Tuesday, November 17, 2015

Law and Economics: Philosophical Issues and Fundamental Questions

Edited by Aristides N. Hatzis & Nicholas Mercuro

London/New York: Routledge, 2015

The Law and Economics approach to law dominates the intellectual discussion of nearly every doctrinal area of law in the United States and its influence is growing steadily throughout Europe, Asia, and South America. Numerous academics and practitioners are working in the field with a flow of uninterrupted scholarship that is unprecedented, as is its influence on the law.

Academically every major law school in the United States has a Law and Economics program and the emergence of similar programs on other continents continues to accelerate. Despite its phenomenal growth, the area is also the target of an ongoing critique by lawyers, philosophers, psychologists, social scientists, even economists since the late 1970s. While the critique did not seem to impede the development of the field, it certainly has helped it to become more sophisticated, inclusive, and mature. In this volume some of the leading scholars working in the field, as well as a number of those critical of Law and Economics, discuss the foundational issues from various perspectives: philosophical, moral, epistemological, methodological, psychological, political, legal, and social.

The philosophical and methodological assumptions of the economic analysis of law are criticized and defended, alternatives are proposed, old and new applications are discussed.

The book is ideal for a main or supplementary textbook in courses and seminars on legal theory, philosophy of law, jurisprudence, and (of course) Law and Economics.

Aristides N. Hatzis is an Associate Professor of Legal Theory at the University of Athens, Greece.

Nicholas Mercuro is Professor of Law in Residence ath the Michigan State University College of Law and Member of the faculty of James Madison College, Michigan State University, USA.

Here you can find the Preface, the Table of Contents and Two Chapters (by Judge Richard Posner and Prof. Martha Nussbaum)

Friday, May 15, 2015

How Homo Economicus Went Extinct

by Carol Tavris

Wall Street Journal

May 15, 2015

As a social psychologist, I have long been amused by economists and their curiously delusional notion of the “rational man.” Rational? Where do these folks live? Even 50 years ago, experimental studies were demonstrating that people stay with clearly wrong decisions rather than change them, throw good money after bad, justify failed predictions rather than admit they were wrong, and resist, distort or actively reject information that disputes their beliefs. In recent years, a new field has emerged—“behavioral economics”—to propose an alternative to the rational man of traditional economics. A spate of popular books and empirical studies have been published exploring human irrationality—in decision making, beliefs and actions. Researchers in this field are making up for lost time, or perhaps realizing that they are social psychologists after all.

As the offspring of traditional economics and experimental social psychology, behavioral economics shows remarkable hybrid vigor, and Richard Thaler, one of the new field’s founders, acknowledges its debt to psychological science throughout his highly enjoyable intellectual autobiography, “Misbehaving.” Indeed, his opening aphorism is Vilfredo Pareto’s 1906 claim that “the foundation of political economy and, in general, of every social science, is evidently psychology. A day may come when we shall be able to deduce the laws of social science from the principles of psychology.” That day is here, as Mr. Thaler explains.

For all of his creative career spanning 40 years, Mr. Thaler, who is a professor of behavioral science and economics at the University of Chicago Graduate School of Business, has been studying “the myriad ways in which people depart from the fictional creatures that populate economic models.” As human beings who arrogantly and often wrongly consider ourselves “sapiens,” we simply don’t match the model of human behavior favored by economists, one that “replaces homo sapiens” (whom Mr. Thaler calls Humans) with “a fictional creature called homo economicus” (whom he calls Econ). “Econs do not have passions; they are cold-blooded optimizers,” he says. “Compared to this fictional world of Econs, Humans do a lot of misbehaving”—thus the book’s title.


Friday, February 6, 2015

The Rise of the Frugal Economy

by Navi Radjou & Jaideep Prabhu

Project Syndicate

February 6, 2015

In a famous 1937 essay, the economist Ronald Coase argued that the reason Western economies are organized like a pyramid, with a few large producers at the top and millions of passive consumers below, is the existence of transaction costs – the intangible costs associated with search, bargaining, decision-making, and enforcement. But with the Internet, mobile technologies, and social media all but eliminating such costs in many sectors, this economic structure is bound to change.

Indeed, in the United States and across Europe, vertically integrated value chains controlled by large companies are already being challenged by new consumer-orchestrated value ecosystems, which allow consumers to design, build, market, distribute, and trade goods and services among themselves, eliminating the need for intermediaries. This bottom-up approach to value creation is enabled by the horizontal (or peer-to-peer) networks and do-it-yourself (DIY) platforms that form the foundation of the “frugal” economy.

