Category: Symposium: Economic Dynamics of Law

0

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

0

Now What? Applying the Economic Dynamic Approach to Financial Reform

Echoing the earlier commentators, I commend Professor David Driesen on his important contribution to legal scholarship and public policy with The Economic Dynamics of Law. I am hopeful that the economic dynamic approach can be used in the academy and on the front lines of financial reform.

As Driesen observes, the centerpiece of financial reform in the U.S., the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) “mandates only minimal structural reform.” Moreover, efforts persist to rollback, dilute and delay the modest improvements accomplished through Dodd-Frank. The result has been to emphasize bank-collapse intervention tools without sufficient focus on prevention. Consider that this modest reform effort began while the 2008 crisis was still fresh in mind. As memories fade and passions cool, the ability to enact structural reform diminishes.

And, this is exactly where use of an economic dynamic analysis is needed. Let me present just one real-life fact pattern. This coming Tuesday morning, the U.S. House of Representatives Committee on Financial Services has scheduled a hearing entitled, “Who’s In Your Wallet: Examining How Washington Red Tape Impairs Economic Freedom.” The invited witnesses are the general counsels of five federal financial agencies, including the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Reserve Board, the National Credit Union Association, and the Office of the Comptroller of the Currency. In the memo announcing the hearing the following agenda is described:

“Among other things, the hearing will examine how federal financial regulatory agencies evaluate the costs and benefits to consumers of their regulatory, enforcement, and supervisory actions. The Committee will explore whether products or services are no longer being offered to consumers because of agency actions and the steps federal regulators take to measure the impact on consumers if they no longer have access to specific products or services as a result of regulatory action. The Committee will also consider the procedures or standards agencies follow in determining whether to engage in formal rulemaking under the Administrative Procedures Act.”

The intent appears to be to treat as a cost the potential failure to satisfy individual preferences in the present without considering broader costs and harms that particular financial products can create for individuals and the system at large. As Driesen describes in Chapter 2, by emphasizing allocative efficiency, “the law of financial regulation ceases to function as a means of avoiding a depression, and instead becomes thought of as a product of balancing a proposed regulation’s benefits against its costs.”

Consumers may have had preferences for very low-money-down, negatively amortizing mortgages for which there would or could be a payment shock upon recast.  And many did show those preferences (even when the bank in-house marketing studies showed the product had to be pushed on them with minimal disclosure). However such toxic products and others led to millions of foreclosures and bank safety and soundness problems, and ultimately a global financial meltdown.

It will be interesting to see whether the witnesses on Tuesday reject the assumptions underlying how the hearing has been framed and instead apply an economic dynamics approach to their testimony and answers.

 

 

 

0

Driesen’s book is an important reminder of the need for environmental lawyers to engage with a discipline outside their own

From an environmental law perspective, The Economic Dynamics of Law is an important contribution to environmental law scholarship in at least two ways. First, it evidences the need for environmental lawyers to critically and carefully scrutinise distinct economic thoughts and their impact on environmental law. Chapter 7, in particular, makes this point apparent by discussing the narrow but prevailing law and economics framing of property rights, which projects these almost exclusively as purposed to facilitate economic growth and efficient market exchange (p. 121). Such ideas have greatly impacted environmental law scholarship and environmental policymaking, especially on the use of market-based mechanisms and deregulation in the context of climate disruption, discussed in Chapter 11. Challenging these well-established frameworks is difficult (see Fisher and others, ‘Maturity and Methodology: Starting a Debate about Environmental Law Scholarship’ (2009) 21 Journal of Environmental Law 213). Driesen, however, manages to do so by applying an alternative lens – the economic dynamics of law – through which he revisits some of the founding writings on this topic – for instance, Hardin’s ‘Tragedy of the Commons’ (p. 128) – and reframes neoclassic economic understandings of a range of legal subjects, including property rights but also antitrust and national security. As such, Driesen makes a much-needed call not only to environmental law scholars but also to property law scholars to challenge conceptualisations informed by disciplines outside their respective fields.

