Traditional v. Economic Analysis
posted by Lawrence Cunningham
To debate over traditional versus economic analysis in law (aka as fairness v. welfare, deontology v. efficiency and normative v. utilitarian), in the coming law review submission season, I’ll submit evidence from torts opinions of Judges Benjamin Cardozo and Richard Posner (I reported other aspects of this research here and here).
Proponents of economic analysis offer to show law’s efficiency as a descriptive matter and many prescribe its use, especially in tort law, where such analysis is most successful. Skeptics question the method’s descriptive accuracy and normative appeal, compared to traditional legal analysis, also making particular contributions to tort law.
While scholars use theoretical, philosophical and doctrinal techniques to defend positions, my new Article’s novel evaluation considers how the methods fare in opinions of two judicial exemplars of the contending conceptions: Cardozo, quintessential traditionalist, and Posner, avatar economist.
Comparative analysis of those opinions, the most ubiquitous in current Torts casebooks, provides evidence that traditional legal analysis is a more capacious and persuasive basis of justification than contemporary economic analysis of law. Selections from my Article’s Introduction follow.
Cardozo’s distinctiveness is grand style epitomizing traditional method. During a 24-year judicial career, Cardozo displayed a pragmatic sensibility blending intuitions of substantive justice with thick doctrine incorporating economic, moral and social factors. In Isaiah Berlin’s terms, Cardozo was the fox who knew many things. Cardozo frequently shifted between doctrines, rendering complex opinions that demonstrate the capacity, richness and limitations of traditional legal analysis.
Posner’s distinctive method is economic analysis of law, a contemporary mode of justification he made famous, both as judge and scholar. It is such a signal characteristic of many Posner opinions that he may be classified, in Berlin’s terms, as the hedgehog to Cardozo’s fox: he knows one big thing. Of course, during his 27-year judicial career, Posner has also shown legal skills of a doctrinal craftsman and shrewd rhetorician. His opinions typically take a linear approach, reflecting the orderly logic of contemporary economic analysis.
Cardozo’s torts opinions used traditional legal concepts, like reasonableness, foreseeability and duty. These perform admirably, if imperfectly, to analyze, classify and explain, despite lacking formal economic content. Posner’s torts opinions reference the same legal concepts but displace, adjust or rationalize them using modern economic concepts, like cost-benefit matrices, incentive effects and least-cost avoider models. This approach sometimes enriches, but more often impoverishes, analysis, classification and explanation.
These contrasts are revealed by evaluating their opinions addressing a range of problems in tort law, from basic issues in negligence, to intermediate concerns of liability, to advanced challenges at tort law’s borders with contract law.
Part I, on basic negligence, explains how Cardozo’s practical reasoning led him to endorse jury power to review conduct under an open-textured negligence standard related to reasonable care. Cardozo emphasized everyday experience, custom and natural forms of behavior. Posner brings to negligence analysis a rigid formulaic economic tool, resembling a rule not a standard. Thin compared to traditional legal analysis, it measures and compares defined categories of costs and benefits whose abstractness can disregard factors traditional legal analysis stresses.
True, Cardozo included economic insights but they never overwhelmed analysis and moral intuitions add to his opinions. Though Posner tries to show how Cardozo’s moral reasoning is co-extensive with his own economic reasoning, acute differences in premises, method and result mean melding the two would weaken Cardozo’s opinions. The limited capacity of Posner’s formulaic approach appears in how it is inapposite to many issues in negligence cases.
Part II, addressing intermediate tort law problems, shows that Cardozo’s rhetoric reinforced legal analysis while Posner’s economics can be antagonistic to it and how Cardozo’s thick doctrinal framework enabled accommodating contending values while Posner’s framework exalts economic efficiency. It is difficult to improve on some of Cardozo’s traditional legal analysis, such as limiting liability under principles of duty and foreseeability.