Two key factors are fueling the frugal economy’s growth: a protracted financial crisis, which has weakened the purchasing power of middle-class consumers in the West, and these consumers’ increasing sense of environmental responsibility. Eager to save money and minimize their ecological impact, Western consumers are increasingly eschewing individual ownership in favor of shared access to products and services.


Tuesday, January 20, 2015

Henry Manne: A Champion of Law Informed by Economics

Wall Street Journal
January 19, 2015

Editor’s note: Henry G. Manne, dean emeritus of the George Mason School of Law, died Saturday at age 86. The author of “Insider Trading and the Stock Market” (1966) and a pioneer in the field of law and economics was a frequent Journal contributor. Some samples:

From “For Milken, Verdict First, Trial Later,” Feb. 3, 1990:

The government wants $1.8 billion in RICO forfeitures from [Michael] Milken and his co-defendants. The government claims that Mr. Milken’s alleged securities infractions were RICO violations, which made Drexel part of a RICO “enterprise,” which means he must forfeit all his Drexel compensation. Kafka, hell; anyone for Torquemada?

The government wants $1.8 billion in RICO forfeitures from [Michael] Milken and his co-defendants. The government claims that Mr. Milken’s alleged securities infractions were RICO violations, which made Drexel part of a RICO “enterprise,” which means he must forfeit all his Drexel compensation. Kafka, hell; anyone for Torquemada?

Every American’s basic civil liberties are critically endangered by this hysterical, politically inspired drive to demean our financial markets and convict or at least disgrace targeted individuals. That the principal defendant has been a disruptive and unsettling innovator in the usually staid financial world makes it all the more important to be vigilant about possible abuse of fair procedures. We hardly need a regime of civil liberties to protect passive, unventuresome members of the community. Tough business competitors should get at least the same legal fairness we normally give Klansmen or crack dealers.


See also


Wednesday, January 7, 2015

‘Scoring’ Legislation for Growth

by Edward P. Lazear

Wall Street Journal

January 6, 2015

The House of Representatives on Tuesday adopted a rule that will change Washington and lawmaking for the better. When legislation is proposed, the Congressional Budget Office is tasked with estimating its fiscal consequences. In most cases, the CBO assumes there is no effect on economic growth, positive or negative. In the future, the House will instruct the CBO to take macroeconomic effects into account when estimating the cost of legislation.

The old approach, that ignored effects on economic growth, has been defended as being “neutral,” a way to prevent political pressure from affecting nonpartisan CBO calculations.

The White House has already released a blog post that opposes the change, based on the supposed neutrality of the old approach and arguing that the new rule will introduce bias. But the House, not White House, has it right. Ignoring the macroeconomic impacts of legislation is far from neutral.

Every piece of legislation has economic consequences. Most are small, but some are significant. When the CBO ignores them, it disregards the detrimental effects on economic growth of bad legislation as well as the positive effects on growth of good legislation.


Monday, December 1, 2014

Professor Gordon Tullock: A Personal Remembrance

by Richard B. McKenzie

Library of Economics & Liberty

December 1, 2014

Professor Gordon Tullock will be remembered by economists around the world who never met him, much less walked in his considerable academic shadow. Gordon—I call him that because he was a mentor, co-author, and good friend—was one of the hundred most influential economists of the twentieth century. Many still lament the fact that Gordon did not share the 1986 Nobel Prize in Economics with James Buchanan, who won it for his development of public choice economics. Gordon, along with Buchanan, nurtured public choice from its birth in the late 1950s, co-authoring or authoring several of the subdiscipline's classic works.

Many economists will reflect on how, at the time of his death at age 92, Gordon could well have been on the "short list" for a future Nobel for his path breaking work on "rent seeking," which is concerned with how businesses and other interest groups seek—with lobbying and campaign contributions—monopoly profits, or "rents," through government-provided largesse or market restrictions. Gordon's work on rent-seeking spawned a mountain of journal articles that changed people's assessment of how political processes work. The concept of rent-seeking is now so widely adopted in economists' public commentaries that the expression need no longer be placed in quotes.

