Law and Economics
The Political Economy of Arbitration Law
The prevalent academic critique of arbitration, the access-to-justice critique, fails to account for arbitration’s influence on how firms organize themselves. This Note offers a new critique of arbitration from a political-economy perspective, arguing that today’s highly restrictive arbitration law greatly benefits firms organized as gig platforms.
Labor’s Antitrust Problem: A Case for Worker Welfare
Labor and antitrust have historically been at odds: workers have faced antitrust liability for organizing, as the market power of employers has grown. Motivated by recent developments in the gig economy, this Note argues that antitrust law must preserve the welfare of workers, and proposes reforms to achieve that vision.
Building a Law-and-Political-Economy Framework: Beyond the Twentieth-Century Synthesis
Current crises of economic inequality and eroding democracy require us to move beyond legal orientations that prioritize efficiency, neutrality, and apolitical governance. This Feature suggests new orientations and questions for scholarship on “law and political economy” that instead foreground realities of power, aspire toward equality, and are committed to democracy.
Beyond Nudging: Debiasing Consumers Through Mixed Framing
Mixed framing juxtaposes the positive and negative attributes of a product. For example, a label using mixed framing might characterize food as “90% fat-free / 10% fat.” This Note advocates that regulators embrace mixed framing as a middle ground in the battle between paternalistic and libertarian approaches to consumer-protection law.
Pregnancy and Living Wills: A Behavioral Economic Analysis
In most states, women are not permitted to have binding living wills during parts of their pregnancies. This Essay argues that the laws imposing these restrictions are ill-conceived and likely unconstitutional and, using behavioral economics, suggests a better alternative that respects women’s preferences and autonomy.
The Forgotten History of Metes and Bounds
Property scholarship has long derided metes and bounds systems of land demarcation, largely accepting that standardized boundaries best facilitate economic growth. Through a case study of colonial New Haven, Connecticut, this Article suggests that metes and bounds descriptions actually provided early Americans significant social and economic benefits.
The Law and Economics of Critical Race Theory
112 Yale L.J. 1757 (2003) Our story is about the production and consumption of racial prototypes. The regulatory thrust of homogeneity creates both a demand for, and a supply of, specific racial prototypes--outsiders who can fit within predominantly white workplace cultures without "disturb[ing] the equilibrium of familiarity and sameness." This Review began by suggesting that part of the reason this dynamic is obscured in CRT is because CRT has not paid attention to the interpersonal contexts--the micromarkets (e.g., employer/employee identity transactions)--in which race is produced. This Conclusion returns to the macro to make two points. The first links the micro discussion of prototype production in the workplace to the broader societal context; the second suggests some other areas of interest where the CRT/L&E approach might shed new light. First, the problem we have described is part of a larger problem that Philomena Essed and David Goldberg refer to as "cloning cultures," which they define as the "broad social(ly manifest) dispositions to reproduce sameness." They argue that "a critical account of systems of preference for sameness--from kinship to nation, from aesthetics to production and consuming--can be revealed as contributing to the reproduction of systems of social distinction and privilege." Our aim has been to provide a concrete indication of how such a system manifests itself in the context of the workplace. But Essed and Golberg's paper suggests that there is a more problematic implication of our project: the social manufacturing of racial palatability--one body at time. Put differently, our argument suggests that racial difference is being commodified and cloned in the workplace. Articulated thus, the homogeneity incentive operates as the driving force for a kind of cloning. Outsider performances of racial palatability are the raw materials from which homogenized outsider identities are manufactured. Yet there is an important difference between the cloning problem we identify and that upon which Essed and Goldberg focus. For the most part, Essed and Goldberg are concerned with "problematiz[ing] the systemic reproduction of white, masculine homogeneity in high status positions," a reproduction that causes "exclusion along racial, ethnic, gender, sexual, class and other structural demarcations." Their analysis does not account for the "diversity constraint"--that