Posner unwittingly reflects this in his opinions, which are stronger when emphasizing traditional legal analysis than when extensively supplemented by economic thought. Traditional legal analysis has a peerless capacity to respond to changing socioeconomic conditions. This is not to say economic analysis is anemic, as it can reinforce traditional legal principles, such as American law’s preference for liability based on fault over strict liability.
But, as Part III on advanced problems illustrates, traditional legal analysis is indispensible, and contemporary economic analysis cannot supplant it. Venerable legal principles like duty enable navigating, if imperfectly, challenges such as when third parties may enforce tort or contract claims against contract parties. Economic explanations, like least-cost avoider models, for law’s traditional approach, can help justify related decisions but cannot resolve disputes without the tools traditional legal analysis provides.
Accordingly, comparative analysis of leading torts opinions of these exemplary judges provides evidence that traditional legal analysis is a more capacious and persuasive basis of justification than contemporary economic analysis. The Article’s Conclusion explains this evidence in terms of how traditional legal analysis enables comprehending complex human reality while contemporary economic analysis oversimplifies it.
I’ve received extensive comments on previous drafts and would still welcome readers willing to provide scholarly comments on the latest. Please email me if interested: lacunningham@law.gwu.edu.
July 27, 2009 at 12:36 pm
Posted in: Jurisprudence, Tort Law
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Responses (10)
A.J. Sutter - July 27, 2009 at 7:08 pm
Good for you; I hope you’re on the leading edge of a major intellectual backlash.
It’s always interested me, though (and frustrated me as well), that so little of the critique of L&E from within the legal academy is focused on a critique of the underlying assumption of neoclassical economics itself. Of course, there’s behavioral economics, but at least in Europe that’s regarded as a mere tweak on neoclassical theory, not a revolution; and the social theory underlying Thaler & Sunstein’s Nudge shows how behavioral econ can lead to a very scary vision (even if not every particular example of a “nudge” might be equally objectionable).
OTOH, there are many critiques of the foundations of neoclassical theory by non-Marxist economists, e.g. Philip Mirowski, Wade Hands and their collaborators in history of economics; the econophysics school; the contributors to the “real-world economics review / post-autistic economics review”; some other “Anglo-Saxon” heterodox economists like Steve Keen and Paul Ormerod; the Continental schools known as the economy of conventions and the economy of regulation (or régulation, which isn’t quite the same thing); the M.A.U.S.S. group in France, whose approach is based in anthropology; the civil economy approach promoted by S. Zamagni at U. Bologna, L. Bruni at U. Milano and others; the J.K. Galbraiths, père & fils; and internal critiques like the Sonnenschein-Mantel-Debreu theorem. I think you’ve discussed the theories of Benoit Mandelbrot in the context of the EMH, which is a step in the right direction, though many of the critiques mentioned above apply more broadly than to financial markets. Frank also recently posted a reference to a paper by Bernard Harcourt, who takes a more Foucauldian view of economics theory, but this seems exceptional (though no less welcome) because of the author’s bilingual education. Occasionally someone will mention one or both Galbraiths, but there is much more out there, even in English.
Any thoughts on why L&E critics tend to be so accepting of the neoclassical economics relied on by L&E proponents? Or is there a more critical body of literature that I’ve missed?
A.W. - July 28, 2009 at 6:18 am
It seems to me that there have always been problems with the law and economics approach, but there is no denying the insight that it gives.
First, if they are trying to claim that “this is the way it is,” the problem is that if most judges don’t decide to look at things this way, then it doesn’t really explain why things are the way they are. And indeed the attempt to stretch everything into economic analysis often means that the distinction between economic analysis and moral analysis were erased. And finally I just find that economic analysis just often has a clipped attitude about life.
As for “the way it should be” I think often we do create such massive inefficiencies that we need to stop and wonder if it is fair, and in general we should pay attention to who bears what burden. Even a moral thinker should still go through the exercise of economic analysis, for the insight it brings. It may not be the end-all-be-all of legal analysis, but it can be an insightful analytic approach.
so it doesn’t explain everything and is not always the best way to look at things, but its a useful tool to keep handy.
