Efficiency, Exchange, and Auction: Philosophic Aspects of the Economic Approach to Law

Abstract

Conversational literacy in neoclassical welfare economics is an apparent prerequisite to gainful employment in American law schools. Loose talk of efficiency, cost-minimization, and the liability rule/property rule distinction punctuates faculty lounge discussions. There is simply no denying that the new law and economics has arrived. So it is a fond (if only temporary) farewell to Rawls and Nozick, and a warm welcome to Coase, Pigou, Calabresi, and Posner. The new law and economics is not without critics, however. There is a growing literature which represents the view that law and economics ought to be relegated to a suitable place in the history of intellectual fads--the sooner, the better. Much of what has been written against law and economics, however, is based on unsympathetic, insensitive, and largely superficial understandings of the central works in the field. Unfortunately, much of what is written in the name of law and economics is equally insensitive to the limits within which economic analysis might prove fruitful. As unsound criticisms and unwarranted extensions of the economic approach to law mount, the time appears ripe for an examination of its analytic framework. Three distinct but related activities fall within the domain of law and economics: two of these are analytic in nature, one is normative. Analytic law and economics may be either descriptive or positive. Descriptive law and economics is concerned with the principle of economic efficiency as an explanatory tool by which existing legal rules and decisions may be rationalized or comprehended. Richard Posner's