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Toward a Broader Perspective on the Role of Economics in Legal Policy Analysis: A Retrospective and an Agenda from Albert O. Hirschman
Published online by Cambridge University Press: 27 December 2018
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1 Hirschman's broad influence in the various social sciences is evidenced, inter alia, by a book of essays in his honor. Alejandro Foxley, Michael McPherson & Guillermo O'Donnell, ed., Development, Democracy and the Art of Trespassing: Essays in Honor of Albert O. Hirschman (Notre Dame, Ind.: University of Notre Dame Press, 1986). His influence on legal thinkers appears to have been modest to date. Only one of his books, Exit, Voice and Loyalty: Responses to Decline in Firms Organizations, and States (Cambridge, Mass.: Harvard University Press, 1970) (“Hirschman, Exit, Voice and Loyalty”), is frequently cited in the law reviews.Google Scholar
2 Schlag, Pierre, “An Appreciative Comment on Coase's The Problem of Social Cost: A View from the Left,” 1986 Wis. L Rev. 919, 921, 933–43; Kelman, Mark, “On Democracy-bashing: A Skeptical Look at the Theoretical and ‘Empirical’ Practice of the Public Choice Movement,” 74 Va. L. Rev. 199 (1988). One finds the “right-wing” label applied to law and economics even by more centrist scholars. White, G. Edward, “From Realism to Critical Legal Studies: A Truncated Intellectual History,” 40 Sw. L.J. 819, 840 (1986).Google Scholar
3 Hirschman used this term in the title of a previous collection of essays. Albert Hirschman, Essnys in Trespassing: Economics to Politics and Beyond (New York: Cambridge University Press, 1981).Google Scholar
4 Richard Posner, Economic Analysis of Law 12–14 (Boston, Mass.: Little, Brown & Co., 1986) (“Posner, Economic Analysis”) (explaining that some economists only use the term efficiency to describe the results of voluntary transactions, while others also consider it to be efficiency analysis when they attempt to construct the terms of likely transactions in situations where transaction costs make voluntary exchanges infeasible or where involuntary exchange–e.g., an accident or crime–has already occurred).Google Scholar
5 Mikva, Abner, “Foreword to Symposium on the Theory of Public Choice,” 74 Va. L Rev. 167 (1988) (“Not even my five terms in the Illinois state legislature–that last vestige of democracy in the ‘raw’–nor my five terms in the United States Congress, prepared me for the villains of the public choice literature”). Public choice analysis is “the application of the theoretical method and techniques of modern economics to the study of political processes.”Brennan, Geoffrey & Buchanan, James, “Is Public Choice Immoral? The Case of the ‘Nobel’ Lie,” 74 Va. L Rev. 179 (1988). Public choice analysis thus adopts the assumption that economic man, who here includes man serving as a public official or seeking to influence a political official, is self-interested. Brennan and Buchanan, however, state that this economic assumption may be “descriptively somewhat less relevant” in political settings than in markets, although they believe this assumption is more appropriate to the “normative exercise of investigating the incentive structures” in the political process. Id. at 180. One of the controversial terms in public choice theory is the pejorative “rent seeking,” to describe the process of seeking government aid that reduces competition. See Farber, Daniel & Frickey, Philip, “The Jurisprudence of Public Choice,” 65 Tex. L. Rev. 873, 878 & n.36 (1987) (“A classic example of rent-seeking is a corporation's attempt to obtain monopolies granted by government”); Kelman, Steven, “‘Public Choice’ and Public Spirit,” 87 Pub. Interest 80, 93–94 (1987) (arguing that the model of economic man as self-interested, used in public choice theory, may be a self-fulfilling prophecy); Kelman, Mark, 74 Va. L. Rev. at 227 (describing the term “rent-seeking” as conceptually ambiguous)CrossRefGoogle Scholar
6 See Starr, Paul, “The Meaning of Privatization,” 6 Yale L. & Policy Rev. 6 (1988).Google Scholar
7 As Hirschman has said, social science is frequently concerned with finding hidden rationality in the seemingly irrational. Hirschman, “Morality and the Social Sciences,” in Essays in Trespassing at 298 (cited in note 3). Hirschman adds a twist to this technique by finding hidden rationalities that contradict the theories of other social scientists, particularly grand theories based on a priori analysis.Google Scholar
