CopyrightŠ 1987 The Columbia Law Review.
Columbia Law Review
87Colum. L. Rev. 1447
BOOK REVIEW ESSAY: TOO GOOD TO BE TRUE: THE POSITIVE ECONOMIC THEORY OF LAW.
THE ECONOMIC STRUCTURE OF TORT LAW.
ByWilliam M. Landes and Richard A. Posner.
Cambridge, Mass.: Harvard University Press, 1987. Pp. 329. $ 27.50.
Reviewed by J. M. Balkin *
* Assistant Professor of Law, University of Missouri -- Kansas City. HarvardUniversity, A.B. 1978, J.D. 1981. I would like to thank Ian Ayres and DennisCorgill for their comments on previous drafts of this Article and Louis Kaplowfor an enlightening discussion of economic methodology. Of course, none of themshould be held responsible for what I say here.
William Landes and Richard Posner are two of the most prominent advocates of thetheory that the common law promotes efficiency. ... It is interesting to compareLandes' and Posner's thesis with that of Ronald Dworkin, another author whosework often appears to waver between the descriptive and the prescriptive. ... Intort law, economic individualism implies a preference for lower standards ofliability: negligence (as opposed to strict liability), market solutions toproblems of duty (in preference to non-disclaimable duties), and defenses suchas custom, contributory negligence, assumption of risk, and the fellow servantrule. ... If tort law is a predominantly efficient system of rules, or if itslong-term trend is efficiency, that might be a very good reason to adopt anormative economic theory as well -- that tort law ought to be efficient. ...Here we see most of the standard conservative ideological moves outlined at thebeginning of this Article -- the belief that the common law is anonredistributive benchmark against which all regulation is to be measured, thatlegislative action is at the mercy of rent-seeking interest groups, that nopolitically active group in society has an economic interest in a particularrule of tort law, and that wealth maximization is an uncontroversial socialpolicy with no inherent bias in favor of the rich. ...
William Landes and Richard Posner are two of the most prominent advocates of thetheory that the common law promotes efficiency. In an effort to demonstratetheir claim mathematically, they have collected their many articles on tort lawtogether in a new book, The Economic Structure of Tort Law. Asthe authors note, this is "the first book-length study that attempts toapply [the efficiency hypothesis] to a single field of law, as well as the firstbook-length study of the economics of tort law" (p. vii). In fact, thebook's conclusions do not diverge greatly from Judge Posner's treatment of tortlaw in his Economic Analysis of Law. n1 The difference consists mainly in thegreater depth of coverage and the greater use of mathematical models to provethe efficiency of various doctrines of law. The mathematically inexperiencedwill not find the book easy going, and it is to the authors' credit that theyalways attempt to repeat in descriptive terms what they try to demonstratemathematically. Nevertheless, anyone interested in law and economics can learn agreat deal from this book, especially those persons who disagree with itsconclusions. That is perhaps the highest compliment one can pay any theoreticalwork.
However, despite the book's obvious merits, I find the argument ultimatelyunconvincing for a number of reasons. First, Landes' and Posner's assumptionsform a cluster of beliefs that are not value free, but are intimately related toand dependent upon modern American conservative ideology. Second, the book'smethodology is sufficiently controversial and sufficiently manipulable that onemust doubt seriously the authors' claim to have proved that most rules of tortlaw are efficient. Third, a major failing of the book is its reductionism, areductionism [*1448] that occurs on two levels: its attempt to viewtort law as animated by a single purpose -- efficiency, and its attempt toenvision all human behavior as market behavior. Fourth, the book's attempt to"express the essential features of tort law in a handful of simplemodels" (p. viii) fails to recognize that any acceptable explanation oftort law, and indeed of the common law generally, must recognize the diversityand conflicting nature of the law's purposes and principles, which are a productof its historical evolution. Finally, I suggest that the book must fail in itsproject because history has made the common law heterogeneous: any theory thatis able to reduce the common law of torts to a single regulatory principle iseither false or so manipulable that it is of little explanatory value.
I. THE POSITIVE ECONOMIC THEORY OF LAW AS AN INTERPRETIVE THEORY
Landes' and Posner's basic thesis is that "the common law of torts is bestexplained as if the judges who created the law through decisions operating asprecedents were trying to promote efficient resource allocation" (p. 1).They refer to this hypothesis as the positive economic theory of law. The word"positive" is normally used in opposition to "normative" andimplies an analysis that is descriptive and value free. n2 Of course, whatLandes and Posner offer us is neither of these things. Whatever one may think ofthe possibilities of value-free economic science in general, n3 one will notfind it in this book, and it is important to understand why at the outset.
A good place to begin is the concept of efficiency itself. The"efficiency" that the authors speak of is a peculiar one, with whichreaders of Judge Posner's earlier work will no doubt be familiar:
We use efficiency throughout this book in the Kaldor-Hicks (or potential Paretosuperiority) sense, in which a policy change is said to be efficient if thewinners from the change could compensate the losers, that is, if the winnersgain more from the change than the losers lose, whether or not there is actualcompensation. (P. 16)
Landes and Posner are not using efficiency in the sense of whether a policychange maximizes utility. Rather, their version of Kaldor-Hicks asks whether thechange maximizes wealth: "A change is wealth maximizing if the dollar valueof the gains to the winners is greater than the dollar cost of the losses to thelosers. The positive economic theory of tort law holds that tort rules areefficient in the sense of wealth maximizing" (p. 16).
[*1449] There are two important differences between wealthmaximization and utility maximization, and both have to do with the fact thatsome people have more money than others. First, the marginal utility of incomedecreases as income rises. n4 this means that the utility of a dollar to a poorperson is greater than the utility of a dollar to a rich person. Thus, one mightincrease utility simply through redistribution of wealth from rich to poor;however, this would have no effect on wealth, other than to expend it in theadministrative costs of distribution. n5 Second, even if a person would gain agreat deal of utility from an item, if she is too poor to afford it, she doesnot value it (or value it as much as a person who can afford to pay for it);value in a wealth maximization sense is defined as willingness and ability topay (pp. 156-57).
Many commentators have attacked the authors' wealth maximization criterion asimmoral, inconsistent with sound economic practice, and the product of areactionary sensibility. n6 Landes and Posner have heard all these criticismsbefore and remain unperturbed. After all, they are engaged in a positiveeconomic theory of law. Their argument is that the law of torts as it presentlyexists maximizes wealth, whether or not that situation is morally defensible;they "are interested in explaining, rather than defending, the common lawof torts" (p. 9).
In one sense, Landes and Posner are surely right. The standard criticisms ofnormative economic analysis based upon the wealth maximization criterion -- thatit favors the rich over the poor, and the status quo over attempts to alter it-- by themselves do not prove that the law of torts may not have had theseunsavory characteristics all along. On the other hand, the nature of theirproject -- an interpretive explanation of law -- guarantees that value choiceswill be relevant to their work, albeit in an indirect manner.
Landes and Posner are attempting what legal scholars have sought to do forgenerations -- to offer a theory that makes the cases come out right. They aretrying to "map" the received corpus of rules into a set of principlessuch that those principles then reproduce the rules in a logical and consistentfashion. This project is no different from what non-economic tort scholars dowhen they try to explain existing doctrine through theories of rights,reciprocality of risk or the like. Indeed, the project is not so far removedfrom what judges do when they [*1450] attempt to derive principlesfor decision from a group of seemingly conflicting cases.
This "mapping" of doctrine is a special form of explanation, whichnecessarily combines the descriptive and the prescriptive together. Landes' andPosner's positive theory of tort law looks at first as if it were merely ascientific explanation of the forces that decide tort cases; tort doctrines arecrafted so as to increase wealth. However, the book also presents wealthmaximization as a unifying normative principle of tort law that could be used byjudges to decide future cases, as Landes and Posner clearly think it should.