Frank Pasquale - July 28, 2009 at 6:26 am
This sounds like a great project. I’ve been urging administrative agencies (like the FCC or FTC) to use a broader base of social science in their proceedings. I look forward to seeing legal reasoning directly contrasted with economics. I have always been a fan of Tony Kronman’s defense of the autonomy of law (vis a vis both economics and philosophy) in The Lost Lawyer.
As for AJ’s question: I think there are both positive and negative explanations. On the positive side, the participants in the debate may think that they can only have a constructive dialogue if they accept certain first principles and only contest accounts of what follows from such principles. Randall Collins’s The Sociology of Philosophies suggests this idea: the lasting philosophical schools are those which had a “great debate” in mutually recognizable terms over hundreds of years.
On the negative side, one could model scholarship in the area as a game to accrue reputational capital. If most people in the game are aiming to secure such capital, and if it is largely held by those in top-ranked institutions, one is obliged to play their game. One gains nothing from criticizing them on a fundamental level. Rather, it is important to incrementally expand upon the research projects they pioneered, flattering them into thinking that they created a paradigm shift which young scholars entrench by treating it as a framework for normal science.
I can think of a few posts questioning the positive explanation:
http://www.concurringopinions.com/archives/2007/05/scientists_manq.html
http://www.concurringopinions.com/archives/2007/05/one_way_to_begi.html
Patrick S. O'Donnell - July 28, 2009 at 7:48 am
I agree in the main with A.J. and Frank. I think the big picture here looks at the ambition to accord one’s approach the mantle of “scientific” rationality and objectivity and the L&E model has succeeded insofar as neoclassical economics is thought to exemplify certain scientific virtues. Critics of this model are anxious about being tarred as “anti-scientific” (hence, the genres of behavioral and institutional economics). And if one assumes the desirability of “naturalizing jurisprudence” (cf. Brian Leiter’s work), scientific methods and reasoning of one sort or another are accorded the presumptive benefit of the doubt, thereby trumping traditional and other legal approaches. Of course this is part and parcel of the question of the importance of the rational choice model in the social sciences, and thus perhaps it helps to see its strengths and limitations in other fields, especially political science. I think one way out of this morass is to articulate richer conceptions of reasoning and rationality (to some extent this has been done by an economist: Amartya Sen), several of which have long been part of the law and clearly show the weaknesses inherent in the model of rationality intrinsic to date in (neoclassical economics and) L&E.
A.J. Sutter - July 28, 2009 at 8:53 am
Thanks for the feedback. However, as for being afraid of the “anti-scientific” label, the point of many of the critiques I mention is precisely that economics is itself far from being “scientific”. (Though unfortunately I can’t agree that James Hackney’s book, mentioned in one of Frank’s linked posts, is persuasive on this point.) Nor am I convinced it’s best to conduct a philosophical debate in mutually recognizable terms when the folks on the other side are, say, astrologers, haruspices or phrenologists.
I agree with the notion that legal reasoning has its own qualities and ought to have autonomy. But I’m not sure I see why that necessitates ignoring the weaknesses inherent in the “E” part of L&E, if you think L&E is not a Good Thing. It’s inefficient to fight with one hand tied behind your brain, so to speak.
Frank’s other point, that brown-nosing is a necessary part of the game, unfortunately does sound true about the reluctance of at least more prudent untenured faculty. But as for you Henry St. George Tucker III Research Professors, Loftus Professors and your ilk: go git ‘em.
Daniel S. Goldberg - July 28, 2009 at 9:27 am
AJ,
Being familiar with Patrick’s views on this (and Patrick, correct me if I misattribute), I would suggest that he might agree with you on the “un-scientific” nature of economics, at least insasmuch as doing so would not instantiate a particular notion of “scientific practice” that itself does not adequately account for that practice within the sciences themselves.
I take Patrick’s point, one I enthusiastically endorse, to be rather that the emulation of a (unpersuasive and to my mind, largely discredited) view of what scientific practice consists of is a convention within at least some dominant discourses in L&E, such that bucking the convention may be inadvisable for the “prudent untenured faculty.”
