Criticism

"Many observers, and particularly noneconomists, view economic analysis of law with skepticism. It is sometimes claimed that individuals and firms do not respond to legal rules as rational maximizers of their well-being. For example, it is often asserted that decisions to commit crimes are not governed by economists’ usual assumptions. Some skeptics also suggest that, in predicting individuals’ behavior, certain standard assumptions are inapplicable. For example, in predicting compliance with a law, the assumption that preferences be taken as given would be inappropriate if a legal rule would change people’s preferences, as some say was the case with civil rights laws and environmental laws. In addition, laws may frame individuals’ understanding of problems, which could affect their probability assessments or willingness to pay. The emerging field of behavioral economics, as well as work in various disciplines that address social norms, is beginning to examine these sorts of issues (Jolls et al., 1998). A frequent criticism of economic analysis of law concerns its focus on efficiency, to the exclusion of the distribution of income. The claim of critics is that legal rules should be selected in a manner that takes into account their effects on the rich and the poor. But achieving sought-after redistribution through income tax and transfer programs tends to be superior to redistribution through the choice of legal rules. This is because redistribution through legal rules and the tax-transfer system both will distort individuals’ labor-leisure decisions in the same manner, but redistribution through legal rules often will require choosing an inefficient rule, which imposes an additional cost (Shavell, 1981; Kaplow and Shavell, 1994b). Moreover, it is difficult to redistribute income systematically through the choice of legal rules: many individuals are never involved in litigation; and for those who are, there is substantial income heterogeneity among plaintiffs as well as among defendants. Additionally, in contractual contexts, the choice of a legal rule often will not have any distributional effect because contract terms, notably, the price, will adjust so that any agreement into which parties enter will continue to reflect the initial distribution of bargaining power between them. An additional criticism is that the conventional economic approach slights important concerns about fairness, justice, and rights. Some of these notions refer implicitly to the appropriateness of the distribution of income and, accordingly, are encompassed by our preceding remarks. Also, to some degree, the notions are motivated by instrumental concerns. However, many who promote fairness, justice, and rights do not regard these notions merely as some sort of proxy for attaining instrumental objectives. Instead, they believe that satisfying these notions is intrinsically valuable. This view also can be partially reconciled with the economic conception of social welfare: if individuals have a preference for a legal rule or institution because they regard it as fair, that should be credited in the determination of social welfare, just as any preference should. But many commentators take the position that conceptions of fairness are important as ethical principles in themselves, without regard to any possible relationship the principles may have to individuals’ welfare. This opinion is the subject of longstanding debate among moral philosophers. Some readers may be skeptical of normative views that are not grounded in individuals’ well-being because embracing such views entails a willingness to sacrifice individuals’ well-being. Indeed, consistently pursuing any non-welfarist principle must sometimes result in everyone being made worse off; see Kaplow and Shavell (2001, 2002). Also criticized is the contention of some economically-oriented legal academics, notably Posner (1972), that judge-made law tends to be efficient. Some critics believe that judge-made law is guided by notions of fairness, or is influenced by legal culture or judges’ biases, and thus will not necessarily be efficient. Whatever is the merit of the critics’ claims, they are descriptive assertions about the law, and their validity does not bear on the power of economics to predict behavior in response to legal rules or on the value of normative economic analysis of law."