Law and Economics

Philosophical Issues and Fundamental Questions

Aristides Hatzis, Nicholas Mercuro, Aristides N. Hatzis, Nicholas Mercuro

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317550310
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

The Law and Economics approach to law dominates the intellectual discussion of nearly every doctrinal area of law in the United States and its influence is growing steadily throughout Europe, Asia, and South America. Numerous academics and practitioners are working in the field with a flow of uninterrupted scholarship that is unprecedented, as is its influence on the law.

Academically every major law school in the United States has a Law and Economics program and the emergence of similar programs on other continents continues to accelerate. Despite its phenomenal growth, the area is also the target of an ongoing critique by lawyers, philosophers, psychologists, social scientists, even economists since the late 1970s. While the critique did not seem to impede the development of the field, it certainly has helped it to become more sophisticated, inclusive, and mature. In this volume some of the leading scholars working in the field, as well as a number of those critical of Law and Economics, discuss the foundational issues from various perspectives: philosophical, moral, epistemological, methodological, psychological, political, legal, and social.

The philosophical and methodological assumptions of the economic analysis of law are criticized and defended, alternatives are proposed, old and new applications are discussed.

The book is ideal for a main or supplementary textbook in courses and seminars on legal theory, philosophy of law, jurisprudence, and (of course) Law and Economics.

Law and Economics

The Law and Economics approach to law dominates the intellectual discussion of nearly every doctrinal area of law in the United States and its influence is growing steadily throughout Europe, Asia, and South America. Numerous academics and practitioners are working in the field with a flow of uninterrupted scholarship that is unprecedented, as is its influence on the law.

Academically, every major law school in the United States has a Law and Economics program and the emergence of similar programs on other continents continues to accelerate. Despite its phenomenal growth, the area is also the target of an ongoing critique by lawyers, philosophers, psychologists, social scientists, even economists since the late 1970s. While the critique did not seem to impede the development of the field, it certainly has helped it to become more sophisticated, inclusive, and mature. In this volume some of the leading scholars working in the field, as well as a number of those critical of Law and Economics, discuss the foundational issues from various perspectives: philosophical, moral, epistemological, methodological, psychological, political, legal, and social.

The philosophical and methodological assumptions of the economic analysis of law are criticized and defended, alternatives are proposed, old and new applications are discussed.

The book is ideal for a main or supplementary textbook in courses and seminars on legal theory, philosophy of law, jurisprudence, and (of course) Law and Economics.

Aristides N. Hatzis is an Associate Professor of Legal Theory at the University of Athens, Greece.

Nicholas Mercuro is Professor of Law in Residence at the Michigan State University College of Law and Member of the Faculty of James Madison College, Michigan State University, USA.

The economics of legal relationships

Sponsored by Michigan State University College of Law

Series Editors:

Nicholas Mercuro

Michigan State University College of Law

Michael D. Kaplowitz

Michigan State University

1 Compensation for Regulatory Takings

Thomas J. Miceli and Kathleen Segerson

2 Dispute Resolution

Bridging the settlement gap

Edited by David A. Anderson

3 The Law and Economics of Development

Edited by Edgardo Buscaglia, William Ratliff and Robert Cooter

4 Fundamental Interrelationships Between Government and Property

Edited by Nicholas Mercuro and Warren J. Samuels

5 Property Rights, Economics, and the Environment

Edited by Michael Kaplowitz

6 Law and Economics in Civil Law Countries

Edited by Thierry Kirat and Bruno Deffains

7 The End of Natural Monopoly

Deregulation and competition in the electric power industry

Edited by Peter Z. Grossman and Daniel H. Cole

8 Just Exchange

A theory of contract

F.H. Buckley

9 Network Access, Regulation and Antitrust

Edited by Diana L. Moss

10 Property Rights Dynamics

A law and economics perspective

Edited by Donatella Porrini and Giovanni Ramello

11 The Firm as an Entity

Implications for economics, accounting and the law

Edited by Yuri Biondi, Arnaldo Canziani and Thierry Kirat

12 The Legal–Economic Nexus

Warren J. Samuels

13 Economics, Law and Individual Rights

Edited by Hugo M. Mialon and Paul H. Rubin

14 Alternative Institutional Structures

Evolution and impact

Edited by Sandra S. Batie and Nicholas Mercuro

15 Patent Policy

Legal-economic effects in a national and international framework

Pia Weiss

16 The Applied Law and Economics of Public Procurement

Edited by Gustavo Piga and Steen Treumer

17 Economics and Regulation in China

Edited by Michael Faure and Guangdong Xu

18 Law, Bubbles and Financial Regulation

Erik F. Gerding

19 Empirical Legal Analysis

Assessing the performance of legal institutions

Edited by Yun-chien Chang

20 Predatory Pricing in Antitrust Law and Economics

Nicola Giocoli

21 The Role of Law in Sustaining Financial Markets

Edited by Niels Philipsen and Guangdong Xu

22 Law and Economics

Philosophical issues and fundamental questions

Edited by Aristides N. Hatzis and Nicholas Mercuro

1. * The first three volumes listed above are published by and available from Elsevier

1 Norms and values in the economic approach to law

Richard A. Posner^*

DOI: 10.4324/9781315730882-1

The economic approach to law (“law and economics,” “economic analysis of law”) embodies norms of two types: procedural or epistemological norms, the norms of scientific inquiry; and moral or political norms, which come into play when the economic approach is used as a basis for making proposals for legal reform. The two types of norms correspond to the conventional distinction between “positive” and “normative” analysis, but the conventional distinction is confusing because norms enter into positive analysis, merely norms of a different type.

