Abstract
I agree with Calabresi’s general distinction between Economic Analysis of Law and Law and Economics. However, these broad categories may obscure important differences between types of law and economics scholarship. I would distinguish positive economic analysis from normative economic analysis, and positivist legal analysis from nonpositivist analysis. The four categories generated by these distinctions provide a more fine-grained map of the styles of reasoning in law and economics, and has implications for the future of law and economics.
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Notes
Guido Calabresi, The Future of Law and Economics: Essays in Reform and Recollection 2 (2016).
Id. at 3.
Jeremy Bentham, A Comment on the Commentaries, in A Comment on the Commentaries and A Fragment on Government (J.H. Burns & H.L.A. Hart eds., Oxford Univ. Press 2008) (1776).
Jeremy Bentham, Truth Versus Ashhurst, in 5 The Works of Jeremy Bentham 233, 235 (John Bowring ed., Russell & Russell 1962).
In a contribution to this symposium, Alain Marciano and Giovanni Ramello describe Calabresi’s analysis as fundamentally positive in its application of economics. See Alain Marciano and Giovanni Ramello, Law, Economics, and Calabresi on The Future of Law and Economics, this symposium issue. In contrast, I describe some parts of Calabresi’s work as positive and some parts as normative. The difference between our descriptions appears to be due to different emphases on the meaning of “positive economics”. I emphasize the application of positive economics as a framework for understanding institutions or markets generally, while Marciano and Ramello emphasize the application of economics to explain the observable market behavior of individuals.
Specifically, the “command” theory of law. See John Austin, The Province of Jurisprudence Determined (London, J. Murray 1832).
Bentham related law to the will of the sovereign. See Jeremy Bentham, An Introduction to the Principles of Morals and Legislation, in1 The Works of Jeremy Bentham 1 (John Bowring ed., Russell & Russell 1962) (1843).
Hobbes asserted that the only laws that deserved the name were those backed by force. Thomas Hobbes, A Dialogue between a Philosopher and a Student of the Common Laws of England 59 (Joseph Cropsey ed., Univ. of Chi. Press 1971) (1681).
H. L. A. Hart, The Concept of Law (3d ed. 2012).
Henry Smith suggests that I use the sociological term “legal centralism” rather than positivism. I decided to remain with positivism, though my meaning would be recognized by many today (post-Hart) as centralism.
William Blackstone, Commentaries on the Laws of England: A Facsimile of the First Edition of 1765–1769 (Univ. of Chicago Press 1979); Bruno Leoni, Freedom and the Law (1961).
David Hume, Treatise of Human Nature 484–501 (Prometheus Books 1992) (1737). For an early game theoretic treatment of Hume’s argument, see David Lewis, Convention: A Philosophical Study (1969).
To elaborate, the positive economic approach to law seeks to determine if actors comply with the law in equilibrium, and whether the compliance equilibrium is efficient. In this description, efficiency and legal compliance are distinct concepts. Although the efficiency hypothesis has been viewed as central to law and economics, it is better viewed as secondary to the analysis of incentives to comply.
James M. Buchanan, Good Economics. Bad Law, 60 Virginia L. Rev. 483 (1974).
Guido Calabresi, The Costs of Accidents: A Legal and Economic Analysis (1970).
Oliver Wendell Holmes, Jr., The Common Law, 1–2 (1881).
Guido Calabresi & A. Douglas Melamed, Property Rules, Liability Rules, and Inalienability: One View of the Cathedral, 85 Harv. L. Rev. 1089 (1972).
Gary S. Becker, Crime and Punishment: An Economic Approach, Journal of Political Economy 76, no. 2 (1968): 169–217.
Louis Kaplow and Steven Shavell, Property Rules and Liability Rules: An Economic Analysis, 109 Harv. L. Rev. 713 (1996). The Kaplow-Shavell critique relies on the Coase Theorem, which holds that the ultimate allocation of resources will be efficient regardless of the assignment of property rights if transaction costs are zero. R. H. Coase, The Problem of Social Cost, 3 J. Law & Econ. 1 (1960).