is, the need for institutions (and, presumably, the nation) to maintain some degree of difference. With the diversity constraint in mind, the cloning issue is no longer just about reproducing insiders. One has to think about the production and cloning of outsiders as well. Our Review focuses on the incentive for employers to create a market for, and to facilitate the cloning of, racially palatable outsiders. For institutional legitimacy and antidiscrimination reasons, the cloning market cannot produce, or transact in, only white clones. Nor would employers want to do so. One reason why racial palatability is valued is that the racial bodies that produce it remain intelligible as nonwhite. To the extent that racial palatability takes the form of passing, it engenders white racial anxieties. To be valuable, the outsider prototype must be recognizable as a "copy." It must not pass for, but only approximate, the "real." The second macro implication of our thesis relates to the general critique of prototypes. Here, we suggest that analysis of the microdynamics of workplace racial discrimination might be extended to analyze other problems. In this context, one can think of a prototype as a mental shortcut to categorize unfamiliar situations. We all have images in our minds as to prototypical rape victims, sexual harassers, welfare recipients, and so on. To the extent that actors in the legal system use these prototypes to decide cases--for example, prosecutors or juries deciding whether a rape occurred by looking to see whether the victim fit the prototypical image of a rape victim, as opposed to asking whether the facts satisfied the elements of the crime--this can cause systemic errors. Consider, for example, Martha Chamallas's critique of the rape prototype. Chamallas explains that, with rape, the prototype is stranger rape, where the perpetrator is often a black male and the victim a white woman. Most rapes, however, occur between acquaintances, between people of the same race and class, and on dates. Reasoning from prototypes, therefore, presents the danger that most rapes will go unpunished because they do not fit the prototype. Further, rapes by black men of white women will be disproportionately punished, whereas rapes by black men and white men of black women will receive less punishment. Leti Volpp makes a similar point about domestic abuse--more particularly, battered woman syndrome. She argues that this syndrome is based on a "'model' battered woman," in other words, a prototype: a woman who is "passive and helpless." Volpp demonstrates the extent to which judges refuse to give a battered women's instruction in cases in which they perceive that the domestic abuse victim is not a model battered woman. She concludes that because "battered women's syndrome exemplifies a stereotype of passive married middle-class white women, it may be especially difficult for battered women of color and gay men and lesbians to fit the model." An L&E-oriented approach to prototypes could elaborate upon Chamallas's and Volpp's critique by asking two questions. (1) How do prototypes incentivize behavior? And (2) what are the costs of responding to the incentives that prototypes create? If the protection of rape laws accrues only when women behave in a particular manner (let us say, "modestly"), that means that women who want the protection of the rape laws have an incentive to present themselves in ways that fit the protected prototype. In this sense, the price of receiving legal protection is the cost of acting in a manner that fits the prototype. These costs may be higher for some than others. For example, if modesty is defined in terms of white upper-class behavior, it may be costly and difficult (even if not wholly impossible) for minority women to perform their identity in a manner that fits that prototype. Further, quite apart from shaping how women perform their identities in the real world of social interactions, the existence of prototypes shapes how women present themselves at trials. To access battered woman's syndrome, for example, there is an incentive for women to highlight their passivity and lack of agency. On the other side, from the usually ignored perpetrator's perspective, there is an incentive to attack women who do not fit the prototype. This is part of what explains black women's historical vulnerability to rape. Chamallas's and Volpp's papers are part of a larger critical literature that demonstrates the problems of prototypes. What remains to be considered is the regulatory and productive effects these legal prototypes have on the identities in question. For whether the prototype in question implicates sexual harassment, hate speech, rape, or welfare law, identity is being cloned. Heretofore, critical race theorists have not seriously engaged this productive capacity of law.
