I must start with a note of apology. Dr. Jaime Infante yesterday started with the baseball theme of Sammy Sosa, and the theme was continued today by our moderator. Being a late switch into the panel, I can only characterize myself as a bait and switch because instead of getting a world class outfielder and an extraordinary slugger, you have a rookie pinch hitter and a utility infielder. And as a utility player, I do not have any specific experience with Latin America, although as students of law and economic development we do study the region very significantly at a theoretical level. So apologies if I make any factual or cultural mistakes regarding the region.
What I would like to talk about today are basically the same topics that all of our panelists have remarked upon, and the first panel indeed has started down the road. Specifically, I would like to extend, at a more theoretical level, Ambassador Davidow's remarks concerning the role of law and of the judiciary in economic development. I will do so by first stepping back a bit and exploring what exactly we mean by law, proceeding then to the content of law that would aid economic development. Finally, I will talk about the role of the judiciary in this entire process.
First, what is law? By law, I mean the whole legal process, all the work that is done by legislators, regulators, lawyers, and judges.
My remarks here, and most of the remarks that have been made this morning, concern the legislation, litigation, and adjudication aspects of law. However, a very significant if not dominant role of law--one that we have not focused on, except very ably by Frank Shaw--is the role of lawyers in creating private, normative ordering through transactions and contracts that operate in the shadow of a formal legal system. Even in the absence of such a formal legal system, lawyers may still perform a very significant normative ordering function, a law-like function, that facilitates business and social interactions. A very significant tool to advance this law-like function is legal language--the ability of legal concepts and professional communication to transcend cultural, linguistic, and indeed systemic considerations, thereby enabling transnational and inter-jurisdictional interactions. This private ordering function, as a complement to or substitute for formal legal processes, is a very significant part of law that academics and policy-makers quite often neglect, and I thank Frank for those comments.
Now, returning to our primary focus, I want to touch briefly on the content of formal law. Because the theme of the panel and indeed of the entire conference is the interplay between law and economic development, I want to distinguish the laws of economics from the economics of law. I am a student of and an amateur practitioner of law and economics, which roughly is the application of basic economic intuitions to how we think about the law. Applying these intuitions can help us define the normative goals of law but, even if one is not willing to go that far, also make law more efficient in effecting its goals, whatever they may be. In that process, however, I think that there has been some confusion as to what it means to have the law and what it means to have the economics. I want to step back and distinguish between the two so that we have a clearer idea as we proceed in the discussion and reflect more deeply about the interplay between law and economics.
As Professor Lillian Bevier of the University of Virginia has pointed out, there is a clear distinction between the laws of economics and the economics of law. The laws of economics are well developed theoretically and researched empirically. They predict human behavior. Some of these laws are very well known, accepted and established. If the price goes up for any given good, unless it is an extraordinary good, consumption will go down. If people do not bear the full consequences of their actions, they will tend to be more careless because they can externalize the consequences of their action. …