It is interesting to compare Landes' and Posner's thesis with that of RonaldDworkin, another author whose work often appears to waver between thedescriptive and the prescriptive. In his latest writing, n7 Dworkin hasconfronted this objection head on. He argues that the goal of legal theory is toprovide a creative interpretation of law as a social practice. n8 Such aninterpretation is teleological -- it seeks to discover and impose an underlyingpurpose on the practice that both illuminates the practice and makes it the bestthat it can be. n9 That purpose may not be the conscious purpose of the personswho created or participate in the practice; nevertheless, the interpretation is"the most illuminating account of what [people] do [within the practiceand] points out the right direction for continuing and developing thepractice." n10
Landes' and Posner's work is an interpretation of legal practice in this samesense. They argue that "the common law of torts is best explained as if . .. judges . . . were trying to promote efficient resource allocation" (p.1). Their point is that the language of the law may conceal a coherent economiclogic, even if lawyers and judges themselves do not realize it, and that noother theory explains the cases in as comprehensive and enlightening a manner.n11
If the positive economic theory of law is an interpretive theory like Dworkin's,it cannot be value-free. It must carry with it normative claims about what the"best" account of legal practice is. These include both judgmentsabout what principles and assumptions constitute the best "fit" withthe cases, and judgments about whether these principles and assumptions aresufficiently worthy to undergird a mapping [*1451] of the legalsystem. The latter point is likely to be overlooked. If the principles thatexplain a large segment of the law of torts are immoral or wicked, the"best" explanation may consist of principles and assumptions that areconsistent with a smaller (or a different) class of cases but are more palatablemorally. The unexplained cases would then be classified as sports or aberrationsthat are inconsistent with the overarching goals of the law and hence need to beeliminated from it. n12
This insight also provides the key to understanding how issues of fit involvenormative judgment. No matter what principles and assumptions one uses to mapthe corpus of rules, they will not explain all of the cases. Thus, under anygiven set of principles and assumptions, some of the cases will come out"wrong." For example, in Landes' and Posner's book, the rulesregarding custom, the enforceability of disclaimers of negligence, comparativenegligence, contribution among joint tortfeasors and damages in wrongful deathactions all fall under this category (pp. 27-28). n13 However, which cases willturn out to be "wrong" -- which cases do not meet the requirements offit -- depends upon the initial theoretical assumptions chosen. Thoseassumptions have normative implications, at least to the extent that they helpdetermine what the "best" explanation is.
For example, a very important assumption that Landes and Posner make is thatpeople are risk neutral. In reality, most people are risk averse, a fact thatfollows from the decreasing marginal utility of income (pp. 55-57). n14 Landesand Posner argue that the assumption is justified because (1) it simplifiestheir models, and (2) given perfect insurance, people will behave as if they arerisk neutral (pp. 57-58 & n.8). These reasons are not particularlyconvincing: simplicity is gained only at the expense of a skewed analysis. Inaddition, the argument assumes that perfect insurance is available, which it isnot. Those forms of insurance that do exist are limited to certain types ofcoverage and are [*1452] not universally available, especially tothe poorer classes. Moreover, even middle class people probably do not purchasethe proper amounts of insurance necessary to make them risk neutral because ofhigh information costs. n15 Finally, perfect insurance, unlike real insurance,presents no problems of moral hazard. n16
Under the assumption of risk neutrality, Landes and Posner cannot explain therecent movement in the law from contributory negligence to comparativenegligence and from no contribution to contribution. However, if one assumesthat the marginal utility of income is decreasing (which it is) and that peopleare therefore risk averse (which they are), these doctrines make perfect sense,as Landes and Posner recognize (pp. 82, 211-12). The choice, then, is whether tokeep the assumption of risk neutrality and have these particular doctrines becontradicted by the model, or abandon the assumption and have some differentgroup of doctrines remain unexplained.
This choice is not value-free. Some doctrines will seem more important tojustify than others. If Landes and Posner could not explain the efficiency ofthe move to strict products liability, for example, no one would take them veryseriously, for that is a major trend in twentieth-century tort law. Yet Landesand Posner have chosen to leave unexplained the movement to comparative faultand contribution, which has been almost as universal as that to strict productsliability, in order to preserve the assumption of risk neutrality. n17
Indeed, one suspects that the authors chose to assume risk neutrality forreasons quite apart from mere simplicity. The assumption of risk neutrality iscentral to the economic theories of the Chicago school of economics and to itsconservative ideology. n18 In particular, it allows a facile move from utilitymaximization to wealth maximization. The claim that people are risk neutral --that the marginal utility of income is constant instead of decreasing -- allowsLandes and Posner to assume that a dollar in the hands of a rich person createsas much utility as a dollar in the hands of a poor person. n19 Thus, itsimultaneously avoids [*1453] the conclusion under their theory thatany rule of tort law could be justified either on grounds of incomeredistribution or risk spreading: there is no efficiency gain in incomeredistribution because extra income is as valuable to the rich as to the poor.There is no efficiency gain from risk spreading because all persons are assumedto be risk neutral.
Landes and Posner admit that the assumption of risk neutrality would beunjustified
if we were analyzing an institution patently designed to reduce risk, such asinsurance. But there is no compelling reason to assume that common law judges,in formulating efficient rules of accident control, would think it important totry to reduce risk as well as accident costs and accident-avoidance costs. (P.57)
This justification is circular. How do we know that risk spreading is not apurpose of tort law? A lot of torts books I have read suggest that it is. n20 Ofcourse, under Landes' and Posner's model, the purpose of tort law is efficiency,and under the assumption of risk neutrality, risk spreading leads to noadditional efficiency, so it can't be a purpose of tort law; but this simplybegs the question of what justifies that particular model. Note as well theillicit move equating what judges thought they were doing to what the bestexplanation of the purposes of the common law is. Landes and Posner do not claimthat judges consciously thought they were maximizing efficiency n21 -- thereforeit is no argument that they did not recognize that they were spreading riskeither. Even if one accepted the premise, the conclusion is false. Many judges,especially in this century, have specifically based their decisions [*1454] upon a desire to spread risk. n22
The point of this example is simple: the dimension of fit -- the choice of whatto explain and what to leave unexplained in an interpretive theory, has anormative component. Landes' and Posner's choices are tied to their assumptionof risk neutrality; this is not a purely descriptive or simplifying assumption,but one which is convenient to their political agenda and to the particularconclusions they would like to reach.
II. THE IDEOLOGY OF THE POSITIVE THEORY OF LAW
The above remarks suggest that the positive economic theory, far from being adispassionate value-free inquiry into the structure of tort law, serves animportant ideological function, or at least is consistent with a set ofideological views. In fact, Landes' and Posner's work bears a deep relationshipto the American conservative tradition and to modern conservative ideology. Thissection argues that the particular cluster of assumptions and arguments found intheir book is intertwined with that ideology.
