Three types of analysis
In principle there are three different kinds of analysis: an evaluative analysis, a positive analysis of legal structures (economic reconstruction of legal argument), and a normative (welfare) economic analysis.
These three types differ in the economic method and approach to the problem. An evaluative analysis tries to analyse, on the basis of an economic model, the consequences of a particular legal decision or set of decisions, or else an act. A positive analysis aiming at reconstructing the structure of a legal argument or doctrine aims at illuminating complex legal reasoning that cannot be reduced to one or a few organizing principles of legal doctrine. Hence a legal theory is replaced by an economic theory. While these first two types of analysis differ in their level of abstraction, they both belong to the realm of positive (and therefore not normative) analysis. This implies that the analytical conclusions are in principle testable and therefore need to be presented in a testable form. Although it will not always be possible to run empirical tests for all the relevant conclusions of an economic analysis, an appropriate test procedure and the relevant data sources should be indicated in conjunction with a statement indicating which test results would refute the analytical conclusion.A normative (welfare) economic analysis is different. Its purpose is to distil normative conclusions from a limited set of value judgements. Since legal reasoning is based on value judgements, the task of the economist is to explore the relationship between the various value judgements underlying legal discourse and to indicate where and how they may conflict. If, for example, a particular value judgement is to be given precedence over others, the normative economic analysis can show to what extent this priority will compromise attainment of other traditional goals. In this case, the economist tries to give expression to lawyers’ values to their fullest possible extent.
Since this exercise is actually a sophisticated tool of good lawyering and thus by necessity decision oriented and normative, it does not lead to testable applications. Whether the analysis is correct or not can still be ascertained by testing its logic.
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