Law and Economics: Realism or Democracy?
Smith, Henry E., Harvard Journal of Law & Public Policy
Is law and economics anti-democratic? One hears complaints from many quarters that law and economics is a form of technocracy that cuts off legitimate debate and suppresses other important values that people hold dear. (1) On this view, law and economics privileges efficiency and focuses on quantifiable values to the exclusion of other, less measurable values that could have found expression through the political process. These concerns are central to debates in areas ranging from environmental protection to intellectual property. The irony in these complaints is that they are offered by commentators who are heirs of the legal realists, many of whom would in the same breath decry excessive formalism and applaud judicial sensitivity to policy. There may not be an inherent contradiction here, but there is a tension in practice.
Law and economics and democracy are not enemies, but I contend that legal realism--or its lingering aftershocks--causes law and economics to be more technocratic and less democratic than necessary. While legal realism as a movement itself may be dead, it rules us from the grave. As the saying goes, "We are all realists now." (2) There is nothing wrong with law-and-economics-inspired theories as theories--or with legal realism as a theory for that matter. Analyzing law and legal relations in their smallest parts and considering micro incentive effects (to the extent data is available) are worthy exercises, but without some sensitivity to institutional detail and competence, the tendency is to substitute the wisdom of the analyzing expert, especially in courts and agencies, for the collective wisdom emerging either from democracy or tradition. (3)
Many movements in legal thought draw on legal realism, (4) and law and economics is no exception. Coase's articles on the FCC (5) and social cost (6) are hyperrealist in their assumptions about property, especially in their adoption of the most extreme version of the bundle of rights conception of property. (7) In the bundle of rights conception, property has no content on its own but instead emerges from policy-driven decisions about the actions that people might take. (8) Things are merely a backdrop to this fine-grained analysis of potentially conflicting activities, and rights to exclude from things have no particular status as a starting point.
These assumptions were understandable in light of Coase's goal of demonstrating that, in a world of positive transaction costs, it matters how entitlements are assigned. But when it comes to using Coase's insights, his hyperrealist assumptions have been allowed to steal the show. (9) In Coase's analysis of nuisance, we expect judges to figure out ex post which of the conflicting parties should be awarded each stick in the bundle of rights. (10) And in making these decisions, the questions of "who invaded what" or "who caused what to whom" do no work at all. (11) In contrast to traditional and everyday notions of property as a right to things that is good against the world, Coasean agnosticism about causation leads one to see both the trampling animals and the trampled-upon crops as the cause of conflict. And under this conception, one is to ask whether fists or noses cause punches, or, for that matter, which are the cheapest cost avoiders. (12) None of this accords with non-economic intuition. (13) Although causal agnosticism is a useful theoretical construct and fine as far as it goes, it does not go very far: for transaction-cost reasons--not to mention basic moral reasons--causation is unidirectional. We have made ex ante decisions about what counts as an invasion, (14) and absent good reasons--and sometimes good reasons exist--we should stick to those decisions.
Now it might be thought that this technocratic tendency in fine-grained analysis is specific to property. Such a view seems unlikely when we consider that Coase and many of the bundle theorists are basically treating property as dissolving into torts. …