> -----Original Message-----
> From: owner-lbo-talk at lists.panix.com
> [mailto:owner-lbo-talk at lists.panix.com]On Behalf Of Lisa & Ian Murray
>
> Nathan,
>
> My understanding of reading through Posner's stuff [which is a great cure
> for insomnia btw] is that it claims to be based on neoclassical micro.[esp.
> "The Economics of Justice"] Am I missing something? It all looks even more
> ridiculous if you read it alongside Mirowski's "More Heat than Light".
It does use neoclassical as its base but it is heavily modified by Coase and Oliver Williamson who took very seriously the question of why firms exist as a substitute for market relations. The problem is that the nice neoclassical graphs assume zero transaction costs, while the rules change substantially if transaction costs of negotiations, opportunism and free-riding are brought into the analysis. Since law is inevitably involved in messy negotiations, deceitful opportunism and tort-based accusations of free-riding on other people's life or property, it is not that surprising that legal thinkers obsess about transaction costs in relation to economics far more than traditional economists.
An example of how this works out is in antitrust. Posner is a leader in arguing that many "restraints of trade" are really just negotiations to prevent opportunism. For example, in a classic antitrust case a bunch of major electronics manufacturing firms agreed with a department store (Broadway-Hale) not to sell their products to a competing firm; this arrangement was declared illegal in 1959 as an antitrust violation. Later scholars like Posner criticized this decision because it allowed discount firms keeping all the goods boxed to free-ride on the showrooms of the major retailers.
This line of criticism led to a series of decisions in the 1970s that upheld tough franchising agreements with retailers and more broadly upheld a whole range of business combinations that were seen as internalizing gains that would have been lost in a pure competition that would have been less efficient because of these kinds of opportunistic losses.
Variations on this transaction cost and opportunistic action analysis has been applied everywhere from tort to property law to argue for more centralized corporate structures. Now, there are also good analyses that have used similar methodological tools to argue for use of government as a regulatory substitute where transaction costs are too high to achieve the most efficient result.
Regulation of pollution is often justified under this analysis because the nature of pollution involves so many people that a negotiated settlement (however theoretically possible under neoclassical analysis) becomes so expensive in time for each person involved that no settlement is likely, so regulatory imposition of an environmental solution becomes a more efficient alternative to traditional market-based nuisance-style property rules. Yale's Guido Calebrisi is probably the most liberal person who has used law and economics analysis to argue for rather progressive tort reform to leave most responsibility on employers and insurers on the argument that they are the "least cost" avoider of the problems involved and are in the best position to negotiate more efficient alternatives if they bear the "default rule" responsibility for any injury to workers or the community.
But the use of the analysis does still rely on narrow self-interested analysis of peoples motivation and largely excludes analysis of wealth distribution (i.e. upward distribution) as a motivation for firm action, as if efficiency is the only reason firms make alternative decisions.
I actually find law and economics more attractive legal analysis than the canonical citing of precedent, as if the accumulation of words by old white judges adds up to an argument for new situations and the needs of people who barely had their existence recognized under the law in most cases when those precedents were cited. It at least demands a positive social reason for any legal rule - in many ways an advance over "natural law" bull---- that usually just protects privilege in a mass of words.
But it is still embedded in so much privileged rhetoric that you can only take it so seriously on alternative Tuesdays :)
-- Nathan Newman