8 Hirschman says in his preface that part I of the book results from contemporary pressures on the “academic scribbler” that “he embalm his past thoughts in definitive restatements” (p. v). He also carries his earlier arguments forward and addresses new problems. The essays in part II, however, are “in no way summings-up and, rather, qualify as unexpected and open-ended progeny” (p. vi). Part III is made up of short pieces, “quite speculative and tentative.” His favorite working title for the book was: “Last Essays, Volume One” (p. vi).Google Scholar
9 Hirschman's previous books are National Power and the Structure of Foreign Trade (Berkeley: University of California Press, 1945); The Strategy of Economic Development (New Haven, Conn.: Yale University Press, 1958); Journeys Toward Progress: Studies of Economic Policy-Making in Latin America (New York: Twentieth Century Fund, 1963); Development Projects Observed (Washington, D.C.: Brookings Institution, 1967); Exit, Voice and Loyalty (cited in note 1); A Bias for Hope: Essays on Development and Latin America (New Haven, Conn.: Yale University Press, 1971); The Pasions and the Interests: Political Arguments for Capitalism Before Its Triumph (Princeton, N.J.: Princeton University Press, 1977); Essays in Trespassing (cited in note 3); Shifting Involvements: Private Interest and Pubiic Action (Princeton, N.J.: Princeton University Press, 1982); Getting Ahead Collectively: Grassroots Experiences in Latin America (New York: Pergamon Press, 1984).Google Scholar
10 Cited in note 9.Google Scholar
11 Richard Posner makes the point that “conventional pieties” such as keeping promises and telling the truth facilitate transactions by reducing the costs of policing markets through self-protection, detailed contracts and litigation. Posner, Richard, “Utilitarianism, Economics and Legal Theory,” 8 J. Legal Stud. 103, 123 (1979). The difference between Hirschman and Posner, however, is that Posner thinks the market alone adequately rewards and thus stimulates virtue. Id. at 124–25. Also, Posner does not appear to be concerned that the ideology of the self-interested model of economic man might undermine traditional virtues.CrossRefGoogle Scholar
12 Fred Hirsch, Social Limits to Growth (Cambridge, Mass.: Harvard University Press, 1976).CrossRefGoogle Scholar
13 Posner, Economic Analysis 16 & n.1, 24 & n.3 (cited in note 4); see McCloskey, Donald, “The Rhetoric of Law and Economics,” 86 Mich. L. Rev. 752, 761, 766 (1988) (arguing that economic terms are used “to evoke a sense of scientific power, to claim precision without necessarily using it;” stating that “Economics is ‘scientific’ in the non-English meaning of ‘science’–systematic, thoughtful, wise. But it is not special. Its topics of argument are mainly the general ones, the topics of reasoning everywhere”). See also part IV of this essay.CrossRefGoogle Scholar
14 The ‘creditors‘ bargain” approach views bankruptcy as a system designed to simulate the agreement one would expect the creditors to have made among themselves concerning what would happen in bankruptcy, had they been able to negotiate such an agreement prior to the bankruptcy. Jackson, Thomas, “‘Bankruptcy, Non-Bankruptcy Entitlements, and the Creditors‘Bargain,” 91 Yale L.J. 857, 860 (1982). A question raised by this model is whether reorganizations should be authorized at all, since the creditors could use a liquidation to sell a business as a going concern if the going concern value of the business is greater than its piecemeal liquidation value. Baird, Douglas, “The Uneasy Case for Corporate Reorganizations,” 15 J. Legal Stud. 127 (1986). This question seems to leave out the dislocation costs to noncreditors, including the community in general. For example, workers or regular customers of the business in bankruptcy are only creditors to the extent that wages are unpaid or that deliveries of goods or services have been prepaid. Congress in enacting the reorganization chapter pf the Bankruptcy Code was concerned among other things with the efficiency of preserving jobs and thus avoiding the associated dislocation costs: “It is more economically efficient to reorganize than to liquidate, because it preserves jobs.” H.R. Rep. No. 595, 95th Cong., 1st Sess. 220, reprinted in 1978 U.S. Code Cong. B Ad. News 5963, 6179.CrossRefGoogle Scholar
15 See Ian MacNeil, “Relational Contract: What We Do and Do Not Know,” 1985 Wis. L. Rev. 483.Google Scholar
