Law and Social Economics

Essays in Ethical Values for Theory, Practice, and Policy

M. White, M. White

• Éditeur: Palgrave Macmillan
• Année: 2015
• ISBN:
  9781137443762
• Sujet: Economics
• Sous-sujet: Econometrics

This edited volume is the first collection of essays exploring the intersection of social economics and the law, providing alternatives to neoclassical law-and-economics and applying them to real-world issues. Law is a social enterprise concerned with values such as justice, dignity, and equality, as well as efficiency - which is the same way that social economists conceive of the economy itself. Social economists and legal scholars alike need to acknowledge the interrelationship between the economy and the law in a broader ethical context than enabled by mainstream law-and-economics.The ten chapters in Law and Social Economics, written by an international assortment of scholars from economics, philosophy, and law, employ a wide variety of approaches and methods to show how a more ethically nuanced approach to economics and the law can illuminate both fields and open up new avenues for studying social-economic behavior, policy, and outcomes in all their ethical and legal complexity.

Part I

Foundations

Chapter 1

Toward a Contractarian Theory of Law

Claire Finkelstein

For roughly three decades, legal scholarship has been dominated by the application of mainstream economic theory to law.¹ The “law and economics” movement, as it is called, has had a substantial influence on nearly every domain of legal analysis. In addition to the financial subjects such as antitrust, bankruptcy, corporations, and tax law, economic analysis has become prevalent in basic fields such as contracts, torts, and property. It has even made inroads into subjects that have traditionally been noneconomic in nature, such as substantive criminal law.²

The infiltration of economic analysis into the traditional common law subjects is striking, in view of the fact that scholarship in these fields has long been characterized by philosophical and moral reasoning rather than economic. Legal philosophers schooled in ethics have historically found a natural field of application for their casuistical methods in the case-based, intuition-driven thinking in these fields. The so-called deontological approach to law, in contrast with the economic approach, does not represent a consistent set of theoretical commitments on the part of its proponents. Deontological theory includes, for example, both rights-based thinking about law, such as Ronald Dworkin’s approach to legal interpretation, as well as “legal moralism,” such as that associated with Lon Fuller or more recently by Michael S. Moore, and social practice theories such as that advanced by H. L. A. Hart.³

Painting with broad strokes, deontological accounts include most views that are non-consequentialist in nature. Despite the differences among such views, deontologists share a common approach to thinking about law, namely, a method known as “reflective equilibrium.”⁴ To approach a legal problem in reflective equilibrium means that intuitions drawn from particular cases in the fields under consideration provide the raw data for the construction of ethical or jurisprudential theories.⁵ Reasoning from intuitions in reflective equilibrium is a particularly good match for the style of reasoning in Anglo-American adjudication, which is case-based, analogical reasoning. Yet this type of reasoning has been unable to meet the demands of systematization called for by legal doctrine, given the highly impressionistic and particularized nature of its approach. That, combined with the sense that economic analysis can provide the rigor deontological theory lacks, has drawn an increasing number of converts to economic analysis in the legal academy. The split between the legal economists and the moral theorists reflects the traditional division in moral philosophy between utilitarians and deontologists. It is not surprising, therefore, that this division has dominated legal theory as well.

In this chapter, I shall attempt to sketch the outlines of an alternative to both schools of thought, namely, a contractarian legal theory. The appeal of a contractarian approach is that it holds out the promise of an alternative to these two historic rivals and thus offers an end to a long-standing stalemate in the legal literature. Furthermore, I shall argue, the contractarian alternative allows legal theory to avoid the major weaknesses of each of the traditional approaches while capturing the benefits of each. In this chapter, I hope to show that a contractarian approach in the rationalistic tradition presents a viable alternative to legal reasoning based on moral intuition, on the one hand, and legal reasoning based on the idea of maximizing social welfare, on the other.

The contractarian tradition takes as its starting point the same assumption about the nature of human rationality as mainstream economic analysis, namely that human beings are rational maximizers whose behavior is primarily determined by the payoffs to them. Deontological reasoning starts from entirely different premises and thus is difficult to see as a direct rival for the economic or the contractarian approaches to legal rules. My defense of the contractarian approach is most naturally directed to those who share a commitment to the rationalistic foundations that are common between mainstream economic analysis and contractarianism, and it is primarily to these scholars that the present defense of the contractarian approach will be directed.