See, e.g., Keith N. Hylton, Property Rules and Defensive Conduct in Tort Law Theory, 4 J. Tort L. 1 (2011).
Other reasons include cognitive dissonance (the difficulty of bargaining under the threat of a taking), incentives to develop a reputation for predation (since credibility as a taker enhances bargaining leverage under the liability rule). On these matters, see Keith N. Hylton, Some Notes on Property Rules, Liability Rules, and Criminal Law, in Research Handbook on the Economics of Criminal Law 67 (Alon Harel & Keith N. Hylton eds., 2012).
See Keith N. Hylton, Property Rules and Liability Rules, Once Again, 2 Rev. L. & Econ. 137 (2006). Individuals who might be victims of a property taking will have insufficient incentives to invest in property. Individuals who might take property from others will have inefficient incentives to invest in the technology that facilitates taking.
Id. A possessor could promise not to engage in self-help or a potential acquirer could promise not to take, but neither promise would be credible. Put another way, the costs of gaining perfect credibility are likely to swamp the gains from contracting.
Perhaps in the Platonic utopia in which individuals considered all others potentially to be family members, the costs of defense might not arise. In such a world, if someone demands you give him your property at an objectively determined price, or risk a taking, you would not seek to defend yourself from the taking, because he is your brother, or son, after all. But to describe the conditions under which such primitive costs as defense and self-help might not arise is also to demonstrate why the conditions will never be observed.
One significant area of economic analysis of law where reductionism has been carried too far is the Hand Formula. Many analysts believe that the Hand Formula describes precisely how courts determine negligence. However, anyone who looks carefully at the negligence cases will see that informational constraints often prevent courts from applying the Hand Formula as commonly described in the academic literature. For example, some early papers in the economic analysis of causation adopt the Hand Formula analysis. Guido Calabresi recognized the inadequacies of such an approach to causation early on. See Guido Calabresi, Concerning Cause and the Law of Torts: An Essay for Harry Kalven, Jr., 43 U. Chi. L. Rev. 69 (1975). For a modern treatment consistent with Calabresi on causation, see Keith N. Hylton & Haizhen Lin, Negligence, Causation, and Incentives for Care, 35 Int. Rev. Law Econ. 80 (2013).
Robert D. Cooter, Structural Adjudication and the New Law Merchant: A Model of Decentralized Law, 14 Int. Rev. Law Econ., June 1994, 215–231. More recent literature on law and social norms has tended to focus on norm creation more than the connection between norms and the common law. See Robert Ellickson, Order Without Law: How Neighbors Settle Disputes (Cambridge: Harvard University Press, 1991); Richard H. McAdams, The Origin, Development, and Regulation of Norms, 96 Mich. L. Rev. 338 (1997); Eric A. Posner, Law and Social Norms (Cambridge: Harvard University Press, 2000).
Richard A. Posner, The Economics of Justice 48–87 (Cambridge: Harvard University Press, 1983).
See Bentham, Principles of Morals and Legislation, supra note 7, at 92.
Calabresi, supra note 15, at 57.
Acknowledgements
I thank Bob Bone, David Pozen, Geoffrey Miller, Henry Smith, Todd Zywicki, and journal referees for helpful comments.
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This paper was prepared for the 2017 symposium on Calabresi’s, The Future of Law and Economics.
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Hylton, K.N. Law and economics versus economic analysis of law. Eur J Law Econ 48, 77–88 (2019). https://doi.org/10.1007/s10657-018-9580-0
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DOI: https://doi.org/10.1007/s10657-018-9580-0
Keywords
- Law and economics
- Economic analysis of law
- Legal positivism
- Positive economics
- Normative economics
- Transaction costs
- Norms
- Behavioral economics