Following from this, The Economic Dynamics of Law makes a significant contribution in setting the ground for a framework of analysis, in which such tests and challenges can be carried out. As the other commentators on this blog have already explained, Driesen analytical framework, the economic dynamic theory, is synthesised in terms of three parameters: focus (change over time), goal (avoiding systematic risk while keeping economic opportunities open), and method (applying economic dynamic analysis to analyse problems and propose reforms (p. 225). As a next step in these debates, two important issues need to be considered. One concerns legal culture. In a joint piece – D. Driesen and S. Bogojević, ‘Economic Thought and Climate Disruption: Neoclassical and Economic Dynamic Approaches in the USA and the EU’ (2013) 25 Journal of Environmental Law 463 – Driesen and I discuss this point and the way in which economic ideas have influenced climate disruption laws both in the USA and the EU but with distinct outcomes. The point here is to demonstrate that economic thoughts impact environmental law, but the particular understanding and ultimately implication of economic thoughts on a legal system is inevitably context-specific. Second, The Economic Dynamics of Law leaves the question of potential challenges with creating laws and legal regimes in line with the economic dynamic theory open. Driesen does not set out to assess such challenges and therefore these questions are justifiably left with the reader. An interesting link, nevertheless, could be drawn to an emerging strand of scholarship on adaptive management. Jan McDonald and Megan C. Styles provide an excellent study (forthcoming in Journal of Environmental Law) on this topic, highlighting core difficulties in creating legal frameworks that recognise dynamism of the natural systems and accommodate technological, managerial and economic innovations, as well as behaviour shifts.

It is clear that Driesen’s book raises a series of important questions for legal scholars and policymakers to reflect upon and engage with. I will keep returning to this book in many years to come.

0

Overlapping Interest in Systemic Risk and Economic Opportunity

In an earlier post, I proposed two readings of David Driesen’s Economic Analysis of Law. One was an ambitious reading, which evaluates Driesen’s “economic dynamic theory” as a critique of, and alternative to, the mainstream economic perspective. The second reading viewed economic dynamic analysis from within the economics tradition. I offered the view that the book made a more substantial contribution on that second reading than the first.

Here, I offer a third interpretation, which might not be at all what Driesen intended, but which I find attractive. “Avoiding systemic risk” and “providing economic opportunity” (the normative goals/commitments that Driesen defends in his book) are not ends unto themselves. They are, instead, intermediary goals that serve some other morally important purpose. And, indeed, there are a variety of moral frameworks in which “avoiding systemic risk” and “providing economic opportunities” might be seen as valuable. Brett mentions Sen’s capabilities approach; that certainly could be one. The prioritarianism defended by Matt Adler is another. I would offer that standard economic efficiency considerations would favor avoiding systemic risk and providing economic opportunity. The subjective well-being standard proposed by Jonathan Masur and others would also value these goals.

This framing allows Driesen’s economic dynamic theory, and the normative conceptions it embraces, to serve as a kind of “incompletely theorized agreement.” We don’t need to agree on first-order moral principles to agree that these are valuable social goals. Rather than attempting to critique or supplant alternative moral priorities, economic dynamic theory exists at a point of overlap. I don’t believe that this is how Driesen describes his project, but I think there is something appealing about it.

Similarly, under this reading, Economic Dynamic Analysis (EDA) allows us to proceed with analysis, without coming to agreement on whether economic efficiency, capabilities, welfare, happiness, or something else is the goal of policy. We make a general “commitment” to reducing systemic risks and   improving economic opportunities and evaluate policy in terms of how well it forwards those goals, recognizing uncertainty, the fact that policy change occurs over time, and the existence of “collateral negative consequences.”

From my perspective, I would see EDA as a useful piece of a more complete cost-benefit analysis. For the folks who think that CBA is a terrible idea, we can agree on the EDA part and disagree on the rest. On this reading, Driesen’s criticisms of “neoclassical economics,” law and economics, and cost-benefit analysis are beside the point, and in fact reduce the force of his argument. The point would not be “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.” Rather, the emphasis would be on the ways in which efficiency considerations (along with many other forms of moral reasoning) counsel in favor of avoiding systemic risks and maintaining economic opportunities, and then working together from there. This is not the argument that Driesen makes, but perhaps that was a missed opportunity.

In a similar vein, I think it is a serious mistake to downplay the extent to which mainstream economic analysis counsels for aggressive efforts to address problems such as climate change. Outka notes that “if the dominant approach to policy analysis [CBA] suggests climate action is not economically justified . . .  something is dangerously wrong.” Indeed, there would be, but in fact, there is broad consensus within the economics community that action on climate change is needed. Today, Nature published a Comment that I coauthored with economists Ken Arrow and Larry Goulder and several others, noting that a variety of mainstream economic models show that climate risk needs to be addressed. While the social cost of carbon adopted by the Obama Administration does not incorporate a number of important risks, it is certainly enough to justify a lot more than we’re doing right now.

Just as areas of agreement between environmentalists and economists create opportunities for political progress, Driesen’s economic dynamic theory (as interpreted here) can create opportunities for intellectual and analytic progress—not as an alternative to other approaches, but as a set of recommendations that can be endorsed both from within the law and economics tradition and from many other perspectives, as well.