Economic Analysis and Rational Choice Analysis

The central assumptions of the law and economics movement can be summed up with two theses, one descriptive and the other normative. The descriptive thesis is that human beings are rational maximizers who reason instrumentally toward the attainment of their ends. This is the standard portrayal of rational agency in the economic tradition, one that is supposedly shared by contractarians as well, despite the differences between the economic and contractarian approaches. The normative thesis specifies the ultimate purpose of legal rules, namely, to maximize social utility, a view that law and economics inherits from the philosophical school of utilitarianism.

The use of economic methodology in legal analysis is not entirely new. Generic cost-benefit analysis has always occupied a place in American legal scholarship as well as in adjudication. In 1947, for example, Judge Learned Hand introduced the famous “Hand Formula” to American law in a case called United States v. Carroll Towing.⁶ The Hand Formula is a test for determining whether the defendant has behaved negligently in a suit for civil damages, according to which the court is instructed to consider the following factors: the gravity of the resulting harm, discounted by the (ex ante) likelihood of the harm’s occurring, which is weighed against the burden to the tortfeasor of taking adequate precautions against the occurrence of harm. If the burden of taking precautions is less costly than the discounted gravity of the evil caused by the failure to take precautions, the injurer should be deemed negligent for failing to take those precautions. The Hand Formula was thus an early foray into economic methodology as applied to law.⁷

But the great increase in popularity of economic analysis as applied to law is perhaps more accurately traced to two more recent scholarly breakthroughs. The first is Ronald Coase’s famous article “The Problem of Social Cost.”⁸ In that article, Coase noticed what prior economists steeped in the Pigouvian model had not, namely that in the absence of transactions costs and adequate initial resources, it does not matter what allocation of rights and entitlements the law makes from the standpoint of efficiency: economic actors will buy and sell entitlements until the efficient allocation is reached. One implication of this observation is that efficiency is better served by the market than by legal regulation, as long as transactions costs can be kept sufficiently low. For this reason, it is preferable to regulate entitlements with a property rule than with a liability rule, as the former enables the market to reallocate entitlements in lieu of the legal system.

The second major publication is Richard Posner’s Economic Analysis of Law in 1972. Prior to the release of this famous work, law and economics restricted its ambitions to demonstrating the utility of economic reasoning in a narrowly defined area of legal inquiry. Posner’s book, however, expanded the ambition of modern law and economics to apply specific economic analysis to all areas of legal study, and also to the kind of meta-level analysis that provides the framework for legal debate. That ambition has in large part been fulfilled: in the past 30 years, most areas of study in law have been converted to explorations of economic concepts and models in an attempt to show that the central doctrinal puzzles in the law can be sensibly solved by the application of economic analysis. In this way, the systematicity of economic methodology has replaced intuition as the dominant mode of analysis in legal scholarship.

Along with this transformation has been the slow but steady change in judicial decision-making, by which judges now attend to arguments from efficiency to a much greater degree than they formerly did.⁹ Cost-benefit analysis is often taken for granted as a sensible way to analyze competing considerations and values in just about any area of the law. In view of the impact of economic theory on the legal profession as a whole, it seems fair to say that non-economic theory has been largely relegated to the sidelines, both in academic writings and in potential impact on legal practice.

Several key features of mainstream economic reasoning as applied to law are worth noting: economic analysis is both reductionistic and revisionist. It is a reductionist philosophy in that it seeks to reduce the explanation for the development of legal doctrine to a single factor, namely the law’s implicit attempt to create incentives for efficient behavior. As Posner has explained, legal economists see the common law as implicitly following the logic of efficiency, or what is treated as synonymous, the logic of social welfare maximization, even if judges, juries, and other legal actors do not consciously focus on maximizing social welfare as the goal of adjudication. As he writes, “Economics is the deep structure of the common law, and the doctrines of that law are the surface structure. The doctrines, understood in economic terms, form a coherent system for inducing people to behave efficiently, not only in explicit markets but across the whole range of social interactions.”¹⁰ Efficiency here is understood not as the idealized concept of Pareto efficiency, but rather in the more modest terms of Kaldor-Hicks efficiency.¹¹ The thought behind this descriptive claim is that the common law tends toward efficiency, regardless of its aims, because when judges and legislators focus on social welfare they will incidentally be promoting aggregate social wealth.¹² The reductionist tendency of law and economics, therefore, lies in the fact that it takes a purely descriptive stance toward existing law and finds nothing of normative interest in current or historical legal practice.

Paradoxically, however, law and economics is also radically revisionist: it seeks to reform existing legal institutions wholesale, based on its...

Table des matières

• Cover
• Title
• Part I   Foundations
• Part II   Applications
• Index