I begin with a bit of terminology. In tort law, we can classify positions asrelatively individualist or relatively communalist. A position is relativelyindividualist if it tends to limit the defendant's liability, or deemphasizesthe defendant's responsibility for an injury to the plaintiff. A position isrelatively communalist if it tends to expand the defendant's liability, oremphasizes the defendant's responsibility to others. n23
Since the late nineteenth century, American political conservatism has generallybeen individualist in economic matters; it has (at least in comparison withAmerican liberalism) viewed freedom of contract as a fundamentally importantvalue and resisted attempts to regulate it. n24 Moreover, there is a clearanalogy between individualist attitudes toward economic regulation and tortduties. In tort law, economic individualism implies a preference for lowerstandards of liability: [*1455] negligence (as opposed to strictliability), market solutions to problems of duty (in preference to non-disclaimableduties), and defenses such as custom, contributory negligence, assumption ofrisk, and the fellow servant rule. n25
The connection between American conservatism and economic individualism explainswhy law and economics has found such a warm reception among conservativeacademics. The basic insight that gives rise to the modern law and economicsmovement -- the Coase Theorem -- holds that in the absence of transaction costsall rules of liability result in efficient resource allocation, although theirdistributive effects may differ. n26 Because the general assumption of economicindividualists is that the market works well if not perfectly, the Coase Theoremsuggests that lower levels of tort duty are as good as higher levels. Therefore,higher levels of duty are superfluous, and only waste societal resources inadministrative costs. Relatively individualist rules are thus dictated byefficiency considerations. n27
One might object that this argument only considers efficiency in terms ofresource allocation. More communalist rules might serve a redistributive orinsurance function in addition to a resource allocation function, andredistribution of wealth and risk spreading might increase total social utilityand hence total efficiency. However, the ideology of economic individualismprovides standard responses to each of these concerns.
To begin with, economic individualism denies that liability rules are anefficient method for the redistribution of income. The redistributive effects ofliability rules are often not predictable to any useful degree, and to theextent that they are predictable, the long term effects often do not benefit theclasses they are designed to help but instead result in higher costs to thosegroups. n28 Alternatively, the distributive effects of liability rules arediffused throughout society and do not benefit [*1456] anyidentifiable group. n29 A common version of this claim is that the divisionbetween plaintiffs and defendants in tort suits does not fall even roughly alongclass lines; a wealthy industrialist can be a plaintiff in an automobilecollision case and a gas station attendant can be a defendant in a negligencesuit.
Thus, the individualist argument concludes that because of the inherentinefficiency of tort liability as a redistributive mechanism, redistribution isbest accomplished through the tax and welfare systems. This is often combinedwith an institutional argument that common-law judges possess less competenceand authority to engage in redistribution than majoritarian bodies. In fact,economic individualism opposes redistribution of wealth whether practiced byjudges or legislatures -- each situation equally abridges economic freedom. n30Thus, concerns with the comparative efficiency of institutions must beunderstood as a means of arguing against judges adding their redistributiveefforts to those of legislatures.
Similarly, economic individualism denies that liability rules are an efficientmethod of risk distribution. Plaintiffs who wish to insure themselves againstrisks can do so by purchasing private insurance, which is inexpensive and widelyavailable. This argument reflects three different aspects of the ideology ofeconomic individualism: (1) the preference for free-market solutions and theassumption that the market works perfectly in providing commodities to thosepersons who value them; (2) the emphasis on the plaintiff's responsibility totake care of herself as an alternative to imposing responsibility on thedefendant to take care of the plaintiff; and (3) the preference for individualrather than societal decisionmaking about the necessity and extent ofexpenditures for personal security.
It is important to understand how these individualist arguments are connected toLandes' and Posner's assumption of risk neutrality and to the philosophy ofwealth maximization. If the marginal utility of income is decreasing, riskspreading and redistribution become potentially useful methods of increasingsocial utility. If one assumes risk neutrality, however, neither practiceincreases total utility. By claiming that an equivalent of risk neutralityoccurs when ideal insurance is freely available in the market, and thatredistributive goals can be furthered by the legislature, economic individualismsidesteps the problem of divergence between wealth and utility maximization. Itcan then argue that the proper task of common-law judges is to increase wealth,which is the same thing as increasing utility if one assumes a perfect marketfor perfect insurance and a legislature ready to redistribute with a vengeance.
[*1457] Of course, these assumptions are wholly implausible. Thereis no perfect market for insurance (a regulated industry in most statesprecisely because of its imperfections), and American legislatures are not aboutto level everybody's income. Indeed, the very same persons who trumpet thevirtues of wealth maximization will be the first to oppose any serious attemptat wholesale wealth redistribution. n31 However, the theoretical possibilitythat wealth maximization could be the same thing as utility maximization giveseconomic individualism all the comfort it needs.
I have argued that economic individualism's delegation of redistributive goalsto the legislative branch is disingenuous; that it is a device really designedto avoid redistribution in common-law rules. This leads me to another aspect ofAmerican conservative ideology that is much older than its association witheconomic individualism: its distrust of majoritarian interference with propertyrights. Throughout history, American conservatism has dreaded nothing so much aspopular majorities using their power to take money from the rich and give it tothe poor. n32
It is interesting to contrast conservatism's traditional distrust ofmajoritarian interference with property rights with its virtual deification ofthe common law and the common-law process of adjudication. The conservative loveof the common law is not merely due to a reverence for the old and established.Common-law adjudication was, and continues to be, a nonmajoritarian process.Legislatures can alter common-law rules, but judges create them to begin with.Moreover, the common law is the source of the basic protections of propertyrights and the principle of freedom of contract, two things that modernconservatives hold dear. Finally, especially to nineteenth century thinkers, thecommon law provided a seemingly neutral and apolitical framework of contract andproperty rights; the common law was the Archimedean point from which all changescould be judged in terms of both efficiency and redistributive consequences. Itfollowed that majoritarian [*1458] alterations of common-law rightswere likely to be redistributive in effect, if not in purpose.
Given these premises, the characterization of common-law rights asconstitutionally protected rights by conservative judges in the nineteenth andearly twentieth centuries is not at all surprising. The use of common-lawcategories to define the constitutional rights of contract and propertysimultaneously foiled majoritarian attempts at economic regulation whilepreserving the ability of common-law judges to make law without majoritarianinterference. In more modern times, the conservative attack against majoritarianregulation and in favor of the common law has been made on grounds ofefficiency, and here once again lies an important connection betweenconservative ideology and Landes' and Posner's work. It is virtually an articleof faith among conservative thinkers that legislative or administrativealterations of common-law rights are almost always inefficient, and are morelikely than not attempts by majorities or special interest groups toredistribute income to themselves. n33 According to conservative ideology,popular majorities and special interests will do anything to grab goodies forthemselves; they will even disturb the pristine beauty and efficiency of thecommon law in their lust for wealth, thus shrinking the size of the pie foreveryone. n34 We see again a variant on the disingenuous institutional argument:popular democracies would be better off leaving the common law alone, andfighting instead over tax and welfare reform.
[*1459] There is a still further connection between Landes' andPosner's positive economic theory of law and conservtive ideology, one that alsoshows how deeply this "positive" theory is related to normativeissues. If tort law is a predominantly efficient system of rules, or if itslong-term trend is efficiency, that might be a very good reason to adopt anormative economic theory as well -- that tort law ought to be efficient. Thisis not merely confusing an "is" with an "ought." If, despiteourselves, we have managed to produce an efficient system of common-law rules,why should we muck it all up? More importantly, there is nothing that we can doabout it -- the natural tendency of the common law is towards efficiency, and aslong as we let judges decide cases, they will (eventually) stumble upon the mostefficient rules. Of course, we can change common-law rules by legislation oradministrative regulation, but as stated earlier, conservative ideology viewssuch attempts as almost always inefficient. Therefore, if we confine ourselvesto judge-made law, we might as well accept the inevitable -- an efficient systemof rules, which is not such a bad thing after all. Landes and Posner are notunaware of the normative implications of their work:
For those readers for whom economic efficiency is not merely a descriptivetheory but a call for action, we have suggested several areas in which tort lawmight be changed to make it conform more closely to the theory; perhaps thesechanges would just nudge it a little faster along its natural line ofdevelopment. (P. 314)
Landes and Posner thus assure us that not only are their ideas morallyappropriate, but that history is moving in the same direction anyway. Nothing ismore comforting than knowing that no matter what anyone does, history is on yourside. And nothing is more amusing than listening to conservatives make claimsabout the inevitability of history that might sound familiar coming fromMarxists.