16 At 126–30. At first, the feudal shackles thesis was applied to 19th-century Italy and Germany and then to modern Latin America, locations where the bourgeoisie has been seen as too weak and servile to the old order. Ultimately, the feudal shackles thesis was applied even to contemporary England and France (at 130–31). While previously these advanced capitalist countries had been generally thought to be suffering from capitalism's strength, they came to be seen as held back by its weakness.Google Scholar
17 Louis Hartz, The Liberal Tradition in America (New York: Harcourt Brace, 1955).Google Scholar
18 Even Posner has described efficiency as one value that may be considered with others in developing law which embodies and enforces fundamental social norms. Posner, Economic Analysis 23 (cited in note 4). Thus he acknowledges that use of efficiency in legal policy analysis is a normative choice. Elsewhere, he has argued for wealth maximization as the basis of a normative theory of law. Posner, 8 J. Legal Stud. (cited in note 11).Google Scholar
19 See Arthur Okun, Equality and Efficiency: The Big Tradeoff (Washington, D.C.: Brookings Institution, 1975).Google Scholar
20 For examples in the law and economics mode, see Gary Becker & William Landes, eds., Essays in the Economics of Crime and Punishment (New York: National Bureau of Economic Research, 1974); Weiss, Yoram & Willis, Robert, “Children as Collective Goods and Divorce Settlements,” 3 J. Labor Econ. 268 (1985); Landes, Elisabeth & Posner, Richard, “The Economics of the Baby Shortage,” 7 J. Legal Stud. 323 (1978); Landes, William & Posner, Richard, “The Independent Judiciary in an Interest Group Perspective,” 18 J. L. & Econ. 875 (1975); Easterbrook, Frank, “Statutes'Domain,” 50 U. Chi. L. Rev. 533 (1983); Aranson, Peter, Gellhorn, Ernest, & Robinson, Glen, “A Theory of Legislative Delegation,” 68 Comell L. Rev. 1 (1982).Google Scholar
21 Sen, Amarrya, “Rational Fools: A Critique of the Behavioral Foundations of Economic Theory,” 6 Philosophy & Public Affairs 317 (1977).Google Scholar
22 Thomas Schelling, Choice and Consequence (Cambridge, Mass.: Harvard University Press, 1984).Google Scholar
23 The notion of elasticity of demand does partially account for values at a given moment, but elasticity of demand should not be taken as fixed. As a result of value changes, the slope of the demand curve may change just as the curve may shift.Google Scholar
24 Steven Kelman, What Price Incentives? Economists and the Environment 44–53 (Boston: Auburn House, 1981). In an analysis of incentives as a means to reduce pollution, Kelman concedes the efficiency argument for charges rather than fixed standards. Id. at 25. The preference of economists for charges rather than set effluent standards as a means to reduce pollution is based on efficiency; a charge results in reduced pollution by those who value polluting less than the amount of the charge–mosr commonly because they can reduce part of their effluent by means that cost less than the charge. Charges could be used to achieve a particular reduction in pollution at a lower cost to polluters than a set effluent standard. Kelman argues that the socialization of economists in their professional training tends to make them fail to see that use of economic incentives as an instrument to implement policy has implications for what kind of society we help to create. Id. at 2–8, 27–28. Among the many implications are that incentives fail to satisfy the desire to stigmatize a behavior (not for any instrumental reason but as a moral expression) and that stigmatizing a behavior can also serve the instrumental purpose of encouraging the development of values opposing that behavior. Id. at 46–53.Google Scholar
25 See note 5 supra.Google Scholar
26 See “Symposium on the Theory of Public Choice,” 74 Va. L. Rev, 167–518 (1988); Farber & Frickey, 65 Tex. L. Rev. (cited in note 5).Google Scholar
27 Brennan, & Buchanan, , 74 Va. L Rev. at 180 (cited in note 5).Google Scholar
28 Easterbrook, 50 U. Chi. L. Rev. (cited in note 20).Google Scholar
29 Macey, Jonathan, “Transaction Costs and the Normative Elements of the Public Choice Model: An Application to Constitutional Theory,” 74 Va. L. Rev. 471, 474 (1988).Google Scholar
30 Id. at 513–14; Aranson, , Gellhorn, , & Robinson, , 68 Cornell L. Rev. at 6, 37–62 (cited in note 20).Google Scholar
31 Macey, , 74 Va. L. Rev. at 472–73, concedes these problems.Google Scholar
