the State plays a major role, i.e., interferes in the market operations not only to correct market failures but also to social justice, not because states are richer, but people have a different concept and expe ctations from the State.The economic analysis of law is bear on with efficiency, i.e. rational allocation of curious resources with lest cost to attain maximum satisfaction. In law, people are concerned with justice only and not about its cost. If there is conflict between efficiency and justice, the character of pot-offs can be illuminated by economic analysis and since the attainment of justice involves the use of resources, the economic antenna can contribute to normative discussions by providing information on the costs of justice. utilize of Economics does not predict the impact of law, but to describe and explain the law-to provide it with an economic rationale.The third important feature of economic analysis of law is the resurgence ofNeo-Institutional Approach by making not the transaction, the staple fiber unit of analysis.THE BROAD CHARACTERISTICS OF NEO-INSTITUTIONAL APPROACH (NIA) ARE(1) It is Taxonomical. It lists a set of economically relevant categories that are useful for examining the law(2) It is more micro-analytical. It focuses on the detail of the environment in which the transaction takes place and suggests an empirical approach that requires the order and compilation of relevant data(3) It rejects market equilibrium analysis and instead places emphasis on the adaptation to disequilibrium and(4) It investigates specifically institutional phenomena and uses these to develop conceptual categories.Our Constitution works on an economic system and not in vacuum. Ours is a market oriented economy where efficiency is the sole bar and it has no place for a non economic input like social justice. Thus, there is a conflict between equality and efficiency. In a market economy where efficiency is the sole criterion, law plays a brisk role in determining the efficiency of the economic activity it regulates. A law is good if it guarantees and promotes economic efficiency and bad if it impedes or disrupts it.The common criticism levelled again st this approach is that by concentrating only on efficiency, it ignores justice in the sense that market system by encouraging efficiency, tolerates inequality of income and wealth resulting in unequal distribution of economic opportunity, thus violating the core objectives of our Constitution. However, there is a second meaning of justice i.e. in a world of scarce resources, waste or misuse of resources is considered as immoral and good law can prevent the misuse of resources and achieve efficiency and justice. In this approach, both are complementary. As Posner observes, the demand for justice is not free lance of its price.A major contribution of economics is the framework that it gives the lawyer systematically to evaluate legal policy, reveal important trade-offs and interrelationships between legal goals and trace through the probable effects, costs and benefits of different laws. The economic approach not only provides an integrated treatment of the side effects but been re sponsible for drawing attention to the more subtle and hitherto unrecognised effects. Another contribution of economic analysis of law is that it treats legal rules as a system of incentives and disincentives which influences the actions of potential litigants.The law is seen as guiding the behaviour of groups or individuals and on the assumption of economic rationality the economic model is able to predict the direction of the response. Thus the economists tend to focus on the general effects of law such as the impact on trading behaviour of different contract remedies. This emphasis differs significantly from the trend most lawyers are accustomed with grievances and of resolving individual disputes peaceablenessfully, fairly and systematically with legal doctrine.Law has also influenced socio-economic policies. Laws and legal policy help to determine behaviour of the economy. In this context, prof Barker observes that, If Economic factors and economic interests have partly det ermined the legal framework, it is even more true that law has furnished the whole general framework of rules within which and under which the factors and interests of economics have had to work. Legal Reform Legislations, Trust Law, Abolition of Bonded craunch (Art 23(1) of the Constitution), etc. are classical examples of how law has influenced the economic behaviour in the market economy.Legal constraints on the allocation and distribution of resources and on labour and housing markets which affect the economic activities in the market. These aspects have become vital in the globalisation of the economy and revival of the markets with privatisation as the focal point. Prof Paul Burrow said that, Economics and Law can provide insights in places where traditional legal analysis fails to penetrate. It is essentially nature of the two disciplines that makes us optimistic that collaboration between lawyers and economists will be increasingly fruitful in the upcoming.TORT LAWThe firs t study of our study on the Economic Analysis of Law will be Tort Law because torts were one of the first bodies of Common Law to which ceremonious economic models were applied.The broad features of tort law are(1) It deals with civil offences only, i.e. trespass, nuisance, defamation, economic loss, etc.(2) it is judge-made law and therefore is flexible (unlike immoral law)(3) Tort Law aims at compensation as opposed to criminal prosecution which aims at punishment.There are three elements in torts(a) Breach of commerce owned to the plaintiff by the defendant(b) Harm suffered by the plaintiff and(c) The pique being the immediate or proximate cause of the harm.Breach of duty must give rise to measurable damages, valued in terms of money or moneys worth.The four possible bases of the action for damages are(a) Appeasement(b) Justice(c) Deterrence and(d) Compensation.(1) APPEASEMENT The objectives of both tort and criminal laws are to encourage good behaviour and discourage bad be haviour. The victim receives money as appeasement and he is pleased that aggressor is fire by being made to pay. By this means, the victim is induced to let off stream within the law rather than outside it.(2) jurist two variants of this theory are(a) The principle of Ethical Retribution the pavement of compensation is an evil for the offender and that justice requires that he should suffer this evil.(b) The regulation of Ethical Compensation this looks from the point of the victim. The payment of compensation is a benefit to the victim of the wrong and justice requires that he should receive compensation.(3) DETERRANCE the action in tort is a judicial parable designed to control the future conduct of the community in general. According to Austin, the proximate end of evil action is redress to the injured party but its remote and preponderating end is the same as that of the criminal sanction, the presentation of the offences generally.(4) COMPENSATION Compensatory or reparativ e theory demands that one who has caused injury to another must make good the damage whether he was at fault or not. It justifies strict liability.Be that as it may, we are concerned as students of Legal Economics with economic efficiency objectives of tort law. Before that we will discuss briefly the legal objectives of tort. Holmes and later others are of the opinion that tort law has no interests in shifting the loss from the victim of an accident to others unless this serves some special objective, ranging from vindication, preserving the peace by buying off the victims, desireto retaliate, ethical retribution, compensation and intimidation the connected question is whether Common Law imposes liability for failure to resume. This concept has been rejected as not practicable since it is difficult to set limits of social interference with individual liberty.ECONOMIC EFFICIENCY it is not concerned with worship or social purpose, etc, as in legal objectives of tort liability. It r equires the minimisation of three costs(a) The losses due to accidents(b) The cost of preventing the accidents and(c) The costs of administering a system of accidental law.In the light of the above discussion, we can safely conclude that the Tort Law, in India, is out of date, costly and reliefs meagre. As a result, it is economically inefficient, apart from special injustice caused to many of the victims of civil offences. deal LAWIn a market oriented economy, the core concepts are property and contacts. These are basically, economic concepts, but law regulates them, contracts are devices for facilitating trade and economising costs of making transactions. By trading in promises for future delivery, traders can reduce uncertainty about the future. This requires adequate legal safeguards so that both the parties to the contract are secure and pan their activities accordingly.