INTRO - WHY SHOULD

ECONOMISTS CARE ABOUT

LAW?
INTRODUCTION TO THE LEGAL SYSTEM – MODULE I

A.y. 2017/2018 Prof. Pietro Sirena

 ECONOMIC ACTORS AND LEGAL RULES
Economy develops through the combination of land,
firm, services, financial and human capital

Real-world entities, rooted

in the social environment The choice of each economic actor
and mostly designed by law (businesses, consumers) must cope with
legal rules governing property, contracts,
torts, and so on
A firm is a cluster of :
financial property (capital),
intellectual property (copyright), Law as a list of dos and don’ts (the rules of
industrial property (trademarks, patents), the game)
contracts inside it (shareholders, workers)
and outside it (suppliers, clients)
ECONOMIC WELFARE AND THE LAW
Welfare economics is that branch of economics that uses microeconomic
techniques to evaluate wellness at the aggregate level

The Economic analysis of law looks

at legal rules as tools apt to
incentivize individuals to undertake
activities that are beneficial for
the society at large

Law as an instrument of Welfare

maximization
WELFARE MAXIMIZATION

Market Failures
Market Regulation
Market equilibrium is exposed to
Legal rules may be
different risks of failure, which may
interpreted as ways to
detract it from maximizing the social
correct market failures
and economic welfare of society
MARKET FAILURES AND THE LAW
Law is necessary to detect and to prevent market failures

Negative externalities Information asymmetry Bounded rationality

Private law rules address these issues and can be applied to correct them

e.g. Tort Law e.g. Contract Law e.g. Consumer Law

LAW IN THE EYES OF AN ECONOMIST
Law has to do with efficiency (mostly private law) and distribution (mostly public
law)

Costs and benefits of any Law influences efficient

economic activity depend on the allocation and distribution of
legal framework within which resources among individuals
they are exercised

Descriptive economic analysis of law: predicts the effects of various legal

rules (How would individuals react, given a certain legal framework?)

Normative economic analysis of law: suggests policy recommendations

(How to interpret or change a given rule in order to achieve a more efficient
outcome?)
1. LAW AND THE STATE

INTRODUCTION TO THE LEGAL SYSTEM – MODULE I

A.y. 2017/2018 Prof. Pietro Sirena

 DEFINITION OF LAW
The “names” of law
Ius was the Latin for law and its etymology is obscure:

Ius quia iussum (what has

been commanded)?

just, justice, Ius quia iustum (what is just)?

jurisprudence,
jurist,
jurisdiction,
juridical
DEFINITION OF LAW
To mean law, European languages adopted a
term different than ius

Neo-Latin languages took the word directum, which meant

“straight” in the sense of “just, equal”
French: droit
Italian: diritto
Spanish: derecho

German: Recht
WESTPHALIAN PARADIGM
Domestic law International law
• The State’s sovereignty entitles • The State’s sovereignty can be
it to bind its own citizens by voluntarily self-limited by means
enacting legal rules of agreements with other States
• The way to legal nationalism • Each contracting State has a
was thus opened and led to the duty to give execution to the
major codifications of private law international agreements it has
of the 19th century entered into
 STATE LAW
Since each State creates its own law, any discourse about law is possible only
with regard to a national law, which depends upon the acts enacted by each
State (exception: international law)

A branch of legal science specifically investigates the comparison between a

national law and another, which is referred to as comparative law
European union 28 Member states (although a referendum decided
the United Kingdom shall withdraw – so-called Brexit):
• EU Institutions have power to make European legal rules
• European legal rules belong to an autonomous legal system
 SETTLING CONFLICTS OF LAWS
Example:
A contract is concluded in Italy between a French party and a German party.
The question arises whether applicable to the contract will be the Italian law, or
the French, or the German

Such collisions of laws are addressed by a branch of each legal system,

which is called international private law

• As regards States which are Members of the European union,

their international private law has been unified through
regulations of the European union
 FAMILIES OF LEGAL SYSTEMS
• René David gathers national laws of the world into “families”, which share
similar concepts and historical roots
• Within the Western legal tradition, the most important families of national
laws are two: that of civil law and that of common law
CIVIL LAW
• The basic characteristic of such jurisdictions is that they have fully
implemented the doctrine of separation of powers
Legislature Executive Judiciary

Baron de Montesquieu (1689-1755): «only the mouth that

pronounces the words of the law, inanimate beings that are
not able to modify either its force or its rigour»

• The core of private law is gathered Code civil (1804)

and systematically organized into a Bürgerliches Gesetzbuch (1900)
civil code Codice civile (1865, 1942)
 IUS CIVILE
The beginning of that tradition may be traced back to the renaissance of
Roman law between the end of the 11th and the beginning of the 12th
century
In Bologna Irnerius rediscovered the Justinian compilation,
made up in the 6th century, on the orders of Justinian,
emperor of the Eastern Roman empire