Unions and the Duty of Good Faith in Employment Contracts
112 Yale L.J. 1881 (2003) Some American scholars of law and economics have expressed dismay at the anticompetitive and illiberal body of legal doctrine that is labor law. Their respondents, often in other fields if not other countries, have defended unions and the laws that support them on both economic and ethical grounds. On the one hand, unions may contribute to efficient workplace governance and correct the monopsony power of employers in imperfect labor markets. On the other hand, by increasing workers' bargaining power vis- -vis firms, unions may effectuate distributive social policies by winning workers a larger fraction of firms' surplus. By affording employees more control over their work, unions may also leave them less alienated in the production process. I will offer another account of the function of labor law that appeals to both efficiency and equity principles: Unions correct for the unique opportunities for bad faith in the employment relationship. The duty of good faith is a background condition imposed on all contracts that limits the negative effects of unequal bargaining power, but its enforcement is particularly challenging in the context of most employment relationships. I will argue first that the duty of good faith is not self-enforcing between worker and firm. I will then argue that third-party enforcement is not a viable alternative. Finally, I will present unions as an institutional means by which the duty can be enforced at low cost, and compare the American and German systems as variations on that possibility. In Germany, collective bargaining remains the predominant means by which the employment relationship is regulated. By contrast, in the United States, the decline of unionism has been matched with a rise in administrative regulation. Although collective bargaining is not without its own difficulties, substantive standards are neither an efficient nor a complete response to the problems of good faith explored in this Note. My account of the role that labor law plays in the employment relationship is consistent with other sympathetic accounts. In fact, there is substantial overlap insofar as much of the employer behavior that results in inefficient or inequitable bargains for workers can be characterized as bad faith. The argument here differs from those dominant in the existing literature, however, in two respects. First, the problem it addresses is not just economic but also legal. Evaluating the individual employment relationship from the standpoint of contract law sheds light on the dilemmas courts face in the absence of collective bargaining. The alternative to collective bargaining principles is not, after all, an unregulated labor market. All employment contracts are subject to certain universal, immutable contract rules, including the duty of good faith. The inadequacy of individual employment contracting reflects legal as well as market failure. Understanding employment contracts as legal as well as economic instruments is more foreign to the literature than one would expect. The tools of economics do incorporate problems of interpretation, but they are incorporated as transaction costs not qualitatively different than the cost of paper; the purpose of economic analysis is to assess contractual efficiency. Political and ethical analysis of the employment relationship, on the other hand, ultimately appeals to fairness--for example, in the form of norms about control, distributive justice, or property rights. No commentator can be fairly assigned to one camp or the other, since no argument that fails to address both fairness and efficiency is plausible. Torn between two isolated principles, observers can do little more than strike an (ultimately subjective) balance between these competing values. The advantage of a self-consciously legal analysis, focused on the challenges posed by employment contracts from the perspective of lawyers, is that these values have already been incorporated into a single framework: the common law. For example, these values are two interpretive aspects of the duty of good faith, which cannot properly be understood without reference to both. Although the common law no longer governs many terms of employment, due to both collective bargaining and an array of employment legislation, it nevertheless provides a useful framework by which to assess the difficult task any alternative legal regime must perform. My second departure from prevailing accounts lies in an attempt to assess the interaction between an inequality of bargaining power, on the one hand, and information and monitoring costs, on the other. Bargaining power is an important part of the story behind the intervention of labor law, but it is only part of that story. It interacts with other features of the employment relationship to complicate workers' capacity to protect their interests on an individual basis. Standing alone, the consequences of bargaining-power disparity are not obvious; although all else equal it will result in a less equal distribution of the gains of trade, the weaker party's loss could be offset by her (albeit small) share of transaction-cost savings. If employers and employees were equally invested in each other, they would be situated in a bilateral monopoly. This normally results in high bargaining costs because each party knows that the other cannot easily go elsewhere. In the employment context, however, workers cannot afford to hold out inefficiently and prolong negotiations about each exercise of discretion by the employer that the worker considers a modification of the original contract. Unequal bargaining power means less bargaining, and where bargaining is costly, workers' absolute share of transaction-cost savings may offset a decline in their relative share of total gains from the employment contract. Clear legal