1

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
0

The Most Interesting Part of Driesen’s Economic Dynamics of Law is the Focus on Change Over Time

In his new book The Economic Dynamics of Law, David Driesen works hard to focus the reader on how policies shape and are shaped by change over time. This is what I find most helpful and distinctive about Driesen’s approach: that he really rolls up his sleeves and tries to think out the intertemporal implications of legal policy. This is a difficult and complex task, and Driesen makes some real inroads, particularly in his treatment of the challenges of systemic risk. He also makes a valuable start at interrogating the distributional questions of how policies impact power dispersal—a start that could be refined still further by adopting Outka’s suggestion of extending this analysis backwards in time, and by addressing the possibility of intergenerational power dynamics (which Driesen ignores even in his recent clarifying comment).

Beyond these observations, I have a few suggestions to make in further refining his temporal approach, and then a few additional reflections on the structure of his argument.

The first suggestion is also a shameless plug for a work-in-progress of mine called Reregulation and the Regulatory Timeline, where I too am struggling with how to operationalize policy choice over time. My approach is to contextualize policy decisions along a timeline, which can then be used to illustrate not only the path-dependence that arises from past decisions’ impact on current decisions, but what I call “intertemporal dependence,” or the fact that current policy decisions can also strategically account for future path dependence. The world isn’t the only thing that changes over time; legal policy also changes, and policymakers should be encouraged to recognize that their decisions today will impact the costs, benefits, and implications of policy decisions far into the future.

Driesen recognizes that costs and benefits shift over time, but he makes this point merely to trivialize the usefulness of equilibria (56). But another—more dynamic?—view of the fact that a policy’s distribution of benefits and costs often change over time would be to note that equilibria shift with costs and benefits, and to prescribe that a dynamic policy would do well to allow behaviors to shift with the landscape of costs and benefits. In this sense—and I return to this point later—Driesen’s fixation on problematizing the underpinnings of neoclassical economics leads him to overlook a valuable application of his approach to cost-benefit analysis.

What is Driesen’s approach—or at least, what kind of decision procedure is dynamic economic analysis? As Driesen himself recognizes, it is essentially a narrow and future-oriented form of the precautionary principle (59). I would add that his focus on avoiding systemic risk strikes me as very similar to the narrow precautionary principle that Cass Sunstein calls the “Catastrophic Harm Precautionary Principal” in Worst Case Scenarios. Sunstein describes his principle this way: “When risks have catastrophic worst-case scenarios, it makes sense to take special measures to eliminate those risks, even when existing information does not enable regulators to make a reliable judgment about the probability that the worse-case scenario will occur.” As Sunstein points out, whether this principle is helpful is a case-specific question that depends on three things: when information will trigger the principle, the role of costs, and the role of any probabilistic information that does exist (WCS 119-120). I worry that Driesen’s anti-systemic-risk precautionary principle is subject to the exact same concerns.

That said, Driesen’s approach is more complex than a single narrow precautionary principle, because he would also have policymakers adopt a second precautionary principle, one that seeks to minimize the risk of shutting down future important opportunities for economic development. As Frischmann has noted, Driesen unfortunately spends less time developing this theme than on systemic risk. But its addition adds significant nuance to Driesen’s approach, even as it adds the potential for difficult value tradeoffs. Driesen’s recognizes these challenges (70-73 + some later discussion in examples), and tries to deal with them by subordinating the economic-development principle to the systemic-risk principle (72). But for me this was insufficient: I was still left wondering particularly about the role of costs. Driesen urges policymakers to consider the shape of change over time, and (building on Douglass North’s work on adaptive efficiency) to leave options open in the face of uncertainty (e.g. 148). But how much should policymakers invest in purchasing those options?

Flexibility is rarely free: at the least, it increases current and future decision complexity, both for policymakers and for industries and people affected by the flexible policies. And often the option itself requires some investment to be established. How much investment is justified in options to reduce systemic risk, given that the cost of these options may well cut into economic opportunities? Again, I think that considering both sides of this ledger—the systemic risks of a policy as well as what Frischmann calls the systemic benefits—makes Driesen’s approach far more nuanced than a unilateral normative commitment that would not necessarily invoke these conflicts. But without some idea at least of how to manage costs (e.g. through an application of option pricing theory?), it is difficult to know how to mediate the tensions here.