Let me set the stage by reviewing briefly the history and current scope and direction of the economic approach to law. Some of the basic economizing properties of law had been perceived since antiquity, notably the function of property in creating investment incentives; but the first notable explicit application of economics to law was Bentham’s economic theory of crime and punishment, revived two centuries later by Gary Becker. Bentham didn’t just make the point that (in modern terminology) people balance benefits and costs in making decisions, even “nonmarket” decisions such as whether to commit a crime, and that punishment is a type of cost; he made a host of less obvious economic points.¹ Why he failed to extend the analysis to other areas of law, such as tort law, which by imposing liability might be thought to be imposing a punishment cost closely akin to that imposed by the criminal law, and why economists did not take a serious interest in the law until the twentieth century, is an abiding mystery. For whatever reason, it was until quite recently much easier for legal thinkers to understand the regulatory character of criminal law than the regulatory character of civil law; as late as Holmes’s great work The Common Law (1881), tort law was seen as a matter of shifting losses in accordance with moral norms rather than of optimizing the number and severity of deliberate and accidental injuries. (Holmes did, however, have an insight into the economic character of contract law.)

Scattered work of economists (such as John R. Commons, Frank Knight, Robert Hale, and, in England, A.C. Pigou) and of economically minded lawyers (such as William O. Douglas) in the early decades of the twentieth century were the as-yet unrecognized portents of a law and economics movement that began to be recognized as such in the 1950s as a result of a growing body of economic analysis of antitrust and public utility–common carrier regulation. That work reached new levels of intellectual sophistication in the 1950s in the hands of Aaron Director and his protegés, including Robert Bork; George Stigler, who did the first serious statistical studies of the effect of regulation; and Ronald Coase, in his studies of marginal cost pricing and other aspects of public utility and common carrier regulation. The Journal of Law and Economics, founded in 1958 by Director and edited first by him and then by Coase, gave the movement a name and a forum for publication. Meanwhile, the economics of income taxation had been launched with the work of Henry Simons (who also contributed to the economic analysis of labor unions), and the economics of corporate law had been launched with work by Henry Manne against a background of the theory of the firm developed by Coase in the 1930s, and with the pathbreaking article on corporate financial structure by Modigliani and Miller.

The scholarship that I have been describing had in common a focus on bodies of law that regulate explicitly economic behavior. Much of law, however, regulates nonmarket behavior, as Bentham had recognized. Gary Becker’s doctoral thesis on the economics of racial discrimination, published in 1957, was a milestone in the expansion of the nascent “law and economics” movement to the legal regulation of nonmarket behavior; and his students, notably Isaac Ehrlich and William Landes, were later to do important studies of the economics of discrimination, crime, and procedure. (Becker himself contributed importantly to the economics of crime in his 1968 article on crime and punishment, reviving, modernizing, and extending Bentham.) The 1960s opened with Coase’s revolutionary article on social cost and Guido Calabresi’s first article on the economics of accident law; and later I and others chimed in.

By 1973, when the first edition of my textbook-treatise Economic Analysis of Law was published, a comprehensive law and economics movement could be said to exist, centered at the University of Chicago and predominantly conservative (in the free-market sense) politically. It was very heavily invested, however, in a relatively few fields, primarily antitrust, public utility regulation, and torts; the literature dealing with the other fields of law was as yet skimpy. Economic analysis of law at this time was not only topically limited but also methodologically simple. Most studies employed a straightforward (to an economist!) model of human behavior as being rationally self-interested. Mathematical formalization was limited, formal game theory was infrequently employed, and quantitative empirical analysis was extremely rare.

That was forty years ago. In the intervening period the law and economics movement has become geographically, politically, thematically, and methodologically diverse – as well as much larger, more specialized, more rigorous, more influential, more orthodox. There are now seven English-language journals that specialize in the economic analysis of law, and in addition many economic studies of law are published in conventional law journals and conventional economic journals. No field of law has remained immune from intensive economic scrutiny (including, besides formal law, a variety of informal norms viewed as law substitutes), not even family law, public international law, ancient and primitive law, or the speech and religion clauses of the First Amendment; and some subfields of law and economics, such as bankruptcy, antitrust, common carrier regulation, and intellectual property, have spawned immense literatures. Increasingly the practitioners of economic analysis of law have economics Ph.D.s, with or without a J.D. as well, and employ the formalizations now typical, though sometimes regretted, of modern economics. The simple model of rationally self-interested behavior of decades earlier has been enriched by greater attention to altruism (where Becker was again the principal pioneer), and challenged by institutional economists, such as Oliver Williamson, and by behavioral economists, such as Christine Jolls; the behavioral economists draw heavily on the work of the psychologist Daniel Kahneman. The University of Chicago remains an important site of the law and economics movement, but is no longer dominant.

Against this background, I begin my consideration of the norms and values of economic analysis of law with what I have termed procedural or epistemological norms – the norms of scholarly inquiry to which a particular field, here economic analysis of law, is committed. Although there is a good deal of casual, sloppy, and tendentious economic analysis of law, most of the academic practitioners of economic analysis of law are committed to norms of a broadly scientific character. These norms include the explicit statement of assumptions, a practice facilitated by formal models; an insistence that the analysis be logically coherent, another practice facilitated by formal models, with their explicit logical (mathematical) relations; and a belief that theory should issue in hypotheses that can be falsified by data that are objective in the sense that observers can be induced to agree on them regardless of the preferences, background, ideology, or other personal (or group) characteristics of the observer.

These are the norms that guide inquiry in the natural sciences, on wh...

Table of contents

• Cover Page
• Table Of Contents
• Law and Economics
• Index