32 See, e.g., Mashaw, Jerry, “Prodelegation: Why Administrators Should Make Political Decisions,” 1 J. L. Econ. & Organiz. 81, 96 (1985) (observing that arguments for specific statutory provisions constraining administrative discretion may reflect more a desire for conservative than responsive government, because broad delegation allows agencies to be more responsive to citizen preferences as expressed in presidential elections by making it possible for presidents to change regulatory programs without legislative approval).Google Scholar
33 Hirschman discussed the input of benevolence and the need for trust in transactions in his essay, “Morality and the Social Sciences,” in his earlier book, Essays in Trespassing 299–301 (cited in note 3). This element reduces costs associated with imbalances in information, typically with sellers of goods or services knowing more about their quality than buyers. Id. Cooperation and trust also reduce policing costs. Posner, Utilitarianism (cited in note 11).Google Scholar
34 Id. See also note 11 supra.Google Scholar
35 See part IV of this essay.Google Scholar
36 See Charles Wilber & Steven Francis, “The Methodological Basis of Hirschman's Development Economics: Pattern Model vs. General Laws,”in Foxley, McPherson & O'Donnell, The Art of Trespassing 317 (cited in note 1). Wilber and Francis describe Hirschman's approach as a “holistic pattern model,” in contrast to the formal positivism of standard economics, which involves logical deduction and testing of predictions. Id. at 317–18. Hirschman's methodology, in their view, responds to the inability of formal economic models to handle the range of variables, the specificity of institutions and the nongenerality of behavior in Hirschman's major area of study, economic development. Id. at 318, 322. These difficulties are also probably present in most areas of economic study, in particular economic analysis of law. Wilber and Francis discuss the weaknesses of both standard formal economics and Hirschman's holism and argue that economics needs to embrace “methodological pluralism” to balance rigor with suggestiveness, control with creativity, to make these various characteristics “synergize rather than cancel each other.”Id. at 321, 338–39.Google Scholar
37 Hirschman, Exit, Voice and Loyalty (cited in note 1).CrossRefGoogle Scholar
38 Id. at vii-viii and 44–45. Hirschman gives a psychological explanation of the origins of his interest in exit and voice in the special preface he wrote for the German edition of that book. See Essays in Trespassing, 304–5 (cited in note 3), for the original English text of the preface to the German edition of Exit, Voice and Loyalty. In this special preface, Hirschman says that he believes his interest in exit and voice may have had earlier origins in his experience as a Jewish refugee from Germany in the early 1930s. Although voice by Jews in Nazi Germany was doomed to have zero impact, he finds it plausible that he harbored irrational guilt feelings about his exit. He uses this personal story as an example of possible unconscious moral origins of social science inquiries. Id. at 304.Google Scholar
39 The history of voice, he says, is: “to a considerable extent the history of the right to dissent, of due process, of safeguards against reprisal, and of the advance of trade unions and of consumer and many other organizations articulating the demands of individuals and groups. Similarly, the history of exit is the history of the broadening of the market, of the right to move freely, to emigrate, to be a conscientious objector, to divorce, and so on” (at 79).Google Scholar
40 Hirschman, Exit, Voice and Loyalty 44–45.Google Scholar
41 Thomas Kuhn, The Structure of Scientific Revolutions 61 (Chicago: University of Chicago Press, 1970).Google Scholar
42 Id. at 23–24.Google Scholar
43 Posner, Economic Analysis (cited in note 4).Google Scholar
44 One important linkage sequence is “import-substituting industrialization,” in which a large import business in a given consumer good eventually leads to domestic production, beginning with “last touch” industries, which finish imported articles (at 15–16, 60–61). This is an example of “backward linkage,” which is crucial in late industrializers of the 20th century. Backward linkage results from normal entrepreneurial behavior as well as state policies such as tariff protection and preferential foreign-exchange and credit allocations (at 57). (“Forward linkage” occurs primarily through efforts of existing producers to increase and diversify the market for their products (at 58)).Google Scholar
45 An example of this sort of methodology is Posner's Economic Analysis (cited in note 4).Google Scholar