All of this makes me agree with Livermore that DEA as a standalone procedure, and as it is currently operationalized, is a bit squishy. But I don’t think this means that the larger theory underlying DEA, understood as the combination of two narrow future-oriented precautionary principles, fails to give any useful guidance to policymakers. I just think that the primary benefit of its guidance is that it encourages systematic reflection about impacts of policies through time. In this sense, Driesen’s preoccupation with cost-benefit analysis and neoclassical economics is largely a distraction from what is most novel and interesting in his approach. I would have far preferred to see an account for dynamic analysis—for analysis sensitive to the change over time that occurs in both legal structures and in world conditions—that was severed from a treatment of cost-benefit analysis.

What’s the real connection between DEA and CBA, if there is one? I think it’s actually this: the more critical a person is of how CBA works as a decision procedure, the more likely she is to welcome alternative decision procedures of any kind. And conversely, the more satisfied a person is with how CBA works as a decision procedure, the less need he is likely to see for additional procedures. But this doesn’t tell us much of anything about DEA: it just tells us about how people felt about CBA before DEA showed up on the scene. That suggests DEA just isn’t giving us much traction on the CBA question. Which is fine. But is also a reason that we may all get further if we recognize, as Livermore points out in in his first post, that DEA can be used either in concert with CBA or not. And that either way, DEA is valuable for promoting further systematic thinking about policymaking in the face of change over time.

0

“The Shape of Change Over Time” in the Climate Context – The Economic Dynamics of Law

David Driesen opens The Economic Dynamics of Law with the observation that “law influences the future, not the past.”  In the field of energy and environmental law, where I first came to appreciate Driesen’s scholarship, the shape of this influence over time is a central contemporary concern.  On the one hand, it is clear that law has the potential to catalyze climate stabilization.  On the other, there is a risk that existing legal regimes reflecting outmoded premises will perpetuate a detrimental status quo, an influence that in effect carries the past into the future.

Driesen’s call to refocus policymaking away from too heavy an emphasis on cost-benefit analysis (CBA) and toward “the direction of change over time” (at 213) captures these dual prospects for the influence of law on the future. In this way, although the book directly engages law and economics broadly conceived, it also contributes to the literature of law and transition, which has grappled with the role of law in facilitating, as well as hindering, change.

This contribution is especially important in the climate context (Chapter 11) and pertinent to the current energy transition in the US, as it simultaneously shifts increasingly to cleaner energy resources but also expands the use of fossil fuels with domestic oil and gas. Driesen’s critique of CBA here has considerable force, irrespective of whether readers accept the economic dynamic theory:  If the dominant approach to policy analysis suggests climate action is not economically justified, despite scientific consensus telling us the “world’s current path of continuing reliance on increasing fossil fuel consumption leads to a set of serious problems and may bring us outright catastrophe” (at 212), something is dangerously wrong.  Part of this problem, as Driesen notes, stems from the fact that CBA “draws attention away from the possibility that the future might differ from the past” (at 27).  In connection with climate disruption, perhaps even more than other contexts considered in the book, this is a critical limitation given that the one point of certainty seems to be that the future will differ substantially from the past – in wide-ranging ways not amenable to precise prediction. It is this recognition that has fueled increased engagement with the concepts of adaptation and resilience as modes for reinforcement against sudden, dramatic, and long-term change, or least for making such change feel less jarring. When the book argues for shifting from a resource allocation frame to a goal of avoiding systemic risk with an eye to change over time, it points to a space for normative policymaking around unavoidable uncertainties that this area of law sorely need.

The focus on change over time is important here in two other key respects. First, extending forward in time, Driesen’s analysis highlights the ease with which the cost of inaction on climate can be neglected in cost-benefit oriented discourse on climate policy. Like Brett Frischmann, I wanted to know more about how the economic dynamic theory would account for intergenerational equity, especially with regard to inaction.  There seems to be an implicit compatibility, though the book does not orient its proposed analytical framework around this purpose explicitly.  (Driesen has provided a clarifying response on this point).

Second, and again in a forward-looking posture, the economic dynamic approach engages the explicit question “of whom a proposed law would empower or disempower” in new policy formation (at 66). This empowerment analysis might be still more informative to policy transition if it can also extend back in time. Cost-benefit discourse tends to ignore the accretion of capital and political empowerment that preceded new climate policy goals.  As Driesen notes, once utilities build “capital-intensive facilities, their owners will acquire incentives to resist emission reduction requirements that might interfere with their operations” (at 214). But this empowerment may also be integrated in relevant legal regimes to such a degree that disentanglement may entail more than restructured incentives. Whether the theory can also offer this retrospective component was less clear.

