Economic Analysis of Law

Introduction

The course addresses fundamental challenges faced by firms operating in legally complex environments. We will engage with questions such as:

• How can companies reduce exposure to economic crimes, such as corruption and money laundering?
• How can businesses function when courts are slow, uncertain, or ineffective?
• Why does costly litigation persist, and how should firms respond to abusive practices such as patent trolling?
• How should firms design contracts with lawyers when legal services are costly and opaque?

The course provides an introduction to the economic analysis of law, focusing on how legal rules shape behavior in real-world business settings. Its central objective is to develop a transferable analytical skill: the ability to evaluate legal and regulatory problems using economic reasoning, particularly in environments characterized by uncertainty, strategic interaction, and imperfect enforcement.

A central theme of the course is enforcement and compliance. Students analyze how the probability and severity of sanctions affect incentives, and how individuals and firms respond strategically to legal rules. The analysis covers both formal enforcement mechanisms—such as litigation, damages, and criminal sanctions—and informal mechanisms, including reputation, repeated interaction, and relational contracting.

The course examines how contracts enable mutually beneficial cooperation between parties. Instead of emphasizing legal doctrine, it focuses on how contract design can support cooperation, reduce conflict, and allocate risk, and on how firms in practice rely on reputation and long-term relationships to enforce agreements when formal legal enforcement is imperfect.

The course also covers economic crime, civil procedure, and corporate compliance, and examines how enforcement institutions influence market behavior and business strategy. Students gain insight into how firms operate and make decisions within realistic institutional environments, and develop analytical tools that can be applied directly to negotiations, dispute resolution, compliance decisions, and strategic decision-making.

Teaching is based on real-world cases, which may vary from year to year. On the exam, students will be presented with a new case they have not encountered before and must apply the analytical framework independently.
 

Course content

• Contracts and enforcement. How can contracts be designed to support cooperation and reduce conflict? How can firms operate effectively in environments where contractual enforcement is slow, uncertain, or costly

• Reputation and relationships. When can reputation and long-term business relationships sustain cooperation in the absence of legal enforcement? How do non-legal sanctions—such as career concerns, exclusion from networks, and loss of trust—shape behavior?

• Economic crime and compliance. How do legal rules and enforcement institutions affect incentives to engage in economic crimes such as tax evasion, money laundering, fraud, corruption, and insider trading? What constitutes an effective AML and compliance strategy? How can firms reduce the risk of becoming involved in economic crime?

• Civil procedure and litigation. Is litigation excessively costly in Norway? When is settlement preferable to trial? How do procedural rules influence incentives to comply with laws and contracts? How does the market for legal services function?
   

Disclaimer

This is an excerpt from the complete course description for the course. If you are an active student at BI, you can find the complete course descriptions with information on eg. learning goals, learning process, curriculum and exam at portal.bi.no. We reserve the right to make changes to this description.