allocation of discretion to the employer may have the sanguine effects associated with bright-line property entitlements (as opposed to fuzzy entitlements protected by liability rules). Unequal bargaining power may also reduce transaction costs and underinvestment by workers and employers if discretion and penalties are specified contractually at the outset. Some commentators suggest that parties can anticipate attempts to renegotiate or shirk by allocating all discretion to one party and providing for a positive default level of trade or employment. Workers may underinvest or demand renegotiation if, as a result of employer exercise of discretion, their returns to investment (effort, years, training) decline over time. If their contract, however, guarantees them some default "average" employment terms, they are more likely to invest--in the event of employer abuse, they can invoke those inflexible terms. Employers have incentive to agree to such defaults, even where they have all the bargaining power, as a mechanism to reduce shirking. Although the background problem of shirking recognizes that effective monitoring is impossible, this model of efficient bargaining inequality presumes that parties are able to specify efficient and enforceable default terms. A final benefit of bargaining-power disparity may result if employer discretion increases production quality and flexibility; workers' wage gains may eventually reflect their increased marginal productivity. While this implies that workers would voluntarily curb their demands even if they had bargaining power, they might not if their short-term loss was certain while their wage gains depended on other workers similarly cooperating. The concentration of decisionmaking in the employer resulting from its bargaining power could effectively resolve a collective action problem among workers. The indirect effects of unequal bargaining power therefore complicate its aggregate effect on workers' returns. But its indirect effects do not all lower transaction costs. The costs of information gathering and monitoring are actually greater in the face of an imbalance in bargaining power. Moreover, the costs are more likely to be borne by workers because of this imbalance. In the following discussion, I introduce a number of stylized assumptions about the labor market. Not all labor markets are characterized by the imbalance of bargaining power and high transactions costs discussed here. The costs of information and monitoring vary and are not always borne by the employee. For example, law students working at corporate law firms are provided with information few workers could assemble on their own. And at least when they start, entrants into the law job market appear to enjoy substantial bargaining power. It is not surprising, then, that law students do not organize themselves into unions. The same is true to varying degrees of most professions. When employers invest in individual employees and employees are mobile--due to high skills, tight labor markets, or a strong social wage (government-provided safety net)--much of the argument does not apply. In the labor markets I have in mind, employees' work products are fairly homogenous and a single firm employs a large number of people engaged in similar work. This applies to much of the manufacturing sector and a significant portion of the low-skilled service sector. In these labor markets, nonunionized workers are "price takers"--employers can always find ready substitutes at their named price. Under these conditions, workers do not have a credible threat of exit for any but the grossest of employer abuses; they lack credible, graded threats with which they can respond to lesser violations. These are essentially the markets in which unions have historically been active. The argument here is intended to explain the role that unions play and may be used to predict which markets will be most receptive to unionization; I am not making any empirical claim about the proportion of the total work force to which these assumptions apply. But I expect that the duty of good faith is self-enforcing in those markets in which these assumptions do not apply, and as expected, unions have the least market presence in these sectors.
The Grounds of Welfare
112 Yale L.J. 1511 (2003) Louis Kaplow and Steven Shavell are talented and distinguished legal academics who for the past several years have been working jointly on a massive project in normative law and economics. The project's goal is to answer the question: What are the criteria by which legal policies (rules, standards, decisions, and other authoritative acts) ought to be assessed and proposals calling for their reform to be evaluated? In answering this question, they consider two normative frameworks--one defined by a concern for the impact of policies on human welfare, the other defined by a concern for various principles of fairness. Thus, the title of the book: Fairness Versus Welfare. There is no surprise ending, as from the outset Kaplow and Shavell are clear that they judge welfare the unambiguous winner of the competition. Previous iterations of the book have been in circulation for some time and available on the Internet. In addition, Kaplow and Shavell have made the rounds of law and economics workshops for several years, taking the opportunity such occasions provide to set out and defend the book's central claims. Beyond that, the book has been the subject of numerous conferences and panels at professional meetings. It is unlikely, therefore, that many intended readers are not already familiar with its claims and the arguments marshaled on their behalf. Even so, it is useful to distinguish among three groups of potential readers. The first two groups are the representatives of protagonists. On the one side are the deontologists--philosophers and legal theorists committed to the idea that some or