• Irnerius began to read, to comment on and to teach the Justinian compilation

• The first university of the (Western) world was thus established (the alma
mater studiorum, the university of Bologna)
• The study of Roman law, and particularly on the Pandectae or Digesta,
spread throughout Europe
 CORPUS IURIS CIVILIS
The Corpus Iuris Civilis (“Body of Civil Law”) is a collection of
fundamental works in jurisprudence, compiled from 529 to 534 by
order of Justinian I, Eastern Roman Emperor

Code (Codex)

Digest or Pandects (Digesta, Pandectae)

Institutes (Institutiones)

New Laws (Novellae Constitutiones)

 IUS CIVILE
Opinions rendered by jurists who lived in Rome between the 2nd century b.c.
and the 3rd century a.D., as collected in the 6th century a.D. in Byzantium,
were considered as the main source of law
that happened not because a sovereign had ordered so (non
ratione imperii), but because that legal thought was deemed to be
endowed with an inner rationality (sed imperio rationis)
Tremendous changes in the meanwhile occurred in society and political
institutions urged for a mighty effort of creative interpretation and adaptation
of those ancient texts
The combination of Roman law collected in the Justinian compilation and the
apparatus of its “scientific” interpretations by scholars (communis opinio
doctorum) became the law generally applicable in Western Europe
 IUS CANONICUM, IUS COMMUNE
Catholic Church, which at least from the Pope
Gregory VII (1173-1185) was organized as a political
institution, developed a law of its own

“canon law” (or “canonical law”), also based on Roman

legal thought

The main collection of canon law, the Decretum Gratiani, compiled right
before the middle of the 12th century, was given the epithet of Corpus iuris
canonici

Civil law + canonical law = “common law” (ius Master

commune), matrix of the Western legal tradition of Laws
 COMMON LAW

• After the battle of Hastings (1066), rise of a “common law”

• The political and juridical unity achieved by England already in the 11th
century prevented the ius commune of continental Europe from expanding
on the island: civil war (1642-1651) and Glorious Revolution (1688-1689)
• The tenets of the French revolution could not gain ground in England,
essentially because the democratisation of politics had already been
achieved
• Common law is not based upon acts approved by the Parliament,
particularly it is not codified
• Common law develops through a case approach by courts
• Rule of “stare decisis”, pursuant to which precedents are binding for
courts
2008
2009
2. LEGAL NORMS AND
THEIR STRUCTURE
INTRODUCTION TO THE LEGAL SYSTEM – MODULE I

A.y. 2017/2018 Prof. Pietro Sirena

 LEGAL POSITIVISM
Kelsen’s theory goes under the denomination of ‘normativism’

“Pure Theory of Law” (Reine Rechtslehre) (1933): based upon the fundamental
assumption that law consists of legal rules, or norms, which are completely
autonomous from religion, morality, and so on – in this sense, this theory is
qualified as “pure”
• Legal positivism requires that some kind of test is introduced, through which
norms can be acknowledged as such and discriminated from other, not
legally binding rule
• Such a test could solely rest on the “origin” of a norm, its “pedigree”, to wit
the process though which a norm is adopted by political institutions
• Each norm owes its validity to another norm, which governs and rules the
proceedings through which the former is enacted
 NORMATIVISM “basic norm”
• Norms are dislocated though a hierarchical (Grundnorm)
order (Stufenbau), where each of them
depends upon the higher one which stands Constitution
above it
• A norm is valid if and only if it pertains to
such a hierarchical order, which is termed
Statutes
as legal order (or legal system)

“soft positivism”: the conventional Administrative

“rule of recognition” of a norm may regulations
well incorporate, besides pedigree,
principles of justice or substantive
moral values (Hart) Custom
 STRUCTURE OF NORMS
‘Thou shalt not kill’ (‫)ל ֹא ִּת ְרצָ ח‬

This kind of absolute imperatives may be

appropriate to religion or to morality, but
not to law

• Law conveys a coercive social order, while religion binds only those who
believe in it and morality only those who accept it
• Kelsen’s theory: a norm is such not because it stipulates a command, but
because it stipulates the sanction to be applied in case the command is
disobeyed by someone
 STRUCTURE OF NORMS

IF a “state of someone will be

affairs” comes into THEN burdened with a
being “sanction”

• A norm is shaped as a ‘hypothetical independent period’, whose protasis (= the

IF-clause) consists of a state of affairs and whose apodosis (= the THEN-clause) of
a sanction
• The norm attaches a (negative) reaction of the State to a possible event or behavior
(e.g. IF a contract is breached by one of the parties which have entered into it, THEN
that party will be deprived of her/his rights towards the other)
 THE SCOPE OF NORMS
A norm is marked by two characteristics, generality and abstractness
‘treat like cases alike’
Generality Abstractness
• A norm is applicable to anybody • A norm is applicable to whatever
who finds herself in the state of event or behavior matches with the
affairs envisaged by the IF-clause state of affairs envisaged by the IF-
• A norm is addressed not to clause
individuals identified as such but to
a class of individuals who happen
to find themselves in the state of
affairs envisaged by the IF-clause