Justice and Efficiency… An Economic Analysis of the Law in Paraguay

What is Law and Economic Analysis? Why should I care?

Economic Analysis of Law (EAL) is an analytical method that involves applying scientific methods—commonly used in economics—to the study and explanation of the legal system. These methods and tools include statistics, cost-benefit analysis, transaction cost analysis, game theory, and behavioral economics, among others.

The AED seeks to answer two fundamental questions about the legal system and legal rules: what effect a given legal rule has on individuals’ behavior, and whether that effect is consistent with desirable goals. To achieve these objectives, it uses analytical tools and models commonly employed in economics to evaluate and anticipate human behavior. And this makes perfect sense, given that for the law—whose primary purpose is to regulate the behavior of people in society—it is quite useful to be able to understand and predict the conduct of individuals.

Many consider AED to be the most significant intellectual challenge in the study of law in recent decades. It has introduced a new perspective to the study of legal problems through the application of concepts and tools that, prior to its emergence, had been used in economic theory but are by no means exclusive to that discipline. From this perspective, these concepts help clarify legal problems by identifying the structures of incentives and disincentives generated by various legal norms or—more generally—how those norms affect individual behavior and what results from the aggregation of such behaviors.

In summary, AED proves to be an extremely useful analytical and complementary tool, as it offers a different perspective from the traditional literal interpretation of laws to which we are accustomed. These methods help provide an objective analysis of laws and legal institutions in order to determine whether or not they are effective in achieving their intended objectives.

A little history…

The AED was conceived as the result of two phases over the course of the last century. In the early decades of the last century, the relationship between the fields of law and economics was based primarily on legal disciplines that dealt with economic matters: tax law, competition law, financial law, etc. However, the perspective from which these subjects were studied always remained within the legal framework. The methods used were those typical of legal scholarship.

The turning point came in the 1960s in the United States, with two studies that are considered pioneering in the field of AED. The first was conducted by economist Ronald H. Coase and was titled ‘The Problem of Social Cost”, in which he analyzed the impact of certain regulations on the market in relation to economic concepts such as transaction costs and externalities. The second study was written by a legal scholar, Guido Calabresi, titled “Some Reflections on Risk Allocation and the Law of Non-Contractual Liability”, in which he used certain economic concepts to evaluate individual behavior in tort law.

Eventually, these studies had a significant impact on legal professionals and scholars, who began to apply economic theories and methods to various branches of law: criminal law, contract law, corporate law, dispute resolution, and even family law. This field of study, which originated in the Anglo-Saxon tradition, was called “Law & Economics” (Law and Economics), and the “Economic Analysis of Law” (Economic Analysis of Law). Today, EAL is commonly used across a wide range of legal disciplines. In some countries, it is even part of the legislative agenda ex ante, to assess the potential impact of the laws, and ex post, to review the consequences of those regulations in light of their intended objectives.

AED in Paraguay – Paraguayan Institute of Law and Economics

Founded in 2016, the Paraguayan Institute of Law and Economics (IPDE)[1] It stems from an initiative by a group of lawyers and economists who are genuinely interested in promoting and spreading this discipline throughout the country. It brings together students, professionals, and academics from various fields who are interested in the connection and impact between these two disciplines.

The IPDE is dedicated to the study and scientific research of topics related to AED. In addition, it seeks to promote the educational and scientific development of this discipline, secure funding for research (grants and scholarships), publish, edit, and print books, journals, and articles, and offer courses, seminars, conferences, and congresses. All of this is done with the aim of fostering the study and research of AED, understood in its broadest sense.

To date, the Institute has already organized several seminars and discussion sessions on “Introduction to Economic Analysis of Law.” Upcoming projects include incorporating the course “Economic Analysis of Law” into undergraduate programs in the schools of Law and Economics, publishing an introductory book on the subject, launching a digital legal journal, and, at a later stage, offering graduate-level courses for interested professionals.

22nd Annual Conference of the Latin American and Iberian Association of Law and Economics (ALACDE) in Paraguay

Following its founding, the IPDE joined the Latin American and Iberian Association of Law and Economics (ALACDE) in order to expand its network of academic connections and share the latest knowledge in this discipline. ALACDE was originally established in 1995 with the same academic objectives at the regional level, bringing together legal scholars and researchers from throughout Latin America, the United States, and Spain.

Every year, ALACDE brings together leading professionals and seasoned academics in the field to share the latest knowledge and research. This year, the 22nd edition of these conferences was held in Asunción[2], for the first time, organized by the IPDE. The central theme of this year’s conference was “ECONOMIC ANALYSIS OF THE LAW AS APPLIED TO THE PREVENTION AND PUNISHMENT OF GENDER-BASED VIOLENCE,” although research on various branches of law was also presented. The event brought together academics from prestigious universities such as the University of Chicago, Yale, Columbia, the National University of Southern Argentina, the Pontifical Catholic University of Peru, the Autonomous University of Madrid, and Diego Portales University in Chile, among others. The conference brought together lawyers, economists, journalists, students, and the general public, with the aim of providing a forum to delve deeper into specific topics within the field of Economic Analysis of Law (AED).

Finally, given the nascent—but promising—development of AED in our country, it is worth recalling the words of the illustrious Oliver Wendell Holmes Jr., a former member of the U.S. Supreme Court, who stated the following at the beginning of the last century: “For a rational study of law, the scholar who focuses on the letter of the law may be the man of the present, but the man of the future is the man of statistics and the master of economics.”

[1] For more details about the Institute and how to become a member, visit the website: www.ipde.org.py

[2] For more information, click the link: www.ipde.org.py/alacde