other deontic considerations must play an independent role in assessing legal practice as well as calls for its reform. Along with everyone from Plato and Aristotle to Kant, Rawls, and Dworkin, Kaplow and Shavell are kind enough explicitly to include me in this group. This group is their target. As Kaplow and Shavell see it, no argument they could muster might convince the deontologists of the error of their ways, so hopelessly are the deontologists in the grip of a mistaken view. On the other side stand the fellow travelers along the law-and-economics highway. This group represents Kaplow and Shavell's natural allies. Although the argument of the book might firm their resolve, and harden them in battles with the deontologists, it is not necessary to persuade them. The argument of the book will be lost on the first group and otiose for the second. This leaves the uncommitted law professor searching for an analytical and normative framework within which to organize her thinking and through which to sharpen her critical lens. The book is self-consciously aimed at capturing the hearts and minds of this segment of the legal academy. It should come as something of a surprise, then, that among the most vehement critics of Kaplow and Shavell's project are other advocates of an economic approach to the law. Whereas most deontologists are likely merely to dismiss Kaplow and Shavell as unsophisticated and their arguments as inadequately nuanced, the majority of law-and-economics scholars are anxious to dissociate themselves from a thesis they are convinced is dangerous to the cause. Why? The answer is that the book openly endorses precisely the imperialistic claims with which others have saddled the law-and-economics movement, often in an effort to discredit it as inadequately catholic or, in the extreme, uncivilized. Whereas the vast majority of law-and-economics scholars have been trying to make the case for including efficiency among the factors suitable to assessing legal reform proposals, the entire point of the Kaplow and Shavell argument is that the only considerations that can figure in a rational reform policy are those of human welfare--or efficiency properly construed. One might suppose that any book that triggers so much fear and loathing--that sends its natural allies scampering for shelter and engenders apoplexy among its targets--has to be either really dreadful or of fundamental importance. Fairness Versus Welfare is neither. The book is divided into two parts of very unequal length. In the first part, the authors distinguish the two competing normative frameworks of fairness and welfare from one another and set forth the general framework by which they shall adjudicate between the two. In the second, and by far the longer, section of the book, they set out to make good on the strategy of evaluation by comparing fairness and welfare in a wide range of areas of the law--both private and public. The argument of the book requires for its success treating the two parts of the book as connected. That is because the objection to fairness is that the price of fairness is too high in terms of its likely impact on welfare, and so it is the burden of the second part to establish just how extensive those detrimental effects are likely to be. In this sense, the second part forms the evidentiary base for the thesis of the first part. In fact, however, the second part of the book can stand on its own and constitutes a significant contribution to discussions of the impact on human welfare of various regimes of rules, standards, and policies in a wide range of areas of the law. The source of consternation for "friend" and foe alike is the first part of the book. Whereas the second part is nearly invaluable to anyone interested in policy analysis and legal reform, the first part's argument is entirely unsuccessful. Unfortunately, the overall argument of the book depends crucially on it. Fairness Versus Welfare claims that welfare, and not fairness, is the standard appropriate to assessing the law and calls for its reform. This is a normative claim and, as such, requires normative argument on its behalf. Any suitable argument for the authors' claim then will consist in a set of reasons or grounds for the claim that welfare, and not fairness, is the appropriate basis for assessing law and its reform. The burden of providing an account of what is to count as grounds or reasons for that claim is the task of the first part of the book: the evaluative framework. Sadly, instead of discharging that obligation, Fairness Versus Welfare serves up empty tautological claims and underdeveloped putative causal explanations--explanations, moreover, that were they in fact adequate, would be so strong as to undermine, rather than support, the book's overall thesis. Fairness Versus Welfare makes a bold normative claim, but it offers no argument adequate to support it. In Part I of this Review, I summarize the debate on the normative foundation of efficiency prior to the publication of the Kaplow and Shavell book. In Part II, I criticize Kaplow and Shavell's argument that welfare is the uniquely appropriate standard for the assessment of the law and proposals for its reform. In Part III of this Review, I sketch an alternative account of the value of welfare. On that view, however, whatever it is about welfare that explains its value and aptness for assessing the law also explains why fairness is valuable and appropriate to assessing the law. In short, Kaplow and Shavell's account of welfare fails to explain its value and its role in evaluating the law. On the other hand, any plausible account of welfare that is capable of explaining its value explains as well the value of fairness and its appropriateness to evaluating the law and proposals for its reform. The central claim of the book is not just inadequately defended, but, at the end of the day, unsupportable.
