History and Theory Lineages

1910s-1930s

Analytical legal concepts before economic modeling

Law and economics did not begin only with price theory. A prior legal-analytical tradition clarified what legal relations are before asking how they affect incentives. Hohfeld's distinction between claims, privileges, powers, and immunities remains useful because economic analysis of entitlements, control rights, voting powers, and regulatory authority depends on knowing which legal position is being assigned.

• Wesley Newcomb Hohfeld, Some Fundamental Legal Conceptions as Applied in Judicial Reasoning (1913)
• Wesley Newcomb Hohfeld, Fundamental Legal Conceptions as Applied in Judicial Reasoning (1917)

1930s-1960s

Institutional origins: firms, social cost, and property rights

The field's institutional foundation came from treating markets, firms, contracts, courts, and legal rules as alternative ways of organizing exchange. Coase shifted attention from frictionless markets to the costs of using markets and the reciprocal structure of externalities. Demsetz then connected property-right formation to the changing benefits and costs of internalizing external effects.

• Ronald H. Coase, The Nature of the Firm (1937)
• Ronald H. Coase, The Problem of Social Cost (1960)
• Harold Demsetz, Toward a Theory of Property Rights (1967)

1960s-1970s

The legal system becomes an incentive system

A more general law-and-economics vocabulary emerged when tort, criminal law, remedies, and legal entitlements were analyzed through accident costs, deterrence, bargaining, sanctions, and institutional costs. The New Haven and Chicago strands differed in style and normative emphasis, but together they made legal rules legible as devices for shaping behavior under scarcity, risk, and information constraints.

• Guido Calabresi, Some Thoughts on Risk Distribution and the Law of Torts (1961)
• Gary S. Becker, Crime and Punishment: An Economic Approach (1968)
• Guido Calabresi, The Cost of Accidents (1970)
• Guido Calabresi and A. Douglas Melamed, Property Rules, Liability Rules, and Inalienability (1972)

1970s

Economic analysis of law becomes a general legal method

During the 1970s economic analysis was organized as a general method for reading legal doctrine rather than a set of isolated applications. Posner's synthesis gave legal readers a portable grammar of incentives, costs, efficiency, and institutional behavior. At the same time, welfare analysis, public enforcement theory, and later textbook treatments made the field teachable and cumulative.

• Richard A. Posner, Economic Analysis of Law (1973)
• Steven M. Shavell, Foundations of Economic Analysis of Law (2004)
• Robert Cooter and Thomas Ulen, Law and Economics, 6th ed. (2016)

1960s-1980s

Corporate control, agency costs, and the contractual theory of the firm

Corporate law became a central site for law-and-economics analysis because it connected legal form to control rights, agency costs, compensation, takeovers, monitoring, and capital structure. The firm was increasingly described as a governance arrangement for allocating decision authority and residual risk, while takeovers and securities markets were studied as mechanisms for disciplining managerial control.

• Henry G. Manne, Mergers and the Market for Corporate Control (1965)
• Michael C. Jensen and William H. Meckling, Theory of the Firm (1976)
• Eugene F. Fama, Agency Problems and the Theory of the Firm (1980)
• Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of Corporate Law (1991)

1970s-1990s

Capital-market theory reshapes securities regulation

Financial economics brought securities law into closer contact with theories of price formation, information incorporation, market efficiency, and disclosure. The central securities-law question became whether mandatory disclosure, antifraud rules, insider-trading limits, intermediaries, and private litigation improve information production and investor protection more effectively than market ordering alone.

• Eugene F. Fama, Efficient Capital Markets (1970)
• Frank H. Easterbrook and Daniel R. Fischel, Mandatory Disclosure and the Protection of Investors (1984)
• John C. Coffee Jr., Market Failure and the Economic Case for a Mandatory Disclosure System (1984)
• Ronald J. Gilson and Reinier H. Kraakman, The Mechanisms of Market Efficiency (1984)

1990s-2000s

Comparative law and finance turn legal institutions into measurable variables

The law-and-finance literature moved the field from single-jurisdiction theory toward cross-country comparison. Investor protection, disclosure, liability standards, legal origin, ownership concentration, and enforcement resources became variables for studying securities-market development. This turn also created a methodological caution: legal indices and comparative coding must be read with attention to institutional context and measurement limits.

• Rafael La Porta et al., Law and Finance (1998)
• Bernard S. Black, The Legal and Institutional Preconditions for Strong Securities Markets (2001)
• La Porta, Lopez-de-Silanes, and Shleifer, What Works in Securities Laws? (2006)
• Holger Spamann, The Antidirector Rights Index Revisited (2010)

1990s-2010s

Behavioral law and economics qualifies the rational-actor model

Behavioral law and economics did not reject incentive analysis; it asked when the standard model's behavioral assumptions predict poorly. Prospect theory, loss aversion, endowment effects, status quo bias, bounded rationality, and choice architecture entered legal analysis of settlement, defaults, consumer contracts, investor protection, judicial behavior, and regulatory design.

• Daniel Kahneman and Amos Tversky, Prospect Theory (1979)
• Kahneman, Knetsch, and Thaler, Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias (1991)
• Christine Jolls, Cass R. Sunstein, and Richard H. Thaler, A Behavioral Approach to Law and Economics (1998)
• Russell B. Korobkin and Thomas S. Ulen, Law and Behavioral Science (2000)
• Richard H. Thaler and Shlomo Benartzi, Save More Tomorrow (2004)

2000s-2010s

Financial crises move the agenda toward systemic risk and regulatory architecture

The global financial crisis pushed law and economics beyond firm-level agency costs and issuer disclosure toward systemic externalities, bank runs, short-term funding, leverage, macroprudential supervision, stress testing, resolution, and central-bank governance. Financial law became a field about institutional resilience as much as market discipline.

• Diamond and Dybvig, Bank Runs, Deposit Insurance, and Liquidity (1983)
• Basel Committee, Principles for sound stress testing practices and supervision (2009)
• Brunnermeier et al., The Fundamental Principles of Financial Regulation (2009)
• Hanson, Kashyap, and Stein, A Macroprudential Approach to Financial Regulation (2011)

2010s-present

EU financial-market governance and supervisory networks become central

For international and comparative research, the post-crisis EU regime made financial-market law an institutional-governance problem. Capital Markets Union, ESMA, supervisory convergence, conduct regulation, sustainable finance, retail investor protection, and Brexit-era market fragmentation show how law and economics now studies not only rules and incentives, but also the administrative architecture through which financial markets are governed.

• Niamh Moloney, How to Protect Investors (2010)
• Niamh Moloney, The Age of ESMA (2018)
• Niamh Moloney, EU Securities and Financial Markets Regulation, 4th ed. (2023)

2010s-present

Empirical legal studies and institutional design discipline the field

Recent work increasingly asks how legal claims can be tested, measured, and compared. Event studies, difference-in-differences designs, disclosure evidence, enforcement-resource measures, and legal-index reassessment have made method part of the field's substance. The result is a more cautious law-and-economics style: institutional claims require attention to data quality, identification, legal coding, and external validity.

• Howell E. Jackson and Mark J. Roe, Public and Private Enforcement of Securities Laws (2009)
• Christian Leuz and Peter D. Wysocki, The Economics of Disclosure and Financial Reporting Regulation (2016)
• Brown and Warner, Accuracy of Predictions in the Event Study Methodology (1980)
• Bertrand, Duflo, and Mullainathan, How Much Should We Trust Differences-in-Differences Estimates? (2004)