The theory of economic and legal rationality

Abstract

The standard definition, axioms, and constraints that define economic rationality are compared with the definition, axioms, and constraints implicit in legal rationality. Each discipline has two axioms. One specifies its goal and the other specifies consistency. These axioms, together with a specification of the constraints on the goals, provide a formal description of each discipline. Economic rationality is constrained by resource and budget constraints and legal rationality is constrained by institutional constraints, the chief of which is the principle of stare decisis which mandates that judges are required to decide like cases alike. Two conclusions, therefore, arise. First, a major distinction between economic and legal rationality is that the binary relations of economic rationality are completely ordered (complete consistency), whereas the binary relations of legal rationality are merely partially ordered (partial consistency). Second, if judges are willing to balance interests through trade-offs, economic rationality will be the dominant rationality, in which case, economic categories can be mapped into the relevant legal categories. If legal rationality is the dominant rationality, economic and legal rationality are not necessarily consistent.