Beyond his many path-breaking accomplishments, however, Gordon was a real character. Many who knew him still carry the sting of dismissal or insult, while others remember epiphanies that Gordon freely distributed. Gordon could be abrasive, especially in his early years and especially when he could readily pick out flaws in arguments. Some who felt (and may still feel) his sting, but did not stay around long enough to really know him, may remember him as mean-spirited. But those of us who lingered came to realize that he was virtually incapable of being intentionally mean-spirited. He was an economist who saw argument as a serious sport. He would not drop arguments or even sugarcoat them out of concern for political (or personal) correctness.


Thursday, November 20, 2014

Aristides Hatzis: The Economic Crisis and the Economic Science

Crisis Observatory

November 19, 2014

Aristides N. Hatzis, Associate Professor at the University of Athens (Department of Methodology, History & Theory of Science), answers the following questions of the Crisis Observatory, concerning Economics and the way it is being taught since the beginning of the crisis.

Question 1: In the wake of both the financial crisis and the economic crisis that ensued (and continues to cause problems, especially to the European economy), Economics came under harsh criticism. This criticism involved its failure to foretell the crisis, but also the validity of its established models and approaches in general, as well as their capacity to correctly diagnose economic problems and to offer appropriate policies therefore. In your opinion, is this criticism justified and, if so, what do you think are the lessons that Economics should draw from the recent crisis?

Question 2: Based on your previous response, what do you think that ought to change in the way Economics is being taught in universities, considering that the economic policy makers of tomorrow are today's the students of Economics?


Tuesday, November 4, 2014

Impact of the Work of Gary S. Becker

University of Chicago
November 3, 2014

Keynote Address by James Heckman and remarks by Robert J. Zimmer, president of the University of Chicago, and Lars Peter Hansen, the David Rockefeller Distinguished Service Professor in Economics, Statistics, and the College. James Heckman is the Henry Schultz Distinguished Service Professor in Economics and the College.

Wednesday, October 29, 2014

Where not to invest in Europe

October 29, 2014

Doing business in Europe's periphery is hampered by slow legal systems

The World Bank released its annual "Doing Business" report on October 29th, ranking the world's 189 countries by how attractive they are to companies. That tiny Singapore led the list again this year and Eritrea was stuck in last place was not particularly surprising. Other performances were less easy to explain. Ukraine—which since February has been embroiled in a conflict with neighbouring Russia—leapt up the rankings, partly because some of the data capturing improved administrative practices was collected before hostilities flared.

Yet the report's most interesting data—on the time it takes to settle a dispute, or wind up a company—sheds light on the lacklustre business investment in Europe's periphery since the financial crisis. Countries where it is quick and easy to enforce contracts or wrap up failing firms are usually more attractive to investors than places with lethargic legal systems. In Greece and Slovenia, hit hard by the financial crisis, it takes much longer to do these things than countries such as France and Germany, whose economies have generally performed better. The situation has got much worse over the last few years. It now takes over two months longer to enforce a contract through the Slovenian court system than it did a year ago. And to do that in Greece now takes more than four years, up around 18 months from 2010. The only bright spot is that there may be a lot more business for Greek lawyers in the near future.


Read the Report

Sunday, October 5, 2014

Η συνταγματική αναθεώρηση ξεκινά από το άρθρο 110

του Γιώργου Τσεμπελή

Το Βήμα

5 Οκτωβρίου 2014

Πολλές συζητήσεις γίνονται για την αναθεώρηση του Συντάγματος και είναι πραγματικά καιρός για να προβούμε και σε ενέργειες. Σύμφωνα με το άρθρο 110 μια τέτοια απόφαση χρειάζεται κατ' αρχάς τη σύμφωνη γνώμη δύο διαφορετικών κοινοβουλίων, ενός εκ των οποίων με πλειοψηφία 3/5, και με ενδιάμεσες εκλογές. Αρα, αν δεν ξεκινήσει η διαδικασία άμεσα από την τωρινή Βουλή, θα περάσουμε αναγκαστικά άλλα τέσσερα χρόνια με τις ίδιες διατάξεις περί ευθύνης υπουργών -για να αναφερθούμε μόνο σε ένα καθολικά παραδεκτό πρόβλημα (τερατούργημα;) του τωρινού Συντάγματος, το άρθρο 86.

