The Concise Encyclopedia of Economics
FEATURED TOPIC

Law and Economics

Paul H. Rubin
"Law and economics," also known as the economic analysis of law, differs from other forms of legal analysis in two main ways. First, 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 (judge-made law, the main body of law in England and its former colonies, including the United States) is efficient, while the normative theory is that the law should be efficient. It is important that the two theories remain separate. Most economists accept both. MORE
ALSO OF INTEREST

Government Debt and Deficits

John J. Seater

Government Growth

Robert Higgs

Unemployment

Lawrence H. Summers

Market for Corporate Control

Jonathan R. Macey

Return to top
FEATURED BIOGRAPHY

Armen A. Alchian

(1914- )
Armen Alchian, an American economist born in Fresno, California, is in many ways like Ronald Coase. Like Coase, Alchian has published only a few articles, but very few are unimportant. And like Coase's, many of Alchian's articles are widely cited.
Many students and others who read economics are disturbed by economists' assumptions that companies maximize Profits. One of their objections is that managers of companies do not know enough to be able to maximize profits. In 1950 Alchian presented a thoughtful response to this objection in his first major article, "Uncertainty, Evolution and Economic Theory." Alchian argued that even though all companies may not maximize profits, those that survive will be ones whose managers, by luck or by design, came close to maximizing profits. Therefore, those that we observe will have maximized profits. So for the long term at least, argued Alchian, for economists to derive the standard conclusions from the profit-maximization assumption, they do not need to show that all companies try to maximize profits. MORE