Patrick S. O'Donnell - July 28, 2009 at 9:58 am
Thanks Daniel: I wasn’t sure if A.J. was responding to me but you’ve rightly characterized my thoughts on the matter.
I made similar comments and critiques to several of John Pfaff’s posts at Prawfs earlier this year although those had more to do with questions of empiricism and scientific methods in the social sciences and law genereally than in economics, yet I think similar if not identical motivations are at work in both cases: in short, positivism of a sort, only now christened post-positivism or a “robust” empiricism, has pernicious effects insofar as it’s principles and practices become, by unabashed avowal or deferential default, the criterial norms and standards for what counts (pun intended) as good (social) science.
Patrick S. O'Donnell - July 28, 2009 at 10:00 am
erratum (in case any of my students are reading this): “its principles”
Lawrence Cunningham - July 28, 2009 at 11:10 am
Thanks for the stimulating comments, vaguely resembling discourse after faculty workshops! Three follow-ups.
First, thanks to A.J. for the kind words, but I doubt this inaugurates a “major intellectual backlash” and I’m sure mine is not a lone voice in a game rewarding brown nosing to top-ranked institutions. My article draws on considerable legal scholarship challenging some of the underlying assumptions of neoclassical economics, in the specific context of tort law. Work is written by a wide variety of scholars at different career stages, at schools and in law reviews of many different ranks. Some untenured faculty, or ambitious faculty seeking appointments to fancier schools, may cede the privilege of inquiry the academy offers, but I’m not sure how widespread that is, though I may be naïve. I also concur with Frank and A.J. on the value of Kronman’s work (cited in my Introduction).
Second, concerning the question of scientific method or rigor, exactly what achievements to rationality and objectivity economic analysis of law can claim is disputable. But there is a firmer basis for observing that it has a much stronger appetite for that, in contrast with traditional legal analysis. One need not be anti-scientific to doubt the actual achievement, even to recognize how wonderful it might be if the achievement were possible but remain skeptical. And here I can mention that I have more sympathy than A.J. does for Hackney’s book (cited in my Conclusion).
Third, A.W.’s points should not be overlooked. Economic insights are vital. And that is something Cardozo knew, and so have lawyers for generations before and since him. The risk is overdoing the economics, or overdoing any other body of knowledge, clouding out insights from other fields equally vital in their potential. Cardozo never did that; Posner often does. And law’s autonomy never prevents absorbing knowledge from other disciplines, as Cardozo showed. And those are two reasons Cardozo’s opinions are stronger than Posner’s.
A.J. Sutter - July 28, 2009 at 8:00 pm
Thank you all for your comments, and I feel a bit as if I’m preaching to the choir. Though one cultural difference in POV is apparent: since I come from a physics background as well as a legal one, I don’t hesitate to say that a discipline that claims to be a “science” but many of whose claimed achievements are mathematical proofs ain’t a science. Ditto for using graphs without scales. (Caveat: rather than wading into the constructivist-formalist controversy of Brouwer, Kronecker &al. vs. Hilbert et al., and despite the apparent victory of the formalists that might seem to support my view, I once again don’t hesitate to be a bumpkin and say mathematics per se is clearly sui generis.)
Though philosophers might disagree about what’s the definition of a science, the rhetorical purpose of calling your field a “science” nowadays is the connotation of being empirically-based, and therefore connected to reality. This rhetorical purpose is clearly part of neoclassical economists’ agenda for establishing their field as normative and a suitable basis for policy. I agree with the econophysics crowd, among others, that NCE doesn’t cut it in this regard. Additionally, as Philip Mirowski has documented, the basis on which NCE took over many physics metaphors (such as equilibrium) is pretty fatuous. To say nothing of the Sonnenchein-Mantel-Debreu theorem, which gave even leading neoclassicals like Gerard Debreu agita about the foundations of the field. More lawyers should get acquainted with such extralegal critiques. (My apologies to Frank, who has already heard me hok this chaynik more often than have most.)
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