Economic Analysis of Contract Law After Three Decades: Success or Failure?
112 Yale L.J. 829 (2003) Modern economic analysis of contract law began about thirty years ago and, many scholars would agree, has become the dominant academic style of contract theory. Traditional doctrinal analysis exerts less influence than it did prior to 1970 and enjoys little prestige. Philosophical work on the nature of promising has captured some attention, but petered out in the 1980s, with little to show for the effort other than arid generalizations about the nature of promising. Academic critiques from the left no longer stir up excitement as they did twenty years ago. Scholarship influenced by cognitive psychology has so far produced few insights. Only economic analysis seems to be on solid footing. One way to validate a field's claims is to look at its history. Economically oriented scholars writing in the early 1970s had foundational insights, and then over time subsequent writers have criticized and refined them; because these refinements were derived from common premises, there has been a sense of forward movement in the subject, of the building of an increasingly sophisticated consensus. Although critics of economic analysis deride its scientific aspirations, the steady accumulation of insights over time resembles scientific progress. Doctrinal, philosophical, and critical scholarship by contrast has been static. The authors agree or disagree, and about the same things, as much today as they did twenty or thirty years ago. Yet there are grounds for concern about the economic analysis of contract law. Careful students of its history know that the sense of convergence ended years ago; in the last ten years, theory has become divergent, and impasses have emerged. The simple models that dominated discussion prior to the 1990s do not predict observed contract doctrine. The more complex models that emerged in the 1980s and dominated discussion in the 1990s failed to predict doctrine or relied on variables that could not, as a practical matter, be measured. As a result, the predictions of these models are indeterminate, and the normative recommendations derived from them are implausible. For these reasons, I will argue that economic analysis has failed to produce an "economic theory" of contract law, and does not seem likely to be able to do so. By this, I mean that the economic approach does not explain the current system of contract law, nor does it provide a solid basis for criticizing and reforming contract law. This is not to say that the economic approach has not produced any wisdom, but that the nature of its accomplishment turns out to be subtle and will become clear only after an extended discussion. This Essay has two purposes: to document the failures of economic models to explain contract law or to justify reform, and to provide an explanation for these failures. The explanation centers on the difficulty of developing a model of contractual behavior that can be tested and that does not make unreasonable assumptions about the cognitive abilities of contractual parties. At the outset, a few comments must be made in order to avoid some possible misunderstandings of the argument. First, I will not argue that some other approach to contract law is superior to the economic approach, nor that economic analysis should be abandoned. If a moral must be extracted from the discussion, it is skepticism about how much additional value economics has to offer to understanding contract law today. Second, I do not make claims about the value of economic analysis for understanding other areas of law. Indeed, my critique rests on empirical and methodological judgments about the contracts literature, judgments that do not necessarily apply to, say, torts or property. Nor do I take a position in this Essay on controversies over the welfarist foundations of economic analysis. Third, I want to avoid making general arguments about what counts as a good theory. One might argue that any methodology that yields surprises or insights about a familiar topic is valuable, and those surprises or insights should be counted as theories. To avoid these philosophical issues, I will focus on the original aspirations of the economic analysis of contract law: to provide an explanation of existing legal rules, and to provide a basis for criticizing or defending those rules. Finally, I want to avoid debates about what counts as "economic analysis of contract law" by stipulating that it did not exist before 1970. This is, of course, artificial. Many earlier scholars, including Holmes, Llewellyn, Hale, and Fuller, used economic analysis in the sense that from time to time they would assume that contracting parties are rational and then speculate about how different legal rules would affect these parties' incentives. From a modern perspective, however, their insights seem banal, and that is because post-1970 economic analysis is more systematic and careful. The interesting question is whether the post-1970 commitment to methodological individualism and the other premises of the rational actor approach provide the basis for a theory that can be used to explain or criticize contract law. My plan is as follows. Part I describes various results from the economic analysis of contract law and compares them with the legal doctrine. In virtually every case, models make either false or indeterminate predictions about the doctrines of contract law. Part II discusses the closely related literature on incomplete contracts, a literature that attempts to predict the content of contracts, as opposed to contract law. The separation of these two bodies of scholarship, now gradually disappearing, is an accident of history, but useful for seeing the general problems with the economic project. Part III speculates about what went wrong with economic analysis and argues that an ambiguity at the heart of the concept of transaction costs is to blame. Part IV looks at trends in contracts scholarship. Part V criticizes alternative approaches to contract theory.
