On the efficiency of law: A public choice perspective

Abstract

Economists have not yet developed a comprehensive theoretical framework, incorporating transaction-cost economics within a public choice perspective, for predicting when there will be an efficiency problem with the law. Transaction-cost reasoning and the rent-seeking insight have not been applied systematically in a dynamic institutional context to evaluate when the law will be used to increase (or not minimize) problems of bounded rationality and opportunism. This paper takes a first step at identifying and remedying this deficiency. The paper first provides a critical review of relevant theoretical contributions made by Becker (1983, 1985), Posner (1977), Priest (1977), Rubin (1977, 1982), Williamson (1975, 1985), and others. We then show how analysis of the efficiency of law can be synthesized into a broader whole by incorporating transaction-cost economics more fully into existing understanding of rentseeking in the political realm. Thus, within the public choice paradigm, this paper develops a deeper transaction-cost analysis of the efficiency of law. Building on prior research by the authors (Crew and Rowley, 1988a, 1988b; Twight, 1983, 1988), the paper identifies variables that position legal rules on a spectrum that ranges from those that are predominantly transaction-cost