Law and Economics Isn't Special

In torts with John Fabian Witt, Esq., my first semester, I was introduced to law and economics as a kind of rosetta stone for evaluating the effectiveness of judicial decisions. Since costs are reciprocal, we learned, it is worthless to say that, on the basis of fairness, a homeowner should win his nuisance claim against a polluting factory. The homeowner’s inability to cope with pollution can just as easily be seen as causing harm to the factory, especially if the courts rule in his favor.

There really isn’t any way to directly attack this proposition, unless the argument is that efficiency concerns should be wholly removed from the theory of law in favor of “natural rights”. Indeed, the Coase Theorem is just an overly complicated way of saying what Holmes had years before: that we need to look at the results of a decision rather than follow the impulse to say that justice requires a particular ruling. Justice and fairness, I’ve been taught, have no normative value whatsoever.

Empirical Evidence?

Using this framework to evaluate cases in my property class, my fellow students and I were able to wildly conjecture about the effects of adopting a particular rule. “Property values will go down if…maybe forcing the government to compensate for this taking will…” and so on. However, while such discourse might be valuable for developing legal minds, it certainly doesn’t provide the substantive results of a legal rule. Perhaps professors are able, through extensive research, to get empirical data that actually tends to prove or disprove hypotheses about the social welfare implications of particular doctrines. However, I never saw these conclusions presented in a casebook. In the few instances that any evidence of the effects of a given rule was presented, the casebook qualified it as cutting in either direction.

It seems, therefore, that the law and economics model is attractive and stimulating on paper but difficult to implement in practice. This holds especially true if we expect judges to employ the analysis. It’s hard to imagine a judge with a full docket to have the time, desire, or ability to actively pursue evidence of the social welfare implications of his decision. Even if he relies on the statistical analysis of professors, he has to choose which conclusions to believe and policy goals to emphasize.

Better Than Justice?

The law and economics approach, then, is plagued with many of the same problems associated with a legal theory that gives weight to intangible concepts of natural rights and justice. Whether or not a legal outcome is just depends on the subjective perspective of each observer. Therefore, as the argument goes, a doctrine cannot be justified on the basis that some judges believe it achieves just results. But how is it any better to say the doctrine is justified because some academics believe that it achieves efficient results? Their stances are based on conflicting data, and the data itself is based on presumptions in favor of eliminating or causing certain effects.

Consider, for example, the law of nuisance, the poster child for the law and economics approach in torts and property. The Second Restatement of Property incorporates this approach, encouraging judges to rule an activity a nuisance when the “gravity of the harm outweighs the utility of the actor’s conduct.” The Restatement then proceeds to give criteria to be considered, including the value the law places on the conflicting activities, the suitability of the activities to the locality, and the extent and character of the harm. Why are these the chosen categories for evaluating the social welfare implications of a nuisance case? Presumably the esteemed academics who drafted the Restatement believed that, by considering these factors, judges could make decisions with wealth-maximizing results. However, there are many omitted considerations which, it can be argued, must be evaluated in order to adequately determine the efficient outcome in a given case. Law and economics is by no means an objective way of studying the law.

Perhaps this point is obvious: there can be no purely objective analysis of the law. However, the dominance of law and economics in legal study (at least in my limited experience) suggests that the approach is more highly valued than others. Some of my classmates would roll their eyes when our property professor encouraged us to make “fairness arguments” in addition to efficiency arguments. True, it may not be as intellectually stimulating to say “This decision is unfair” as it is to speculate about the possible implications of the decision. But there isn’t any inherent difference between saying “Running a cement factory is a socially valuable activity” and saying “Homeowners have a right to be free from cement pollution.” Pointing to jobs created by the cement factory is not an adequate response, attempting to show clear benefits accruing from the activity and thus demonstrating the objectivity of the efficiency approach. Another commentator could just as easily say that a cement factory is extremely harmful, progress must be halted, and our society should return to agrarian values.

Conclusion

The greatest harm that a focus on law and economics causes is the exclusion of other approaches. Any one theory of the law has limited descriptive value. We cannot hope to use every conceivable perspective in studying the law, but the more that we do employ, the more accurate the analysis becomes. Knowing and using multiple disciplines, as advocated by the consilient approach, is important. Additionally, within the legal discourse I’ve encountered, there are a number of means of analysis that are systematically underemphasized. In particular, the law school curriculum would benefit from a deeper concern with distributive justice considerations. In a country where there are extreme disparities between the rich and the poor, it makes sense to craft legal rules aimed, at least in part, at lessening this divide. My belief in the importance of this focus is, of course, purely personal and subjective. Just like Professor Witt’s belief that efficiency should win the day.