ABSTRACT
The economic analysis of law is probably the dominant legal methodology in US scholarship, and one that is slowly growing in importance in Europe, although it is still a far from mainstream methodology in most EU and UK law schools. Economic analysis is based on rational choice theory, which ultimately rests on the assumption that humans are rational beings who behave accordingly. Thus, the economic analysis of law revolves around the model of the economic man (or homo economicus). A close look at the criterion of Kaldor-Hicks efficiency makes it clear that the analysis under welfare economics is not concerned with whether compensation or redistribution is actually achieved by a given rule or legal reform, but it simply focuses on whether that would be possible in economic terms. One of the areas where the insights of economic analysis of law are clearly consolidated (and relatively uncontroversial) concerns the analysis surrounding the concept of transaction costs, and the related Coase theorem.