In sum, the positive economic theory of the common law has a decidedlyPanglossian air about it: this is the most efficient of all possible worlds.This attitude ties in nicely with the antidemocratic vision of conservativeideology where property rights are concerned, and with the paradigmaticconservative belief in the comparative advantages of the status quo overproposals for change. The positive theory carries with it a subtle backgroundmessage: the common law has been doing quite well on its own, thank you, and weshould be more appreciative of its merits.
III. THE MANIPULABILITY OF THE POSITIVE THEORY
Unfortunately, there is a fly in the ideological ointment. The common law thatconservative ideology cherishes so much is not the common law as it existstoday. Like so many love objects, it is an idealized version whose rough edgesand faults disappear in the dreamy haze in which it is viewed. It resembles muchmore the common law of the late [*1460] nineteenth century, beforethe arrival of workers' compensation and modern doctrines like unconscionability,when the law of torts was at the peak of its movement towards economicindividualism. It is no accident then, that when Judge Posner, in one of hismost famous articles, looked for proofs that the common law was efficient, hechose as his sample fifteen hundred cases decided between 1875 and 1905. n35 Itis also no accident that Landes and Posner wax eloquent about the virtues ofproducts of the nineteenth century -- the defenses of custom, contributorynegligence, assumption of risk, and the fellow servant rule -- as proof of themodern efficiency of the common law (pp. 131-33, 137, 139-42, 296-300, 308-11).It is as if a doting parent showed us baby pictures of a convicted felon toestablish that he really was a good boy after all.
The development of the common law since the nineteenth century provides anever-ending source of difficulty for Landes and Posner. If markets are soefficient, why have tort rules become increasingly communalist? Why has freedomof contract been more and more circumscribed by the law of tort, and why arethere more nondisclaimable duties than ever? Faced with a conflict betweenideology and history, Landes and Posner have conceded some things and ignoredothers. They recognize that they must fit the move to strict products libabilitywithin their theory, because it is a major source of modern torts litigation.n36 Yet little is said about the increasingly communalist developments inlandlord-tenant law, n37 or the law of owners and occupiers of land, n38 whilethe movements to comparative fault and contribution among joint tortfeasors aredismissed as mere anomalies (p. 314).
This brings me to another example of how criticisms of the normative economictheory of law are relevant to the positive economic theory.
[*1461] One of the most important criticisms of Posner's normativeeconomic analyses has been not that they are immoral but that they aremanipulable; that they alternatively adopt and discard assumptions as they arenecessary to prove whatever the analyst seeks to show. The normative criticismasserts that law and economics is a method for giving reactionary policies aveneer of scientific certitude.
Of course, the need to make assumptions and simplify models is an occupationaldisease of economists generally. n39 Law and economics does not become a uselessendeavor because all economic models are susceptible to improvement. n40Economic science is only possible if models can be constructed. Rather, thepoint here is that Landes and Posner are doing something in their"positive" theory that is not too different from what Posner has beencriticized for in his normative analyses: they are trying to get to a certainconclusion (the law of tort is efficient) by constructing an economic model thatguarantees that the law of tort is efficient.
I can best illustrate the problem with the following story. One day, an officerof the Tsar's army was looking for able-bodied peasants he could drag off totwenty years' service. As he rode through the forest, he spotted a dozen treeswith concentric circles drawn on them; on each tree was a bullet hole marking anexact bull's eye. He stopped an old man walking by and asked who was responsiblefor this. "Oh," said the old man, "that would be Misha, thecarpenter's son. But he's a little peculiar -- you wouldn't want him."
"I don't care what he's like," said the officer. "Anyone who canshoot like that ought to be in the Tsar's army."
"Well, that's just the point," said the old man. "First Mishashoots the bullet. Then he draws the circles around the hole."
Landes and Posner are like Misha the carpenter's son. They are armed with enoughambiguity and ad hoc assumptions to succeed at whatever they want to attempt.Indeed, one suspects that the fact that any doctrines exist that don't fit intotheir positive theory is due more to their dislike of those doctrines and theirunwillingness to adopt assumptions inconsistent with conservative ideology thanto any real constraints on their analysis.
[*1462] Landes and Posner recognize that this is a possiblecriticism of their work:
We are mindful of the dangers of rationalization. Knowing what the rules of tortlaw are, we are in a position to construct an economic rationale for each one,working backward. It is partly to reduce this danger that we have kept oureconomic model extremely simple, as by assuming risk neutrality, which greatlyreduces our degrees of freedom. . . . [Nevertheless, t]he large fraction of tortrules, weighting number by importance, that conform to our economic model areevidence that the model captures an important part of legal reality. (Pp.313-14)
This is precisely the basis of criticism, both of the normative analysis and thepositive theory. The very fact that a few simple and unrealistic assumptionslead to the conclusion that so many diverse rules are efficient (all without theneed to assume that bugaboo of conservatism, that wealth and utilitymaximization are divergent), argues that (1) perhaps all of these rules arereally inefficient when we take more realistic assumptions into account, or (2)there are more degrees of freedom in the model than Landes and Posner areletting on -- sufficient degrees of freedom, in fact, to allow the requiredconclusions to be reached.
One can speculate indefinitely on the possibilities. However, one cannotdemonstrate the failings of the authors' model without entering into thecomplexities of the model itself. Accordingly, I would like to give a fewexamples of how the positive economic theory might be criticized for itsassumptions and methodology. These are by no means the only points ofdisagreement I have with the book, but to list them all would require thepublication of a new book in itself.
A. The Choice Between Negligence and Strict Liability
A useful example of the importance of assumptions in economic modeling comesearly in the book, when the authors discuss the comparative advantages ofnegligence and strict liability. According to their model, an efficient rule ofliability minimizes total social loss. The authors argue that, if due care isdefined as that degree of care which minimizes total social loss, a negligencestandard and a strict liability standard give equal incentives to use due care.n41 The argument for negligence is as follows: under a negligence standard, if adefendant takes less than due care, she must pay out money damages for theamount of injury her lack of due care causes, while if she takes due care, shepays nothing. Her total costs are the sum of the costs of care she [*1463] does take plus the injury costs to the plaintiffs caused by her lack of duecare. Landes and Posner demonstrate that under a negligence standard, a rationaldefendant will always invest in safety up to the point where the marginal costof care equals the marginal decrease in expected losses to plaintiffs. This isalso when total social loss is minimized; therefore defendants have incentivesto take due care (that is, to minimize total social loss) under a negligencestandard (pp. 60, 63-64).
This argument assumes, however, that expected accident losses caused bydefendant's lack of due care equal expected damage awards -- that is, thateverybody she injures sues and collects full compensation for the harm done tothem. But there is no reason to think that this happens in the real world. Manypeople do not sue when they are injured, either because (1) they do not realizethat they have been injured by someone (rather than by an accident for which noone is responsible), (2) they do not realize that there is legal redressavailable, (3) they do not know how to go about getting legal advice, (4) theybelieve (correctly or incorrectly) that the cost of getting legal advice and/orrepresentation will be prohibitive, or (5) they estimate they have little chanceof winning, or so slight a chance that the aggravation and expense of a lawsuitis not worth it to them.
Even if the injured party sues, she may not get full compensation, eitherbecause (1) she settles for less than the real amount of the injury, (2) herlawyer is inept and she recovers less than her damages or loses the caseoutright, (3) the defendant's lawyer is very good and reduces the damages orwins the case outright, (4) the evidence of negligence is lost or destroyed, oris unavailable, or unconvincing, or (5) the jury simply makes a mistake andawards too little or nothing at all.
