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Author: David Driesen

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Thanks and Some Additional Comments

I wanted to thank Frank Pasquale for organizing and hosting this symposium and all of the participants for the time they took reading The Economic Dynamics of Law and providing their thoughts. I wanted to say a little about the most recent posts, even though it’s possible that something more might appear before the weekend is out.

I’m happy to accept Livermore’s suggestion that systemic risk avoidance and keeping open a robust set of economic opportunities can be thought of as an incompletely theorized agreement about goals. He may be right that in fact avoiding systemic risk is efficient, but I doubt that all climate disruption cost-benefit analysis (CBA) would necessarily reveal that. Showing that most current CBA would call for some action on climate disruption does not suffice to show the congruence between CBA and avoidance of systemic risk taking into account collateral negative consequences (which is narrower than taking into account all costs under my normative framework). First, there is a historical problem. Prominent early CBA and much of the CBA from a few years ago would not invite vigorous measures to address climate disruption (although some CBA did early on). Even today, there may be a discrepancy between what scientists tell us we need to minimize significant risk, a phase-out of fossil fuels, and what some of the CBA is telling us. CBA is basically guesswork, and does not yield a reasonably specific answer when substantial uncertainties exist. Read More

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Managing Collateral Negative Consequences

Arden Rowell asks about how the economic dynamic approach would take into account tradeoffs as it manages change over time. The book eschews the term “tradeoff” in favor of a more limited concept, “collateral negative consequences.” (p. 70). This shift was intentional, meant to emphasize that society’s commitment to avoiding systemic risk should be just that, a commitment. Therefore, the primary question governments should ask in seeking to avoid systemic risk is which measures will do so effectively. (pp. 69-70). Democracies often make a concrete normative commitment to avoiding systemic risk, just as we make a commitment to free speech. The very idea of commitment means that we must take the steps needed to meet the commitment, even if they are costly to us. Therefore, I reject the concept of tradeoffs as a signal for some kind of optimization exercise that ignores normative commitments in favor of a more subtle concept of addressing collateral negative consequences that seeks to take certain qualitative detriments of actions addressing systemic risk into account without weakening our commitment to this goal.

The idea of commitment implies that the question of how much investment should we make to avoid systemic risk is not the right question to ask. It’s a little like asking how much investment should we make in our marriage. It’s not unbounded, but basically we try to do what is necessary to make the marriage work.

Having said that, the book, as Arden notes, does not eschew consideration of collateral negative consequences. Here are some of the principles stated in the book:

  1. If one has two efficacious means of avoiding a systemic risk, choose one avoiding  negative collateral    consequences if possible.  (p. 70)
  2. Use narrow exceptions to legal rules where possible to avoid collateral negative consequences when implementing an efficacious means of avoiding systemic risk. (p. 71)
  3. If all efficacious means have serious negative collateral consequences, make value choices about which collateral consequences we most wish to avoid in choosing a set of efficacious means. (p. 70)
  4. If necessary to avoid a systemic risk, one must forego an economic opportunity, that’s ok. If we avoid systemic risks, new opportunities will arise. (p. 72).
  5. Avoid measures that would not leave open a reasonably robust set of economic opportunities. (p. 72).
  6. If the only measure avoiding systemic risk creates a systemic risk, avoid the systemic risk most likely to arise. (p. 72). Read More
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Intergenerational Equity and Systemic Benefits

Brett asks how the economic dynamic theory treats intergenerational issues and whether the idea of systemic benefits might prove useful. I’ll take these questions up in turn.

Intergenerational Equity

The Economic Dynamics of Law does not distinguish between systemic risks (or economic opportunities) facing the current generation and those facing future generations. It simply envisions a commitment to avoiding systemic risks while keeping open a robust set of economic opportunities. That said, by emphasizing the shape of change over time, the approach inherently places more emphasis on protecting and helping future generations than our current static approach, as Martha McCluskey has so well explained. Read More

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On Norms and Analysis

            Michael Livermore views my book as either challenging the normative foundations of law and economics or as offering a set of proposals to improve cost-benefit analysis (CBA). The book advocates goals, namely systemic risk avoidance and opportunity creation, and a focus on the shape over change over time that challenge the normative foundations of law and economics, i.e. static allocative efficiency. It also commends an analytical technique, economic dynamic analysis, to improve the economic analysis of law, but intends this technique to improve all economic analysis of law, not primarily CBA. By conflating analytical and normative questions and reducing all economic analysis to CBA, Michael makes it hard to properly understand either the normative or the analytical debate.

The question of whether avoidance of systemic risk and keeping open a reasonably robust set of economic opportunities constitutes a more important goal for society than allocative efficiency requires a normative discussion not focused on questions of technique. (See Martha McCluskey’s post in this symposium). The only glimmer of normative discussion that Michael offers casts doubt on his apparent preference for efficiency as a goal. He agrees with me that government should not be viewed as a master allocator of resources. But the goal of achieving allocative efficiency flows from viewing government as a master allocator of resources. And it is this goal that motivates proposals for use of CBA as an analytical technique. This is, reducing all costs and benefits to dollar terms in order to compare them on a single metric, however morally dubious and technically difficult, does serve the goal of optimal resource allocation. It’s a lot of wasted effort for many other kinds of goals. Read More