The Evolution of Economic Analysis of Law: Is Pragmatic Institutionalism Displacing Orthodoxy?

By Ostas, Daniel T. | Journal of Economic Issues, June 1999 | Go to article overview

The Evolution of Economic Analysis of Law: Is Pragmatic Institutionalism Displacing Orthodoxy?


Ostas, Daniel T., Journal of Economic Issues


Twenty-five years have passed since the publication of the first edition of Judge Richard A. Posner's influential textbook, Economic Analysis of Law [1973]. Now in its fifth edition, the text remains standard fare in legal education. In fact, an entire generation of American law students and legal scholars now has been exposed to Posner's thesis: that a few central ideas borrowed from neoclassical economics can both explain the structure of current legal doctrine and suggest ways it can be reformed.

Posner's approach to the economic analysis of law (EAL) has always been controversial. Challenges have come from sociologists, psychologists, and philosophers, as well as from lawyers and economists. Sociologists, emphasizing the culturally determined aspects of human behavior, have criticized EAL for ignoring the social context of economic activity [Ellickson 1998]. Psychologists have pointed out that the rationality assumptions of EAL ignore advances made in both cognitive science [Rabin 1998] and the science of the emotions [Elster 1998]. Philosophers, among other criticisms, have linked EAL to discredited versions of utilitarianism [Nussbaum 1997]. In law, a whole school of thought - critical legal studies - has arisen, at least in part, as an attempt to discredit the values and techniques that underscore EAL [Kelman 1987, 1-14]. And in economics, heterodox voices have always cautioned that the neoclassical approach is only one among many ways of conceiving the interface between law and economics [Mercuro and Medema 1997]. Notwithstanding these challenges, the 1970s and 1980s witnessed a dramatic outpouring of orthodox EAL; virtually no legal topic has been left untouched.

Reflecting on the evolution of EAL, a number of scholars have reported a recent trend in the literature. Gary Minda, for example, writes that a "second generation" of EAL is beginning to displace orthodoxy [1995, 83-105]. Equating the first generation with the techniques embodied in Posner's text, Minda suggests that the new scholarship is more pragmatic in its outlook and holistic in its techniques. Thomas Cotter [1996], referring to orthodoxy as "mainstream," suggests that an embrace of philosophical pragmatism is transforming the practice of EAL. Gillian Hatfield [1996] similarly reports a "second wave" of EAL scholarship. Described by all three scholars is an approach largely sympathetic to the pragmatic institutionalism championed by John Commons some 70 years ago.(1) This suggests that a form of pragmatic institutionalism may be displacing orthodoxy in the marketplace of ideas.(2)

This article samples recent EAL scholarship to determine whether pragmatic institutionalism is indeed displacing orthodoxy. The analysis begins with a brief survey of contemporary trends in jurisprudential and economic thought. The survey identifies criteria with which to distinguish pragmatic institutionalism from orthodoxy. This paper then reviews articles appearing in four EAL symposium issues published by major law reviews in the past two years, together with articles published in 1998 in four orthodox EAL journals: The Journal of Law & Economics, The Journal of Legal Studies, International Review of Law & Economics, and The Journal of Law, Economics, & Organizations. This sampling of about 100 recent EAL articles suggests that although orthodoxy still dominates the interdisciplinary journals, pragmatic institutionalism is making inroads in the law reviews generally.

Distinguishing Modern from Postmodern Jurisprudence

The central chasm in jurisprudence today revolves around the distinction between "modern" and "postmodern" approaches to law. This distinction maps to a single defining characteristic.(3) Modern jurisprudence conceives of legal inquiry as an objective endeavor.(4) That is, legal questions have right and wrong answers judged with reference to objective criteria [Minda 1995, 2-6]. Postmodernists, by contrast, argue that objective grounding is not possible; law has no foundations, no external referent. …

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