Title

Law, Economics, and the Theory of the Firm

Document Type

Article

Publication Date

2004

ISSN

0023-9356

Publisher

University of Buffalo School of Law

Language

en-US

Abstract

Economic analysis of the law assumes the "shadow of the law" influences the behavior of businesses. Thus, business people consider the costs and benefits of contract litigation when they make decisions about contract performance, they consider the costs of tort litigation when they make investments in safety, they consider the costs of violating a regulation when they make decisions about regulatory compliance, and so on. Economic models of law typically abstract from organizational detail and treat businesses as if they are represented by a single manager who controls the firm's behavior and acts to maximize its profit. This abstraction simplifies analysis but, not surprisingly, it limits the ability of analysts to fully explore some important legal policy questions. This Essay suggests ways to improve economic analysis of business and the law by better integrating the theory of the firm into law and economics scholarship

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