The Measure of Law and Economics

Robert Cooter and Jody KrausEuropean Association of Law and Economics

22 September 2011

What is an x?

• What is a man? A rational animal. (Socrates)• What is justice? A utopian republic. (Plato)• What is law and economics?– Economic analysis applied to law?(Posner) – A non-legal form of reasoning? (Coleman)

Three Facts About History of Law and Economics in the U.S.A.

• Fact 1: Explosive growth of L&E beginning in 1980s

• Fact 2: L&E is strongest in the elite law schools.

• Fact 3: A small proportion of legal scholars follow the L&E approach.

• Fact 1: Explosive growth of L&E beginning in 1980s– Scholarship (citation studies –Landes)– Institutions (journals, associations, professors)

AALS Professors Teaching Law and Economics

Professors Teaching Law and Economics and Law School’s Ranking

Law Professors Teaching L&E Compared to All Law Professors

2.0% 2.4%

Two Enterprises

• Say what the law requires of people.

• Say what the law is.• Interpret laws.• Restate the law.• Offer legal reasons.• Determine the law’s

correct categories.

Legal ContentLegal Causes

• Prove the effects of laws.

• Find the empirical consequences of laws.

• Model responses to laws.

• Find what caused officials to make or repeal a law.

Examples of Two Enterprises

• Comparative negligence is the liability rule for automobile accidents.

• Disgorgement damages are available for breach of fiduciary duty.

• Article I Section 8 of the US constitution authorizes Congress to regulate commerce.

Legal ContentLegal Causes

• A negligence rule causes excessive activity by injurers.

• Expectation damages cause excessive reliance by promisees.

• Predictable judgments cause more settlements out of court.

• Compulsory racial integration of neighborhood schools caused residential segregation.

Explaining the Three Facts About History of Law and Economics in the U.S.A.

• Fact 1: Explosive growth of L&E beginning in 1980s.– Explanation: hole in ecology of ideas.

• Fact 2: L&E is strongest in the elite law schools.--Explanation: lower-level law schools teach legal facts, higher-level law schools teach legal reasoning.

• Fact 3: A small proportion of legal scholars follow the L&E approach--Explanation: Most law teaching concerns legal facts on the bar examination.

Economic and Legal Reasoning

In law, economic reasoning is immanent but seldom explicit. – Abstracts from the form of legal reasoning.– Occasionally explicit in legal reasoning.– Law and economics recedes as it succeeds.

Example: Hand Formula abstracts from balancing tests that pervade law, but the Hand Formula is found explicitly only in US tort law.

Conclusion:What is law and economics?

• Economic analysis applied to law? No.• A non-legal form of reasoning? No.

L&E = cause enterprise + content enterprise