Economic Analysis and International Law

by

Leonardo Borlini, Stefano Silingardi

• LAST MODIFIED: 17 April 2025
• DOI: 10.1093/obo/9780199796953-0264

Introduction

Economics is a social science that can be defined in a few different ways. It is the study of scarcity, the study of how people use resources and respond to incentives, or the study of decision-making. Economics is a broad discipline that helps to interpret all sorts of phenomena (e.g., public policies, consumption and production, social norms, crime, trade between states, etc.). Economic analysis helps to understand historical trends and make predictions about the future, by using different quantitative and qualitative techniques. It involves the application of economic theories, models, and empirical data to assess the costs, benefits, efficiency, and impacts of decisions, policies, or events, as well as to predict economic behavior and outcomes. Overall, economic analysis provides a systematic framework for understanding and evaluating all kind of phenomena, supporting decision-making processes, among other things, in areas such as policy formulation and law making, business strategy, investment decisions, and resource allocation. It combines theoretical knowledge, empirical evidence, and analytical tools to provide insights into complex systems. On this theory, international legal norms present opportunities for states to cooperatively address global challenges from a position of mutual benefit. Critically, however, the decentralized nature of public international law—lacking a centralized governing authority—necessitates an element of self-enforcement. For international law to function effectively, states must perceive meaningful consequences for non-compliance through potential retaliation or other forms of adverse consequences. This self-enforcement dynamic, imposed through the credible threat of negative responses from other states in the international system, stands as a distinguishing feature of public international law compared to domestic legal regimes, wherein parties can typically rely on a centralized authority for law enforcement. The model posits that self-interest and self-enforcement constraints dynamically interact to sustain compliance with international legal norms over time.

Law and Economics: General Overview

Law and economics examines how legal changes influence behavior by altering relative prices of actions. Under this approach, legal rules can either promote or constrain wealth maximization, affecting the optimization constraints individuals face in their decision-making processes. Various methods of economic analysis are applied in this pursuit, including game theory, contract theory, price theory, principal-agent theory, collective action theory (such as public choice or political economy analysis), as well as the concepts of externalities and common goods. Parisi 2017 is a collected essays book which examines the origins of law and economics, its evolution across disciplines, and its prospects for ongoing development—establishing the field’s growing significance at the intersection of jurisprudence and social science. Parisi 2004 provides a shorter introduction to the origin and the evolved domain of law and economics, focusing on the different approaches held by the Chicago and Yale schools, on the one hand, and the Virginia School on the other. Calabresi 2016 considers the future of this discipline by distinguishing between law and economics and economic analysis of law, and connects the overtly economic approach to the latter. Stojanovic and Silvestri 2019 provides an analysis of the themes and chapter of Calabresi’s book. Wang 2018 offers a brief introduction to the ideas of Ronald H. Coase, another key founder of law and economics.

• Calabresi, Guido. The Future of Law and Economics—Essays in Reform and Recollection. New Haven, CT: Yale University Press, 2016.

  DOI: 10.12987/yale/9780300195897.001.0001

  In this book, one of the founders of the law and economics explores the fundamental nature of law and economics, distinguishing between the “economic analysis of law,” which evaluates the legal system through the lens of economic theory and demonstrates how economics can enhance legal effectiveness, and “law and economics,” which treats law as equally important and investigates how the more practical, less theoretical aspects of law can improve economic theory.

• Parisi, Francesco. “Positive, Normative and Functional Schools in Law and Economics.” European Journal of Law and Economics 18 (2004): 259–272.

  DOI: 10.1007/s10657-004-4273-2

  It offers a concise yet impactful introduction to the distinct approaches of the Chicago (positive) school, the Yale (normative) school, and the Virginia (functional) school of law and economics. Additionally, it presents a valuable overview of the primary journals dedicated to this field.

• Parisi, Francesco, ed. The Oxford Handbook of Law and Economics. Vol. 1, Methodology and Concepts. Oxford: Oxford University Press, 2017.

  Covering no less than one hundred topics, this book examines the origins of the field of law and economics, traces its evolution and growing significance in both the legal and economic realms, and explores its future and ongoing advancement by exploring various fields—ranging from law and neuro-economics to European Union law and economics to feminist theory—influenced by the intersection of law and economics.

• Stojanovic, Alexandr, and Paolo Silvestri, eds. Special Issue: On The Future of Law and Economics by Guido Calabresi: An Interdisciplinary Dialogue. Global Jurist 19 (2019).

  This special issue offers a cross-sectoral analysis of Calabresi 2016, addressing broader theoretical and methodological questions as well as more specific and practical issues. It also explores efforts to expand Calabresi’s ideas into new research avenues.

• Wang, Ning. “Law and the Economy: An Introduction to Coasian Law and Economics.” Man and the Economy 5.2 (2018): 1–13.

  DOI: 10.1515/me-2018-0012

  This brief contribution comments on thirteen articles by Ronald H. Coase, Nobel Prize laureate and one of the founders of law and economics. Coase identifies two distinct lines of development within the field: one that emphasizes the economic analysis of law and another that examines the economic impact of law.