Methods of Law and Economics
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Law and economics have long been intertwined. Indeed, in the nineteenth century, economics was taught in law faculties rather than in distinct departments of economics. In the late nineteenth and early twentieth centuries, the economists John Commons, Robert Hale, and James Bonbright studied the economic foundations of central capitalist legal institutions such as property and contract. Bonbright’s studies of the regulation of public utilities influenced the New Deal and the Supreme Court rulings that finally upheld the regulation. This first law and economics movement, however, had little impact on legal scholarship. The institutionalization of law and economics, or, as this entry shall call it, economic analysis of law, emerged after the publication of Posner (1973) which both applied the insights of the seminal articles of Coase (1960) and Calabresi (1961) to every doctrinal area of law and asserted first that the common law was (or at least promoted) efficiency and second that judges ought to promote efficiency. Posner (1973) provoked an outpouring of scholarship, some critical, but much of which used economics to broaden and deepen the analyses of virtually every area of law. Coase (1960), Calabresi (1961), and Posner (1973) launched a movement, not a school. Scholarship in economic analysis of law encompasses a wide of variety of scholars pursuing quite diverse aims. Some of this diversity reflects the ambiguity in Posner’s two efficiency claims which provoked an outpouring of critiques, largely of the normative claim that judges ought to pursue efficiency. (See, e.g., Symposium (1980) for the early out- cry.) Posner’s claims were ambiguous. Kornhauser (2017) identifies eight distinct claims about efficiency. It also identified three distinct projects within economic analysis of law that encompass a significant portion (but not all) of the scholarship: the doctrinal project, the project of policy analysis, and the project of political economy. These projects seek to explain, respectively, existing legal doctrine, the effects of legal rules on behavior, and the causes of the legal rules and institutions that exist. These three projects are best understood as studies about law, not studies of law though, on one interpretation of Posner’s efficiency claims, judges do in fact pursue and achieve efficient legal rules. The latter two projects within economic analysis deploy microeconomic theory to explain what legal rules and institutions we have and how those legal rules and institutions influence behavior. The analysis, however, generally takes law as unproblematically given. Moreover, the economic analysis is not specific to legal norms. The analysis can be applied, with appropriate variations for the different context, to other normative systems. Indeed, a substantial literature on the economic analysis of social norms has developed (see, e.g., McAdams 1997; Cooter 2000; Posner 2000). Nonetheless, the practice of economic analysis of law poses several challenges to traditional understandings of law. This entry considers three such challenges: instrumentalism, normativity, and the concept of law. These challenges flow from the methodology of microeconomic theory. Microeconomic theory relies primarily on a theory of individually rational behavior. This theory assumes that agents have both “rational” preferences that are complete and transitive and “rational” beliefs that they update in accordance with Bayes’s Rule. Each agent seeks to maximize an expected utility function that represents these preferences and beliefs. This rational choice framework is, as I shall develop in the discussion of normativity, extremely flexible. Analyses typically assume, however, that agents’ preferences are narrowly self-interested. In the political economy project, this assumption strongly supports a view of law that does not attribute any intrinsic value to law. Similarly, the rational preferences assumption strongly suggests that the only reasons for action that law gives are prudential ones. Finally, analytic practice in microeconomics suggests a social-scientific approach to the concept of law. It is important to note that the literature in economic analysis of law rarely explicitly addresses these issues—Kornhauser (1984, 2000, 2010, 2017) is an exception; thus few, if any scholars in economic analysis of law may endorse all, or even any, of the claim discussed here.
Source Publication
Encyclopedia of the Philosophy of Law and Social Philosophy
Source Editors/Authors
Mortimer Sellers, Stephan Kirste
Publication Date
2020
Edition
1
Recommended Citation
Kornhauser, Lewis A., "Methods of Law and Economics" (2020). Faculty Chapters. 1016.
https://gretchen.law.nyu.edu/fac-chapt/1016