In That Case, What Is the Question? Economics and the Demands of Contract Theory
112 Yale L.J. 903 (2003) In his thoughtful essay, Eric Posner asks whether economic analysis has failed contract law and suggests that it has. Not surprisingly, I hold a different opinion. That is, while I agree with much of what Posner says about particular economic findings, I disagree about what it would mean for economics to "fail" (or, for that matter, what it would mean to succeed). More specifically, Posner argues that economic analysis has failed in two respects, both as a descriptive theory and as a normative one. Descriptively, Posner says, economics fails to predict existing doctrine: Either existing doctrine differs from the rules that economics identifies as efficient, or economics is too indeterminate to identify the most efficient rules. And normatively, Posner says that this same indeterminacy also prevents economics from making any suggestions for the reform of contract law. On my view, though, the descriptive and normative issues (and what constitutes "failure" for each of these purposes) must be treated separately. The descriptive claims that might be made for economics are largely uninteresting, as most scholars have implicitly recognized. I will speak briefly about those claims in Part I of this Response, but the bulk of my comments--Part II--will concern the normative claims. To the extent that normative analysis is at issue, I am much less troubled by indeterminacy of the sort that Posner describes. I then address, in Part III, the very different demands of what might be called an "interpretive" theory of contract law. In short, my differences with Posner are largely over the question of "what counts as a good theory" of contract. Posner wisely declined to address that question--wisely, I say, because a full discussion could easily have tripled the length of his essay. My goal in this Response, though, is to put that issue back on the table, for this is where most of our differences can be found.
Valuing Modern Contract Scholarship
112 Yale L.J. 881 (2003) In sum, Posner has leveled three different criticisms at the modern economic analysis of contracts: a descriptive critique that the scholarship fails to describe or predict the content of current law, a normative critique that the scholarship fails to "provide a solid basis for criticizing and reforming contract law," and an implicit evolutionary critique that the scholarship has run out of things to say. Posner's descriptive critique is misplaced. Modern scholarship has never been about trying to describe or predict current law. His normative critique is overblown. While Posner is correct that much of the modern scholarship is based on stylized models with results that turn on particular parameter values, he underappreciates the normative importance of "possibility" theorems. Modern scholarship has contributed by showing that the accepted determinacy of prior normative analysis is unsustainable. Moreover, the factors identified by modern literature have generated affirmative policy proposals (such as extending the Hadley foreseeability limitation to seller's lost-profit damages). But Posner's evolutionary critique may stand on a stronger footing. All valuable schools of inquiry at some point in time tend to reach diminishing marginal returns. The economic analysis of tort law, for example, is widely conceded to have reached a point of "maturity" where it is difficult to find basic untheorized questions for study. And maybe--despite my arguments about opt-out rules--the same is taking place, or about to take place, with regard to the economics of contracts. I join Posner in welcoming and predicting a shift from the theoretical to the empirical. But instead of debating the future, it's better for us to wait and see. Methodology pieces like this also are subject to the very criticisms that Posner levels at modern scholarship--they don't predict current law, they don't provide a basis for critiquing current law, and they quickly play themselves out. A few years back, Posner and I participated in a Wisconsin Law Review symposium comparing economic and sociological approaches to law. Posner wisely eschewed writing an ungrounded piece on methodology and instead published what to my mind was the most valuable contribution of the symposium--an analysis of gratuitous contracts. In contrast, I dyspeptically complained about the limited value of publishing method pieces, stating that "I generally believe that ungrounded discussions of methodology are not useful. I don't 'do' method--or at least I don't do method well. . . . Better to have scholars from different disciplines attack a particular problem, and then assess which methodology produces the best purchase."