–Aniruddha Pratap

The most influencing insight which economic analysis of law provides is that human actors respond to incentives. This insight has two implications; first, law can be employed as an apparatus to bring in socially desirable behaviour as well as to discourage socially undesirable behaviour. In other words, law can be used as tool by policy makers to subsidize socially desirable behaviour and tax undesirable behaviour. Secondly, law can be used from the perspective of efficiency and distributive concerns i.e. it can be used as a device to encourage or discourage the production of social resources as well as a tool for efficient allocation of such social resources. To exhibit in a coherent manner the repercussions of the incentives on people in a legal system the analysts borrowed from economics the ‘rational choice theory’ which focuses on assumptions relating to how human actors respond to incentives. These assumptions were then applied to the domain of law to understand how law as a tool can be used in incentivising and de-incentivising certain behaviour. Thus, these incentive effects of legal rules were studied and analyzed in designing an efficient legal policy to attain desired social behaviour.

To see how to apply this analysis to corruption, read here.