46 The law and society movement was founded by sociologists and law professors, and economics was not originally included in the list of social sciences identified by the Law and Society Association at its formation in 1964. White, , 40 Sw. L.J. at 830, 640 (cited in note 2). While law and economics and law and society have in common an interest in examining law with the tools of social science, they have in general different politics as well as different methodology and have continued to be seen as separate. Law and economics has mostly been right-leaning, while the law and society movement has tended to be left-leaning. Id. For example, law and society scholars have addressed themselves to the ways in which law serves powerful elites, while law and economics scholars have not. Id. at 832, 840. Evidence that the two movements continue to have separate identities can be seen in the separate program slots assigned to them at two recent scholarly meetings–an Association of American Law Schools miniworkshop on current schools of legal scholarship at its annual meeting in January 1987 and a Conference presenting various theories of contract law at New York University School of Law in May 1986, sponsored by the Annual Survey of American Law.Google Scholar
47 See, e.g., Whitford, William, “The Appropriate Role of Security Interests in Consumer Transactions,” 7 Cardozo L. Rev. 959 (1986) (arguing that, absent legal rules facilitating personal property execution under security agreements, the total costs of coercive execution on tangible collateral would be greater than the comparable costs of execution on cash resources, particularly wages, but discussing the problem in income execution of interfering with the employee-employer relationship). This article draws upon the rich context developed in: Whitford, William, “A Critique of the Consumer Credit Collection System,” 1979 Wis. L. Rev. 1047; Charles Grau & William Whitford, “The Impact of Judicializing Repossession: The Wisconsin Consumer Act Revisited,” 1978 Wis. L. Rev. 983; William Whitford & Harold Laufer, “The Impact of Denying Self-Help Repossession of Automobiles: A Case Study of the Wisconsin Consumer Act,” 1975 Wis. L. Rev. 607. See also Leff, Arthur, “Injury, Ignorance and Spite–The Dynamics of Coercive Collection,” 80 Yale L.J. 1 (1970) (describing the costs of coercive collection and how they might be reduced as well as in terrorem power in collection).Google Scholar
48 Posner, Economic Analysis 21. See also notes 72–78 infra and accompanying text concerning what Posner means by positive and normative economic analysis of law.Google Scholar
49 Id. at 24.Google Scholar
50 Posner, Utilitarianism 8 J. Legal Stud. at 129–30 (cited in note 11).Google Scholar
51 Id. at 130.Google Scholar
52 Discussing the failure of development economists, including himself, to pay enough attention to the political implications of their theories, he says, “But perhaps it was not altogether unfortunate that we were myopic and parochial. Had we been more farsighted and interdisciplinary, we might have recoiled from advocating any action whatever, for fear of all the lurking dangers and threatening disasters” (at 30).Google Scholar
53 See Posner, Utilitarianism 8 J. Legal Stud. (cited in note 11).Google Scholar
54 See Leff, Arthur, “Economic Analysis of Law: Some Realism About Nominalism,” 60 Va. L. Rev. 451, 463 (1974): “[O]ne is struck by the picture of American society presented by Posner. For it seems to be one which regulates its affairs in rather a bizarre fashion: it has created one grand system–the market, and those market-supportive aspects of law (notably ‘common,’ judge-made law)–which is almost flawless in achieving human happiness; it has created another–the political process, and the rest of ‘the law’ (roughly legislation and administration)–which is apparently almost wholly pernicious of those aims.”CrossRefGoogle Scholar
55 This vision is in tune with certain feminist values. The affinity of Hirschman's ideas and elements of feminism is demonstrated by Carol Gilligan's application of his exit-voice concepts to dilemmas in adolescent development. Carol Gilligan, “Exit-Voice Dilemmas in Adolescent Development,” in Foxley, McPherson & O'Donneli, eds., Development, Democracy and the Art of Trespassing 283 (cited in note 1). Hirschman, in his exit-voice essay in Rival Views, is taken with this “imaginative” use of his concepts (at 99). He notes Gilligan's stress on the greater tension between exit and voice for girls than for bays in the process of detaching from their parents, because girls place a greater value on continued attachment to the family and are less attracted to the masculine ideal of independence-isolation (at 98–99). One might say that in the dynamics of relationships, exit is more associated with male gender values, while voice is more associated with female gender values. Similarly, the idea of learning through deliberation as a means of political decision making may be more associated with female gender values than with male ones.Google Scholar