If we add these more realistic assumptions to Landes' and Posner's model,expected damage awards will be only a percentage of expected accident losses toplaintiffs. In that case, if the defendant equates her marginal cost of care tomarginal expected damage costs, she will spend less on care than she should,because expected damage costs are less than the total social loss suffered byplaintiffs. Hence negligence will lead to an inefficient investment in safety.
Moreover, under this set of assumptions, strict liability might be moreefficient than negligence. Under Landes' and Posner's model of strict liability,the defendant faces the cost of care plus the cost of money damages paid out foraccidents caused by lack of due care, plus the costs of money damages paid outfor accidents defendant caused when due care was exercised (under negligencethis last amount is zero). Once again, the defendant will spend up to the pointwhere the marginal cost of care equals the marginal decrease in expected damageawards. Because accidents that cannot be avoided through the exercise of duecare are precisely those accidents where the marginal cost of care exceeds themarginal savings in expected accident losses, the result in strict liabilitywill be the same as for negligence. The defendant [*1464] will spendup to the point where she is exercising due care. She will pay the costs ofnonnegligent accidents because doing so is cheaper than attempting to avoid themthrough extra units of care (p. 63).
However, if we recognize that expected damages are only a fraction of actualplaintiff loss, strict liability will not lead to an efficient investment insafety. On the other hand, strict liability might be more efficient thannegligence, because the expected damage awards in strict liability cases arecloser to the actual loss that plaintiffs suffer than is true in negligencecases. This is because more people are likely to sue for damages if they knowthat they will not have to prove negligence, and defendants are less likely toavoid paying full compensation under a strict liability regime, either becausethey will lose more cases or will settle more quickly for larger amounts. n42
Thus, under both a negligence standard and a strict liability standard, only aportion of the people who were injured by lack of due care by the defendant willsue and collect damages. If all of these plaintiffs sued, the defendant wouldhave proper incentives to take due care under either standard. However, understrict liability more of this group will sue (along with the group of plaintiffswhose accidents could not have been avoided by the exercise of due care). Hencethe defendant will spend more money to reduce her liability from those accidentsthat could be avoided through the exercise of due care, and this result is moreefficient. n43
The point of this example is that questions of comparative efficiency may besubject to a number of factors, each of which, by itself, may be enough to tipthe scales in favor of one rule over another. If these factors were relativelysmall, we could justifiably neglect them, and we would have a more apt analogyto the type of theorizing done in the physical sciences. But the factors I haveadded concerning the operation of the legal system must strike any experiencedlawyer as palpable and significant. The costs of litigation, and the obstaclesand barriers that both plaintiffs and defendants face in the determination ofcompensation are very real, often more real than the rules of liabilitythemselves. And to hope, as Landes and Posner seem to do, that these variousfactors will all cancel each other out seems to me to be mere whistling in thedark.
[*1465] B. The Assumption of Full Compensation
One of the most troubling assumptions that Landes and Posner make is theassumption that tort suits give full compensation. n44 Under this assumption, itfollows that the plaintiff is indifferent between being injured by the defendantor receiving monetary compensation. On its face, this assumption seems wildlyimprobable. Its ideological function is to justify relatively individualistdoctrines like contributory negligence, assumption of risk, and the fellowservant rule. These doctrines are all based on the need to give plaintiffsincentives to take care of themselves. The assumption of full compensation isnecessary in order to make plausible the claim that plaintiffs would haveinsufficient incentives to protect themselves if such compensation-denyingdoctrines did not exist. Thus, according to Landes and Posner, plaintiffsapparently need the doctrine of contributory negligence as a deterrent; forotherwise they would happily crash into cars driven by negligent defendants;indeed, if it cost them some effort to swerve, they would have an economicincentive to collide with the defendant (p. 76).
Perhaps recognizing the unreality of their assumption, Landes and Posner laterconcede that "tort compensation is not always full compensation" andargue that without a defense of contributory negligence, victims simply willhave insufficient incentives to take care (p. 80). However, if the plaintiffknows that if she does not exercise due care she will be in a worse position(because she will not be fully compensated by the tort system), she would stillhave an incentive to exercise due care. If my choice is between not being hit bythe car or receiving one half of my medical expenses and lost wages three yearsdown the road, I will still choose not to get hit in the first place.
Consistent with their practice throughout the book, Landes and Posner drop theassumption of full compensation when it proves inconvenient. Thus they explainthe award of punitive damages in intentional tort actions on the grounds thatfull compensation is unlikely, so that defendants need extra sanctions to ensurethat they engage in socially desirable levels of intentional injury (p. 160).
C. The Presence of Transaction Costs
A third example of the potential manipulability of the positive theory [*1466] concerns the existence or nonexistence of high transaction costs. This issue isfundamental to law and economics analyses because of the nature of the CoaseTheorem: where transaction costs are low, all rules of liability will lead to anefficient allocation of resources. It follows that in situations of lowtransaction costs, more individualist rules are just as efficient as morecommunalist rules, and save on administrative costs in addition. In other words,if transaction costs are low, the Coase Theorem tells us that tort law issuperfluous; allocative efficiency can be achieved through the marketplacealone, and society will avoid the additional administrative costs of litigation.Hence, the positive theory of tort law predicts that the law will impose no duty(or disclaimable duties) in situations of low transaction costs. n45
This analysis, however, seems contradicted by several doctrines in the law oftorts. One is the defense of custom, which is today no longer considered adefense to negligence except in cases of medical malpractice:
We are led to predict that compliance with custom will not be a defense inaccident cases where transaction costs are high but will be where those costsare low. The legal pattern approximates this pattern, but only very roughly.Custom is rejected as a defense in cases where transaction costs are high butwas, traditionally at least, a defense in two of the three most important areaswhere accidents arise out of contractual relationships: industrial-accidentcases (accidents to workers on the job) and professional (especially medical)malpractice cases. It was not a defense in the third area, products cases, but .. . there are good reasons for regarding that as an area of high transactioncosts. (P. 133)
Here we see at work the inevitable temptation to draw the bull's eye after theshot has been fired. We know that the law rejects custom in products liabilitycases; therefore there must be high transaction costs in those cases. We alsoknow that the law permits the defense of custom in medical malpractice cases;therefore transaction costs must be low here. However, the choice of medicalmalpractice as an area in which there are low transaction costs demonstrates howlittle plausibility the economic model has. There are few other situations wherethe difference in access to information is greater, and few where the patientpays more deference to the superior authority of the defendant as a [*1467] result of the difference in knowledge. Patients do not haggle with doctors aboutthe cost of each phase of their treatment; generally they sit there and takewhat the doctor gives them. Even when the doctor attempts to create anatmosphere of informed consent, the information costs n46 to the plaintiff stillremain enormous. n47
The greatest embarrassment to the prediction of a custom defense in lowtransaction cost situations is that the very case which announces the rule thatcustom is not a defense, The T. J. Hooper, n48 is a case involving lowtransaction costs. Landes and Posner try to avoid this conclusion in two ways.First, contrary to their habit in other cases, they do not take the appellatecourt's discussion of the facts at face value, but instead read the lowercourt's opinion to state that there was a prevailing custom to carry radios onboard tugboats (p. 134).
However, even assuming that Judge Hand's decision on the particular facts of thecase was right for the wrong reasons, The T. J. Hooper still stands for aninefficient proposition of law. Thus Landes' and Posner's second response isthat The T. J. Hooper doesn't really mean what it says; in fact the rule of thecase is normally only applied in cases [*1468] of high transactioncosts (pp. 135-36). n49
Landes' and Posner's discussion of The T. J. Hooper leads them to a still moregeneral problem: why should courts ever imply tort duties other than those theparties have agreed to where there are low transactions costs? The authorsanswer that standard terms economize on transaction costs, and since mostparties will bargain for due care anyway, the courts should simply read theeconomically efficient rule into all contracts (p. 136). However, this solutionsimply leads to a further puzzle: why don't courts permit explicit disclaimersof negligence liability for personal injury when transaction costs are low?
