Special Workshop Abstract

The irony should be clear, since most of the law-and-economics literature since has been normative in character. I remain faithful to Posner’s 1975 missionary statement, but from a slightly different perspective. I am persuaded that the positive, predictive contribution of law-and-economics is still undervalued. Lawyers, practitioners or academics, have much to learn from economic analysis because so often they fail to understand the nature of the interaction between law and market phenomena. The paper explores three areas of analysis to justify this contention. 

(I) One of the key goals of law is to induce behavioural change (whether or not to allocatively efficient outcomes). Lawyers tend to adopt too narrow a vision of this approach, focusing often on heavy-handed (and costly) sanction structures and ignoring the subtle interplay between public and private incentives systems, as well as market reputations and social norms. (II) Lawyers often get trapped in what may be called the “ex-ante, ex post dilemma”. Laws operate as ex ante incentives, but many practising lawyers, including judges, apply them mostly only ex post, failing sometimes to appreciate that a ruling appearing suitable for the individual dispute can affect the generality of market behaviour, in a way that was not intended. (III) Lawyers often recognise that given desirable outcomes (whether or not allocatively efficient) can be reached by different rules – comparative law provides some good lessons in this respect. In comparing the options, they often give insufficient consideration to the key variable of information costs which the rules impose on legal subjects and public officials. 

The second part of the paper shifts to what may be described as the explanatory or interpretative function of law-and-economics Traditionally legal scholarship has centred on promoting the coherence and systematic orderliness of the law and the explanatory approach can make a major contribution to this. (My claim is to be expressed with some diffidence, because it is essentially linked to the normative approach, being distinguished only by the fact that allocative efficiency is being offered as a possible, rather than a determinative, interpretation of the law.) 

I illustrate the contention with two areas of analysis (I) Many legal entitlements are expressed in language apparently reflecting notions of morality or corrective justice (e.g. good faith, proportionality, reasonableness, fiduciary relationships, unjust enrichment, due process) and yet exploration often reveals a deep ambiguity in the normative framework, rendering the law unpredictable and incoherent. Interpreting the entitlements in the light of allocative efficiency goals can provide the law with a firmer foundation, albeit by sacrificing the moral dimension. (II) Common law systems, unlike civil law systems, evolved without the need to classify or structure legal principles in any meaningful way – and they (or rather their clients) have suffered ion consequence. Law-and-economics can provide the structure which is lacking, fundamentally through an application of Coasean reasoning. (And unlike civilian codes, the exercise importantly incorporates public law).