As Michael Livermore noted in his opening post, The Economic Dynamics of Law is an ambitious project. It’s worth noting that the book does not argue for renouncing CBA – indeed, Driesen acknowledges “it is hard to see how one can avoid CBA, notwithstanding its many weaknesses” and it will continue to have a place in “open-ended policymaking” (at 76). It is the dominance of CBA that he objects to most. This book advances the literature critical of CBA by not stopping there, and instead offering up a thoughtful, though-provoking, and yet quite accessible alternative frame for policymakers confronting decisions in the face of uncertainty.

 

 

 

 

 

0

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

0

Thoughts on Driesen’s The Economic Dynamics of Law

David Driesen’s book, The Economic Dynamics of Law, offers a powerful new approach to law and policy analysis.  Like many others, Professor Driesen critiques neoclassical law and economics and the application of conventional cost-benefit analysis (CBA) to various areas of law and policy.  Unlike most others, however, Professor Driesen develops an alternative.

Professor Driesen emphasizes a host of broad framing points, the implications of which are not fully understood, generally and especially within conventional law and economics.  I take the following points to be, for the most part, uncontroversial (even if their implications are not fully understood).  Most people will agree that we live in an incredibly complex, dynamic world consisting of many interdependent, complex evolving systems; that law shapes these systems and critically how these systems change or evolve over time; that path dependencies make some changes irreversible and others incredibly costly to unwind; that law is necessarily normative as are the path setting consequences of law; that law operates as a framework that shapes but does not fully determine what people do.

The implications of these framing points demand serious attention, however, because they are too easily misunderstood or simply assumed away to make analysis tractable.  For example, the implications of the fact that preferences are endogenous and that law and the systems structured by law shape preferences are not fully accounted for in law and economics.  It is admittedly difficult to take such complications into account, and so the more tractable move is to assume preferences are exogenous and that law’s objective is efficient satisfaction of existing preferences.  Professor Driesen explains the errors in such a move.  Tractability is a poor excuse for failing to engage with reality and the normative stakes of law’s dynamics.  The fact that law shapes preferences and beliefs means that we cannot avoid confronting questions about how law shapes who we are and who we can even contemplate being.

Professor Driesen thus places analytical emphasis on law’s role in setting paths or choosing directions for society rather than determining outcomes or optimizing resource allocations.  He advances two broad normative commitments — avoiding systemic risk and providing opportunities for economic development.  He defines each and develops means for analyzing them that goes beyond conventional CBA.  As others have commented on the relationship of his approach and CBA, I’ll leave that aside.  With regard to systemic risk, I had two questions for Professor Driesen:  First, how would he deal with intergenerational issues?  He touches on CBA’s use of discount rates in the climate change context and how “CBA’s results depend on the policy views of the economist conducting the analysis,” but I didn’t fully understand what alternative he offered.  Second, what about systemic benefits?  Simply put, I wondered whether there is a symmetrical point to be made about systemic benefits.  I discuss related issues in my book, Infrastructure:  The Social Value of Shared Resources (Co-Op symposium), and connect the commitment to the idea of a social option, but it also ties into North’s adaptive efficiency argument, which Professor Driesen discusses.  Systemic benefits may be a broader way to think about his second normative commitment concerning opportunities for economic development, but it is hard to say because that commitment gets much less attention in the book.  Perhaps opportunities for economic development should be extended to include human development and Driesen’s approach could incorporate some of the ideas and lessons from Sen’s Capabilities Approach.  Certainly, many of the framing points noted above are also central to the CA project.

I was a little disappointed that the second normative commitment received less attention.  Much of the law is focused on opportunities for (human and) economic development.  Many of the applied chapters (e.g., contract, property, IP) seem to focus on it, but those chapters seemed mostly descriptive and backwards looking, with Professor Driesen saying something like, “Hey, wait a minute!  What’s really happening in these areas is dynamic change over time, with bounded rationality, …, it’s not classic law and econ!”  I would like to see more analysis of how Professor Driesen’s approach could better reconcile these areas of law with the second normative commitment he identified.

On IP, let me just say that I agree with Professor Driesen – IP scholars certainly think a lot about dynamic change.  He is right that we need to pay much more attention to path setting and how IP laws, for better or worse, shape the paths available and the paths taken.  This was a theme I explored in Intellectual Infrastructure, chapter 12 of my book.  In fact, many IP scholars are now working on this subject.

Let me end with a brief cautionary note on Professor Driesen’s appeal to macroeconomics.  I agree with him that legal scholars who employ economics tend to rely heavily on microeconomics and ignore macroeconomics.  He is also correct, in my view, when he suggest that overreliance on microeconomics, or at least certain aspects of it, has often sustained unrealistic assumptions, ideological commitments (sometimes hidden beneath the veneer of objectivity), and bad results.  I would only caution Professor Driesen that the same might be said of macroeconomics.

0

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