At this point, Landes and Posner concede that information costs may be high:"Once transaction costs are seen to include information costs as well asthe free-rider and holdout costs that analysts of transaction costs usuallyfocus on, it becomes apparent that negotiations regarding safety may beprohibitively costly even if the parties have a contractual relationship"(p. 139). Yet they argue that "[t]his analysis seems not to hold in themedical setting" (p. 139); ironically, this is the very setting in whichthe inequality of access to information between the parties is most pronounced,and in which the information costs to the plaintiff are greatest.
Landes and Posner thus find themselves in a theoretical bind: The Coase Theoremappears to demonstrate why custom should be used in medical malpractice cases,but under that theory, disclaimers of liability should be enforceable becausetransaction costs are low. On the other hand, the law does not permitdisclaimers of liability, which makes perfect sense if transaction costs arehigh, but in that case, medical malpractice cases should not be governed bycustom.
The answer to this dilemma is that the assumption of a perfectly operatingmarket for medical services is incorrect. Custom is the standard used in medicalmalpractice cases because otherwise the costs of determining what is due carewould be too high, not because it is presumed that market forces have mademedical care efficient. Thus the medical profession is held to theadministratively simple standard of custom, but there are still high informationcosts to patients, so that disclaimers of liability should not be enforceable.
[*1469] Given the crucial importance of transaction costs to theireconomic analysis, Landes and Posner routinely and conveniently discover anddisregard the existence of transaction costs when (under their otherassumptions) rules of law can only be explained by their existence or absence.This practice is possible because, as I shall now argue, the concept oftransaction costs is much more manipulable than generally supposed.
D. The Manipulation of Transaction Costs
A good example of manipulative technique involves the authors' attempt tojustify the rule of private necessity of Vincent v. Lake Erie Transportation Co.n50 In Vincent, the defendant was moored at the plaintiff's dock when a stormarose. In order to save the ship, the defendant's servants kept it moored to thedock even though the ship pounded against the dock and severely damaged it. Thedefendant was held privileged to use the dock in the emergency but was requiredto compensate the plaintiff for the damages incurred. n51 The Coase Theoremwould seem to indicate that such a rule is unnecessary if the parties can agreebeforehand -- if the ship is worth more than the dock, then presumably theshipowner will bribe the dockowner to let him destroy the dock.
However, Landes and Posner argue that the result in cases like Vincent isjustified on the grounds that "[t]he emergency precluded a transaction inwhich the defendant would have negotiated with the plaintiff for compensationfor using the pier." n52 Consistent with this analysis, the authors stateconfidently: "[w]e know of no case in which a defense of private necessityhas been recognized where transaction costs would have been low" (p. 181).However, the authors need only look to the Vincent case itself. The plaintiffdockowner and the defendant shipowner had an ongoing business relationship. Thedefendant had moored in the plaintiff's dock before the storm; it did not do soas a trespasser, but because there was a contract of dockage between theparties.
Landes and Posner claim that "[n]o provision of the contract between theparties obligated the plaintiff to provide a berth for the defendant's shipduring the storm" (p. 178). This interpretation is not at all obvious --one might interpret the contract to state that the plaintiff agreed to keep theship docked for a reasonable time in return for an hourly or daily fee, in whichcase the plaintiff could only refuse to honor the contract on the grounds ofimpossibility or frustration of purpose. However, even accepting Landes' andPosner's assumption [*1470] that there was no prior agreement onthis point, the natural question to ask is why the defendant did not bargain forthe right beforehand. Before the storm there is no emergency, no problem ofbilateral monopoly. n53 It is only when we look at the transaction during theheight of the storm that the transaction costs the authors rely on appear to behigh.
This last example raises a general methodological problem. Throughout the book,Landes and Posner envision the presence of transaction costs alternatively froma narrow time frame and from a broad time frame. n54 Thus, in Vincent, we canlook at the possibilities of a transaction before the storm, when the defendantfirst enters the dock, or in the context of a long course of dealing between theparties (a broad time frame); on the other hand, we can freeze the moment whenthe storm is at its height (a narrow time frame) and consider whethertransaction costs are high at that point. The inherent manipulability of thisstrategy consists in the fact that transaction costs are almost always lowerwhen viewed from a broad time frame. n55 In this way, Landes and Posner canconveniently choose a broad or narrow time frame whenever necessary in order tomake their theory's predictions match received case law.
For example, consider the issue of implied consent. Suppose that a surgeondiscovers in the course of an operation that another operation is necessary, andperforms it without the patient's consent. Should this be considered a battery?n56 Landes and Posner argue that in emergency situations this is a case of hightransaction costs where consent should be implied: "Characterizing asituation as 'one of unforeseen emergency, critical in its nature' is a way ofsaying that the costs of an [*1471] explicit transaction with thepatient are prohibitively high. In such a case the law properly allows themarket to be bypassed." n57 This is a judgment from a narrow time frame --the surgeon has cut the patient open; the patient is unconscious, or ifconscious, is in no position to haggle. Transaction costs could not be higher.Yet, viewed from a broad time frame, it is a situation of low transaction costs,because the patient can always fill out a general consent form before theoperation takes place. Indeed, proof that transaction costs are low is the factthat hospitals often do ask patients to fill out consent forms of this typebecause of the fear of lawsuits. n58
IV. THE PROBLEM OF REDUCTIONISM
The positive economic theory of law requires that most if not all doctrines canbe explained by the single concept of economic efficiency. Landes and Posnerargue that the building blocks of legal doctrine -- legal concepts like intent,causation and reasonableness -- are reducible to considerations of efficiency.n59
This reductive strategy has both advantages and disadvantages. Its advantagesare that it attempts to bring a deeper logic and intellectual unity to manydifferent legal rules. Its disadvantages are that such an explanation may beunduly impoverished -- it deliberately disregards the many conflicting concernsthat may animate a body of law. Different visions of human nature and differentmoral concerns that give rise to a multiplicity of doctrines all must beshoehorned into the model and reexplained as facets of a unitary principle.Thus, the reductionist strategy views conflict and diversity as mere appearancewhen in fact they may be fundamental features of legal thought. n60
The poverty of the reductive strategy is nowhere more evident than in theauthors' treatment of intentional torts. According to their model, intentionaltorts differ from unintentional torts in that the defendant [*1472] normally has to expend resources in order to injure the plaintiff (p. 153). n61Consequently, the total social loss from an intentional tort includes the costto the defendant to commit the tort, the gain G to the defendant from committingthe tort, the damage D that the plaintiff suffers as a result, and the cost tothe plaintiff to prevent the tort from occurring (p. 153). If the gain to thedefendant is less than the damage to the plaintiff, (G < D), total socialloss is minimized when the defendant does not attempt to commit the intentionaltort and the plaintiff takes no precautions against its commission (pp. 153-59).Hence, under Landes' and Posner's model, when G < D, the defendant should beheld liable for her intentional tort; this will deter persons from committingsuch torts to a societally useful degree.
However, this model raises an interesting question: what happens if G > D,that is, if the defendant gains more than the plaintiff loses when the defendantcommits an intentional tort? Assume (to use one of the authors' examples), thatB comes across a deserted cabin owned by A, that B is starving and thereforebreaks into the cabin and steals some food (pp. 155-56). Here, Landes' andPosner's theory distinguishes two cases. Although liability should be the samein both, the reasons for liability are different in each. In the first case, Bhas enough money that B could buy the food from A if A were present, while inthe second, B is too poor to meet A's asking price.