Δυστυχώς, σήμερα είναι πολύ μεγάλη η πιθανότητα να χαθεί η ευκαιρία και να περιμένουμε όντως άλλα τέσσερα χρόνια. Τα κόμματα, αντί να εστιάσουν στα σημεία συμφωνίας, όπως η αντικατάσταση του προαναφερθέντος άρθρου 86, η βουλευτική ασυλία (62), οι ανεξάρτητες αρχές (101A) και ο κύριος μέτοχος (14), έχουν το καθένα παραθέσει μια μέγιστη σειρά προτάσεων για αναθεώρηση. Και εδώ υπάρχει ένα τεράστιο πρόβλημα που πρέπει οπωσδήποτε να λυθεί στην πρώτη αναθεώρηση, όποτε κι αν γίνει τελικά αυτή: Το άρθρο 110, το οποίο «κλειδώνει» το Σύνταγμα τόσο ερμητικά που γίνεται πολύ δύσκολη η αναθεώρησή του. Γι' αυτό η αλλαγή του συγκεκριμένου άρθρου είναι ουσιαστικά και η μεγαλύτερη προτεραιότητα.

Στη συνέχεια του παρόντος άρθρου θα δείξω ότι παγκοσμίως τα μακροσκελή συντάγματα (όπως το ελληνικό με τις 27.000 λέξεις του) είναι όχι απλώς φλύαρα (όπως πολλοί συνταγματολόγοι πιστεύουν), αλλά και περιοριστικά. Επιπλέον, τα μεγαλύτερα συντάγματα «κλειδώνονται» πιο αποτελεσματικά από τα μικρότερα, ακριβώς για να διατηρηθούν οι περιορισμοί. Παρά τα τεχνάσματα των συνταγματικών συντακτών, όμως, αναθεωρούνται πιο συχνά, ακριβώς γιατί έρχονται σε αντίθεση με τις ανάγκες των κοινωνιών που ρυθμίζουν.


Tuesday, August 12, 2014

Christoph Paulus, "A Debt Restructuring Mechanism for Sovereigns: Do we need a legal procedure?"

C.H. Beck / Hart / Nomos
July 2014

The Eurozone crisis which started in spring 2010 as a Greek budget crisis has alerted Europeans that the issue of defaulting sovereigns is not one reserved just for the poor and poorest countries on this globe. The crisis painfully amplified that developed countries, too, might be hit by this phenomenon. To be sure, this insight is far from novel - the history of defaulting states reaches back into history for at least two millennia. And yet, lawyers have surprisingly abstained more or less completely from discussing this subject and developing possible solutions. Beginning with the Argentina crisis in 2001, this neglect began to vanish to a certain degree and this movement got some momentum in 2010 by the Eurozone crisis.

The present book collects contributions from authors most of whom have participated in a conference on this issue in January 2012 at the Humboldt-Universität zu Berlin. The presentations, thus, provide a unique overview of the present discussion both from an economic and legal perspective.

Dr Christoph Paulus is professor at the Humboldt-Universität, Berlin. The authors are internationally reputed experts in their fields and are globally renowned for their expertise particularly in the field of defaulting sovereigns.

Saturday, May 10, 2014

The great trailblazer: Economists everywhere should mourn the passing of Gary Becker

May 10, 2014

If there is one person to blame for economists’ habit of opining on everything, it is Gary Becker, who died on May 3rd. Not content with studying the world’s economies, he was the first prominent economist to apply economic tools to all aspects of life. His revelation was the sort that seems obvious only in hindsight: that people are often purposeful and rational in their decisions, whether they are changing jobs, taking drugs or divorcing their spouses. This insight, and the work that followed from it, earned him a Nobel prize in 1992. No less an eminence than Milton Friedman declared in 2001 that Mr Becker was “the greatest social scientist who has lived and worked in the last half-century”.

At the heart of Mr Becker’s work was the view that “individuals maximise welfare as they conceive it.” Welfare need not mean income; it could derive from the pleasure of altruism or the thrill of deviancy. But critically, this thesis implied that people respond to incentives—a realisation that opened the door to insights across the whole range of human activity.

Mr Becker first used this approach in his doctoral study of discrimination, a raw issue in 1950s America. At the time economists’ models assumed that employers cared only about productivity, whatever the colour of the worker. Shunting this view aside, Mr Becker instead assumed that many individuals had a “taste for discrimination”, and perceived themselves to be worse off when forced to work alongside people of other races. He then explored how this preference affected labour markets.

In America, where the black population was roughly one-tenth of the total, discrimination against blacks led to relatively small reductions in white incomes but far more substantial ones for black workers. In South Africa, with a far higher proportion of blacks, discrimination brought much larger reductions in incomes across the economy. Mr Becker pointed out that although competition from more rational firms might gradually eliminate corporate discrimination, market forces alone would rarely erode discrimination rooted in the tastes of workers or consumers. His book on the subject, “The Economics of Discrimination”, became the foundation for subsequent research.


