Law and Economics as Political Theory: Two Internal Critiques

Nahshon Perez

Bar Ilan University

March 24, 2013


Abstract:     
The law and economics movement is one of the most influential movements in legal scholarship, and proves important beyond the narrow ken of lawyers and economists as one of its central goals is to provide concrete prescriptions for governments and court systems to a very wide range of subjects, from property rights to women’s rights. The law and economics movement, especially as articulated in the writings of Judge Richard Posner, has attracted critical attention from prominent political and legal theorists such as Dworkin and Nussbaum, but their important challenges have not stemmed the rise of this movement. This article aims to contribute to these critiques by fully articulating and examining some central features of law and economics theories. Specifically, as the law and economics movement emphasizes efficiency as its cherished goal, this article focuses on this concern, frequently using the general term 'efficiency theories'.

The current article examines the internal structure of this approach, and some of its likely consequences. This perspective takes Posner’s approach to be, in essence, a political theory - as it prescribes a consistent logic and has been applied to an astonishingly ambitious breadth of fields. It is high time, therefore, that political theorists give careful consideration to this approach.

The focus will be on two different central features of law and economics. First, law and economics arguments, with their strong emphasize on efficiency, will likely create instability in ownership if carried out to their logical conclusion. Furthermore, such an approach would make it difficult to explain the existence of property rights as a stable baseline to which considerations of efficiency apply to begin with. This, in turn, would bring about a devaluation in 'willingness to pay' (the 'currency' of such theories), and therefore contradict the intended goal of these theories. This argument is most adequate when applied to multi, or large N participants scenarios in repeated games situations. Second, the concept of 'market mimicking' central to the law and economics movement deserves a detailed examination as it places a heavy burden on institutions expected to apply it to actual cases.

Two central observations regarding the 'mimicking the market' function must be noted. First, mimicking the market will affect prices and ownership, and therefore wealth maximization, and thus cannot be considered simple mimicry. Second, there are important reasons to be skeptical that courts, governmental agencies, etc., can properly mimic the market and simulate non-revealed preferences.
Number of Pages in PDF File: 31
Keywords: law and economics, Richard Posner, market mimicking, non-revealed preferences, property rights, motivation, behavioral economics

Full text available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2238738