In the first case, the intentional tort of conversion maximizes wealth, becausethe food is worth more to B than to A. Only transaction costs prevent thebargain from being struck (p. 156). This suggests that there is nothinginefficient about such transactions per se. However, Landes and Posner suggestthat there should be liability nevertheless, because without liabilityplaintiffs would attempt to expend resources to prevent conversions, and "[t]helaw does not want to encourage potential victims to spend resources onpreventing this kind of taking" (p. 156). With a guarantee that they willbe fully compensated in a later tort suit, however, plaintiffs will not expendresources on preventing these kinds of conversions and society's wealth will bemaximized. n62
Surely something is wrong here. Under this model, there is nothing improperabout conversion per se if you could have afforded to purchase the stolen itemin the first place; in fact, such a conversion actually maximizes society'swealth. The only reason to compensate the plaintiff at all is the fear thatotherwise the plaintiff might try to [*1473] prevent the conversionfrom taking place. This reduction of questions of intentional tort liability toissues of efficiency misses the intuition that deliberate theft is wrongfulbecause it is deliberate and because it is theft. The right to compensation doesnot arise from any notion of moral desert stemming from injury to the plaintiff,but rather from the fear of retribution from the plaintiff. If we did not thinkplaintiffs would try to get their property back, there would be no reason toredress the wrong, and indeed, there would be no wrong to redress.
The authors' logic becomes even more bizarre when we consider the second case --where B is too poor to meet A's asking price for the food. Here the authors'assumption that efficiency means wealth maximization and not utilitymaximization reappears with a vengeance. In this case, argue Landes and Posner,the transaction is not wealth maximizing, because B does not have enough money.
In this case G > D in a utilitarian sense, but . . . not in the narrowersense in which we compare gains and losses in this book. Our concept ofefficiency excludes utility not accompanied by willingness to pay. In terms ofour model, this is a case in which G is actually less than D. (Pp. 156-57)
The curious result of this logic is that the richer you are, the more likely itis that stealing something maximizes society's wealth; the poorer you are, themore likely it is that stealing a loaf of bread to feed your starving family isinefficient. Only persons with years of specialized training could be able toconvince themselves of this conclusion. n63
Finally, Landes and Posner consider the case of intentional torts like rape,where the value in the intentional act is precisely the fact that it is coerced.Under this theory, the enjoyment the defendant derives from the rape would bedecreased if the defendant had to gain consent through the market. Landes andPosner argue that, on the contrary, "there is no increase in value in therape case because it is not the kind [*1474] of coercive act thatimproves the operation of the market, as the theft [of food] from [a deserted]cabin does" (p. 157). Landes and Posner confess that "[f]or reasonsunclear to us, this rather recherche example has become a focus of criticism ofthe adequacy of the positive economic theory" (p. 157 n.9).
It may be useful to stop for a moment and consider why this objection keepspopping up. The assumption that Landes and Posner make in rebutting the rapeexample is that one must "tie the idea of value to the voluntary processesof the market" (p. 157). But this begs a central question -- can valueexist outside of a real or shadow market? For Landes and Posner, the answer isobviously no: a thing has value only to the extent that it can be bought andsold in a real or hypothetical market transaction. Yet this reduction of allvalue to market value is precisely what Landes' and Posner's detractors find soupsetting.
Thus, the rape example returns again and again because it is symptomatic of amore general dissatisfaction with the explanatory power of the reductive model:The theory of value underlying the economic analysis is not only incomplete, butseems completely extraneous to the real issues involved in a rape. These areissues of bodily security and personal dignity, the sort of things that peoplegenerally do not think should be the subject of market transactions. Thus,critics keep focusing on the example of rape because of the not unreasonablebelief that one's right to be free from rape does not depend on whether rapesimprove the operation of the market.
At first glance this criticism might seem irrelevant to a positive economictheory -- after all, Landes and Posner are arguing that the law is consistentwith their conclusion that the rapists should be liable in tort, because, undertheir assumptions, rape is not wealth maximizing. Whether wealth maximization isa good idea, a theory based upon wealth maximization produces results consistentwith the rules of positive law. However, if the reasons why rape is tortiousunder the positive economic theory seem wildly at odds with the reasons webelieve rape should be tortious, that fact alone should lead us to doubt theexplanatory capacity of the theory.
Suppose that I offered a positive theory to explain tort law that suggested thatrules of law maximized hours of sleep. This might be part of a broader theory inwhich I would demonstrate that all human activity is designed to maximize hoursof sleep: I might point to evidence that people eat in order to feel sleepy,that they work in order to become tired at the end of the day so that they willgo to sleep, that persons deprived of sleep for long periods become insane, andso forth. Suppose I then argued, under the assumptions of my model, that thelaws against rape were sleep maximizing because, (1) knowing that rapes areillegal, men and women sleep more peacefully at night, (2) women who have beenraped tend to suffer from insomnia, and (3) outlawing rapes tends to encourageconsensual sexual relations, which as [*1475] we all know tend totake place in bedrooms, make both subjects very tired, and thus lead to moresleep.
A reasonable person would probably respond that this explanation is ridiculous-- rape is prohibited by our society because it offends our most deeply heldbeliefs about personal dignity and autonomy, not because it maximizes the hourswe sleep. This skeptical conclusion would not change even were I able to rebutcounterexample after counterexample attempting to refute my sleep maximizationhypothesis. No matter how well I was able to provide a coherent positive theoryof sleep maximization, the mere fact that my teleological explanation of humanbehavior seems so far removed from common sense would tend to make one doubt itsvalidity. n64
Of course, there is a fundamental difference between a wealth maximizationtheory and a sleep maximization theory. An economic model of human behaviorseems germane to many areas of accident prevention, especially if it is basedupon utility maximization as opposed to its bastard cousin, wealth maximization.However, in many other aspects of our lives an economic model based on wealthfails us, and a broader notion of human practical reason must be invoked.
This is a basic shortcoming of Landes' and Posner's reductionist model. A theoryof economic behavior is merely a subset of a more general theory of human valuesand rational choice (or irrational choice). Landes' and Posner's attempt toreduce all human behavior to market behavior and all human values to themaximization of wealth creates the air of unreality that one so often finds intheir analyses.
Landes' and Posner's work involves a "privileging" -- an assertionthat a certain form of behavior -- rational market behavior -- is the standardcase, the normal, the routine, the foundational. Other forms of behavior areperipheral and exceptional -- they all are subsidiary forms that can beexplained in terms of market behavior. Like all privilegings, however, this onecan be deconstructed: We may ask whether market behavior is not itself simply aspecial case of human behavior -- whether it too, is only one of a number ofdifferent forms of human choice, which in turn depend upon many different formsof human valuation and motivation. n65 Human values and goals may take wealthmaximization [*1476] into account, but they may not be exclusivelyor even primarily concerned with it. Human action and human decision may restonly in part on the type of reasoning acceptable to Landes' and Posner'sreductive vision. Ironically, then, the greatest problem with wealthmaximization as a theory of human practical reason may be that it isinsufficiently rich.
V. THE CAUSAL EXPLANATION OF THE POSITIVE ECONOMIC THEORY OF LAW
Landes and Posner argue that their positive theory of law must be correctbecause no other existing positive theory can explain all or even most of thecases. n66 But this begs a fundamental question: why should we assume that anypositive theory of the common law can explain all of the cases? After all, thecommon law is the product of many minds working over many generations. It wouldbe remarkable indeed if there were a single explanatory principle manifested inall of its doctrines. n67 The best explanation of the common law may be that ithas no single guiding principle, but rather contains a combination ofconflicting principles. This is partly due to the fact that common-law doctrineswere created at many different times in many different places; it is partly dueto fundamental oppositions inherent in our moral consciousness. n68 It is not asufficient reason to accept a positive economic theory of law that no one hasoffered a better theory that explains all the cases. Rather, that is a reason tobe suspicious of any theory that purports to explain them all.