56 Essays in Trespassing 300 (cited in note 3).Google Scholar
57 For a discussion of the views of various legal scholars on these central questions, see West, Robin, “Jurisprudence and Gender,” 55 U. Chi. L. Rev. 1 (1988).CrossRefGoogle Scholar
58 A legal scholar who has devoted considerable attention to the impoverished view of human nature in microeconomic assumptions is Robin West. See West, Robin, “Economic Man and Literary Woman: One Contrast,” 39 Mercer L. Rev. 867 (1988). Under economic assumptions, man's preferences perfectly reflect his subjective welfare, and his choices perfectly reflect his preferences; he not only knows what he wants, he is motivated to seek it. Id. at 868. In addition “economic man” is incapable of empathic knowledge of the subjective well-being of others. Id. at 869. West argues that all of these assumptions are false. Id. See also Robin West, “Authority, Autonomy, and Choice: the Role of Consent in the Moral and Political Visions of Kafka, Franz and Posner, Richard,” 99 Harv. L. Rev. 382 (1985), and West, 55 U. Chi. L. Rev. Arthur Leff has pointed out that economic assumptions leave out unconscious desires. Leff, , 60 Va. L. Rev. at 474.Google Scholar
59 Schelling, Choice and Consequence 342 (cited in note 22).Google Scholar
60 Posner, Economic Analysis of Law (Boston: Little, Brown & Co., 1973) (“Posner, Economic Analysis (1973)”).Google Scholar
61 Leff, 60 Va. L. Rev. at 452.Google Scholar
62 Id. at 453–54.Google Scholar
63 Id. at 454–55.Google Scholar
64 Id. at 455–59.Google Scholar
65 Id. at 459.Google Scholar
66 White, 40 Sw. L.J. at 840 (cited in note 2).Google Scholar
67 “Economics is the science of human choice.” Posner, Economtc Analysis (1973) at 1.Google Scholar
68 Posner, Economic Analysis (1986), 16 & n.3, and 24, n.3 (cited in note 4) citing Kuhn, The Structure of Scientific Revolutions (cited in note 41). See also, McCloskey, 86 Mich L. Rev. (cited in note 13).Google Scholar
69 Id. at 61, 63.Google Scholar
70 Id. at 24.Google Scholar
71 Id. at 64–65.Google Scholar
72 In Economic Analysis (1973) at 4, Posner said:Google Scholar
Efficiency is a technical term: it means exploiting economic resources in such a way that human satisfaction as measured by aggregate consumer willingness to pay for goods and services is maximized. Value too is defined by willingness to pay. Willingness to pay is in turn a function of the existing distribution of income and wealth in the society. Were income and wealth distributed in a different pattern, the pattern of demands might also be different and efficiency would require a different deployment of our economic resources. The economist cannot tell us whether the existing distribution of income and wealth is just.Google Scholar
In Economic Analysis (1986) 13, he says:Google Scholar
The dependence of even the Pareto-superiority concept of efficiency on the distribution of wealth–willingness to pay, and hence value, being a function of that distribution–suggests a serious limitation of efficiency as an ultimate criterion of the social good…. Since economics yields no answer to the question of whether the existing distribution of income and wealth is good or bad, just or unjust …, neither does it answer the ultimate question of whether an efficient allocation of resources would be socially or ethically desirable. Nor can the economist tell us, assuming the existing distribution of income and wealth is just, whether consumer satisfaction should be the dominant value of society.Google Scholar
73 Id. at 20–21.Google Scholar
74 Id. at 21.Google Scholar
75 Id. at 16 n.1.Google Scholar
76 Posner, Economic Analysis (1973) 4–5; Posner, , Economic Analysis (1986) 13, 21, 25–26.Google Scholar
77 The best example of his single-minded pursuit of efficiency at the expense of traditional values is his defense of baby-selling. Landes, Elisabeth & Posner, Richard, “The Economics of the Baby Shortage,” 7 J. Legal Stud. 323 (1978).CrossRefGoogle Scholar
78 Posner, Utilitarianism 8 J. Legal Stud. at 136 (cited in note 11):Google Scholar
