Courts, Legal Rules, and Markets


What role do legal rules and courts play in a market economy? What role should they play? Why do courts make the decisions that they do, and what are the some of the problems that arise with collective legal decision making?

This chapter presents a brief overview of the theory of legal decision making, the behaviour of courts, and the production of legal rules. Section 2.2 explores the issue of whether legal rules can properly be regarded as pure public goods, and some of the economic issues surrounding government provision law enforcement activities if this is assumed to be the case. Section 2.3 examines the normative approach to legal decision making, which assumes that courts and judges make decisions based on various public interest criteria, one of which is efficiency. This section also includes a discussion and analysis of procedural and outcome fairness. In section 2.4 we take a step back from allocative efficiency and other criteria, and study a more modest role for courts - as efficient processors of information. We examine the consequences of this assumption when evidence gathering is costly and can be undertaken strategically by parties. Section 2.5 assumes that rather than enhancing efficiency or processing information, courts as biased 'policy makers' where tribunals, judges or juries have their own preferences over legal rules or outcomes. Section 2.6 examines the advantages and disadvantages associated with group decision making (as opposed to individual decision making) in legal settings.

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