Sunday, May 4, 2014

Gary S. Becker, Nobel-winning scholar of economics and sociology, 1930-2014

by William Harms

UChicago News

May 4, 2014

Nobel Laureate Gary S. Becker, AM'53, PhD'55, made historic changes to the study of economics and the social sciences, combining disciplines to understand decisions in everyday life, while spawning rich new questions for scholars in diverse fields to pursue.

Becker, 83, University Professor of Economics and of Sociology at the University of Chicago, died on May 3 following complications from a recent surgery. He won the Nobel Memorial Prize in Economic Sciences in 1992 “for having extended the domain of microeconomic analysis to a wide range of human behavior and interaction, including non-market behavior.”

Becker pioneered study in the fields of human capital, economics of the family, and economic analysis of crime, discrimination, addiction, and population. University of Chicago President Robert J. Zimmer said Becker will be remembered as one of the foremost economics scholars of the 20th century.

"Gary was a transformational thinker of truly remarkable impact on the world and an extraordinary individual,” Zimmer said. “He was intellectually fearless. As a scholar and as a person, he represented the best of what the University of Chicago aspires to be."


Monday, March 24, 2014

Murray L. Weidenbaum, R.I.P.

by Thom Lambert

Truth on the Market

March 23, 2014

The world of economics and public policy has lost yet another giant. Joining Ronald Coase, James Buchanan, Armen Alchian, and Robert Bork is a man whose name may be less familiar to TOTM readers but whose ideas have been hugely influential, particularly on me.

As the first chairman of President Reagan’s Council of Economic Advisers, Murray Weidenbaum lay much of the blame for the anemic economy President Reagan “inherited” (my, how I’ve come to hate that word!) on the then-existing regulatory state. Command and control dominated in those days, and there was virtually no consideration of such mundane matters as the costs and benefits of regulatory interventions and the degree to which regulations were tailored to fit the market failures they purported to correct. Murray understood that such an unmoored regulatory state strangled innovation and would inevitably become co-opted by regulatees, who would use the machinery of the state to squelch competition and gain other advantages. He counseled the President to do something about it.

The result was Executive Order 12291, which subjected major federal regulations to cost-benefit analysis and stated that “[r]egulatory action shall not be undertaken unless the potential benefits to society from the regulation outweigh the potential costs to society.” Such basic cost-benefit balancing seems like nothing more than common sense these days, but when Murray was pushing the idea at Washington University back in the late 1970s, it was considered pretty radical. Many of the Nixon era environmental statutes, for example, proudly eschewed consideration of costs. Murray helped us see how silly that was.


Saturday, March 15, 2014

Robert D. Cooter & Ariel Porat, "Getting Incentives Right: Improving Torts, Contracts, and Restitution"

Princeton University Press
February 2014

Lawyers, judges, and scholars have long debated whether incentives in tort, contract, and restitution law effectively promote the welfare of society. If these incentives were ideal, tort law would reduce the cost and frequency of accidents, contract law would lubricate transactions, and restitution law would encourage people to benefit others. Unfortunately, the incentives in these laws lead to too many injuries, too little contractual cooperation, and too few unrequested benefits. Getting Incentives Right explains how law might better serve the social good.

In tort law, Robert Cooter and Ariel Porat propose that all foreseeable risks should be included when setting standards of care and awarding damages. Failure to do so causes accidents that better legal incentives would avoid. In contract law, they show that making a promise often causes the person who receives it to change behavior and undermine the cooperation between the parties. They recommend several solutions, including a novel contract called "anti-insurance." In restitution law, people who convey unrequested benefits to others are seldom entitled to compensation. Restitution law should compensate them more than it currently does, so that they will provide more unrequested benefits. In these three areas of law, Getting Incentives Right demonstrates that better law can promote the well-being of people by providing better incentives for the private regulation of conduct.

Robert D. Cooter is the Herman F. Selvin Professor of Law at the University of California, Berkeley. His books include Solomon's Knot, The Strategic Constitution (both Princeton), and Law and Economics. Ariel Porat is the Alain Poher Professor of Law at Tel Aviv University and the Fischel-Neil Distinguished Visiting Professor of Law at the University of Chicago. His books include Tort Liability under Uncertainty, Torts, and Contributory Fault in the Law of Contracts.