The wealth-maximization principle accommodates, with elegant simplicity, the competing impulses of our moral nature. The system I have sketched of property rights, actual markets, and hypothetical markets provides foundation and accommodation both of individual rights and of the material prosperity upon which, in the modern world, the happiness of most people depends. Because the individual cannot prosper in a market economy without understanding and appealing to the needs and wants of others, and because the cultivation of altruism promotes the effective operation of markets, the market economy regulated in accordance with the wealth-maximization principle also fosters empathy and benevolence, yet without destroying individuality.Google Scholar
79 Posner, Economic Analysis (1986) at 12.Google Scholar
80 Leff, 60 Va. L. Rev. at 460 (cited in note 54).Google Scholar
81 It is controversial to assign dollar values to things not normally traded in markets, such as human life, fresh-smelling air and swimmable rivers, for purposes of cost-benefit analysis. Kelman, Steven, “Cost-Benefit Analysis–An Ethical Critique,” 5 Regulation 33, 36 (1981). Apart from questions about the validity of any system of measurement of the value of these things, there are some reasons to object to even trying to put dollar values on them. For example, one may value the existence of a non-market sector because of its connection to the production of certain valued feelings, feelings that would be reduced by the process of putting a price on things in this sector. Id. at 39. Also, putting a price on a thing eliminates one's ability to affirm its high and special value by making it “not for sale.”Id. That economists scoff at talk of “pricelessness” tells us something about the limits of economics. Id. at 40.Google ScholarPubMed
For a discussion of the implications of commodification and the liberal tendency to move toward universal commodification, see Radin, Margaret Jane, “Market Inalienability,” 100 Harv. L. Rev. 1849 (1987) Not everyone believes economic analysis of law is worthwhile even as a partial approach to law-making. Duncan Kennedy, for example, has argued that “efficiency rhetoric” is used by decision makers to create an aura of “unproblematic legitimacy” but that the concept is so manipulable as to permit complete policy leeway. Kennedy, Duncan, “Distributive and Paternalist Motives in Contract and Tort Law, with Special Reference to Compulsory Terms and Unequal Bargaining Power,” 41 Md. L. Rev. 563, 586–87 (1982). He dislikes the use of efficiency analysis to defuse conflicts and says efficiency analysis does this because it appears to transpose a dispute about justice into one about facts. Id. at 603–4. He concedes that it is more prudent for reformers to use the language of efficiency rather than of distribution or worse still, paternalism. Id. at 588. 1 have argued, however, that the use of efficiency analysis in designing consumer protection regulation can be a way for regulators to keep in mind that their task is primarily to empathize with the situation of consumers; this approach avoids the most unappealing implication of paternalism–that people's desires are not worthy of respect. Jean Braucher, “Defining Unfairness: Empathy and Economic Analysis at the Federal Trade Commission,” 68 B.U. L Rev.–(1988).CrossRefGoogle Scholar
82 Lawyers know that how a question is framed often goes a long way toward answering it. This principle applies to questions about costs; there probably is no “neutral” way to define costs. The Coase Theorem has taught us to be suspicious of assumptions about what causes a cost (what is a cost of what?) and to see that where there are conflicting activities, the conflict produces a joint cost; neither activity can be said to impose a cost on the other. Coase, Ronald, “The Problem of Social Cost,” 3 J. Law & Econ. 1 (1960). Where aesthetic and psychological enjoyment of the absence of an activity is considered an activity itself, the problem of costs is greatly complicated by appreciation of the lessons of Coase. See Kennedy, Duncan, “Cost-Benefit Analysis of Entitlement Problems: A Critique,” 33 Stan. L. Rev. 387, 398–400 (1981), and Schlag, 1986 Wis. L. Rev. (cited in note 2). Another problem in determining costs is the perspective from which costs are measured. Because of differences in subjective valuation and wealth effects caused by assignment of entitlements, people often would require more to give up a right than they would pay to buy it if they were not originally assigned it. Kennedy at 401–3.CrossRefGoogle Scholar