Hence, Landes' and Posner's strongest argument -- that the positive economictheory of law offers the most coherent and consistent explanation of the law oftorts -- may also be its weakest argument. [*1477] Everything weknow about the development of the common law suggests that it is a patchwork ofprinciples and counterprinciples woven together through history. Thus, theauthors present us with a puzzle -- they give us no convincing explanation ofhow the law could have ended up the way it did -- with most rules promotingeconomically efficient results. n69 This is not necessarily a fatal defect in atheory -- Landes and Posner clearly believe that their book demonstrates anundeniable tendency towards wealth maximization in the law of torts, and if oneaccepted this, one might be quite content to accept the thesis now and wait forsomeone else to provide the causal explanation later.
The problems with this approach are twofold. First, the positive theory seemsboth too manipulable and too ideologically convenient to establish a cleartendency towards efficient rules except to those persons already convinced ofthe theory. Second, Landes' and Posner's theory has the same failing as thesleep maximization hypothesis -- even if one demonstrates a considerable degreeof fit, it will still remain implausible unless a reasonable causal connectioncan be demonstrated.
There are several possible causal explanations of the positive theory. One isthat judges consciously attempted to make the law efficient. A second is thatjudges, laboring under some form of ideological delusion, attempted to promotewhatever values they thought were best but actually promoted efficiency. A thirdpossibility is that regardless of what judges wanted or thought they wanted, theprocess of litigation itself produced efficient results.
Before attempting to consider which one of these explanations is best, we mustconsider Landes' and Posner's thesis more closely. Landes and Posner do notappear to be arguing that the actual outcome of rules in society is efficient.They contend only that most rules "creat[e] incentives for parties tobehave efficiently rather than that they actually behave so" (p. 314). n70
Moreover, the authors only appear to claim that the rules of tort law promoteefficiency each by itself certeris paribus, and not in the context of all theother rules, both judicial and legislative, in our society. n71 [*1478] This is an important point, for a rule may produce efficient outcomes if allother factors in society are efficiency promoting, yet produce highlyinefficient results if any of these other factors are altered. n72
For example, as conservative law-and-economics types are fond of telling us, welive in a world riddled with inefficient governmental regulation. Moreover, asthey are not so fond of telling us, we live in a world full of spillover effectsin situations where transaction costs are high. n73 In such circumstances, ademonstration that a particular rule of tort law, judged only by itself,promotes overall efficiency, may be quite misleading; the rule may actually havethe opposite effect. Landes' and Posner's assumption, then, appears to be onlythat individual rules of tort law promote efficiency certeris paribus, and notnecessarily when the problems of second best are taken into account. n74 Inshort, Landes' and Posner's theory seems to have less to do with actualefficiency than with the appearance of efficiency.
With this in mind, we can return to the question of a causal mechanism. Onepossible theory, which has been much discussed and criticized in recent years,is a litigant-centered evolutionary theory. Several versions of this theory havebeen proposed, most prominently by Paul Rubin, n75 George Priest, n76 and JohnGoodman. n77 The common theme in all of these theories is that litigantsrelitigate inefficient rules more often than efficient ones, resulting in along-term trend towards efficient rules. n78
Such a theory cannot form the basis of Landes' and Posner's positive economictheory of law. First, all of these theories are designed to [*1479] explain an evolution towards actual efficiency, rather than towards the mereappearance of efficiency certeris paribus that is involved in Landes' andPosner's theory. Second, these theories at best demonstrate a modest claim --that there is some long-term tendency towards efficiency. They do not evenestablish that most rules will become efficient, much less that the vastmajority presently are. n79
Landes' and Posner's positive theory is judge-based; that is, rules promoteefficiency (when viewed in isolation) because certain forces operate upon judgesto adopt such rules. However, Landes and Posner do not claim that judgesconsciously endeavor to promote efficiency goals. That claim seems contradictedby the language of judicial opinions themselves, and by our knowledge of thejudicial process. Many judges, if not most, whether conservative or liberal,work on the assumption that they are following precedent, doing justice, aidingthe poor or aiding their former law partners -- in short, everything butconsciously promoting efficiency. Landes and Posner concede this point, for theyargue that
People can apply the principles of economics intuitively -- and thus"do" economics without knowing that they are doing it. We think thateconomic principles are encoded in the ethical vocabulary that is a staple ofjudicial language, and that the language of justice and equity that dominatesjudicial opinions is to a large extent the translation of economic principlesinto ethical language. (P. 23) n80
Landes' and Posner's explanation, therefore, must be ideological: regardless ofwhat judges believe they are doing, the dominant political ideology of Englandand America has manuevered judges into thinking that what promotes efficiency isjust, consistent with previous precedent, [*1480] and otherwiseserves all the various interests that judges over the centuries have sought topromote. Landes and Posner apparently are arguing that the dominant politicalideology of common law countries creates a separation between distributive andnondistributive rulemaking that maps closely the distinction between legislativeand commonlaw rulemaking:
[B]ecause the courts, especially in such fields as tort law, are poorly equippedto develop and implement doctrines that will effectively redistribute wealth toparticular interest groups (rather than randomly), the forces that control thepolitical system will find it in their self-interest to give the courts thefunction of maximizing the size of the economic pie and to other institutionsthe function of rearranging the slices of the pie in accordance with the balanceof political power. (P. 313)
Tort law, according to Landes and Posner, is a public good (like nationaldefense, the police force and the court system itself), created by a politicalsystem to benefit the entire community (p. 15). A wealth maximizing system oftort law would be supported by all major groups in society, because
an interest group's best strategy is to support policies that will increase thewealth of society as a whole, because the members of the group can be expectedto share in that increase. Hence it is consistent that the AFL-CIO shouldsupport both the minimum wage and a strong national defense. The former is aredistributive policy that favors its members; the latter is a nonredistributivepolicy that also benefits its members, although no more than other members ofsociety. Tort law is the same kind of policy. (Pp. 15-16)
Although Landes and Posner are attempting to show how the dominant politicalideology might create a wealth-maximizing system of tort law, their argument hasdistinctly ideological overtones itself. Here we see most of the standardconservative ideological moves outlined at the beginning of this Article -- thebelief that the common law is a nonredistributive benchmark against which allregulation is to be measured, that legislative action is at the mercy ofrent-seeking interest groups, that no politically active group in society has aneconomic interest in a particular rule of tort law, and that wealth maximizationis an uncontroversial social policy with no inherent bias in favor of the rich.
The very example Landes and Posner give creates a problem for their argument.The AFL-CIO might well oppose increased spending on defense if the need tocontrol budget deficits created a choice between a new missile system and apublic works project. Landes and Posner neglect the fact that even public goodshave private consequences, as any congressman from a district with a defenseplant will tell you. Similarly, tort law has redistributive consequences, evenif these are often diffuse. Nevertheless, the distributive consequences of tortrules are predictable enough that the American Medical Association, [*1481] the nuclear power industry, and consumers' and manufacturers' lobbies haveattempted to get state and federal legislatures to monkey with the rules of tortlaw, rather than doing the "logical" thing and seeking relief throughthe tax and welfare systems. n81
Furthermore, Landes' and Posner's argument is embarrassingly ahistorical --neglecting the very different understandings of the respective roles of courtsand legislatures that have existed between 1100 and the modern era. Even in ourown era the division of functions is unrealistic, as modern attempts to modifyrules of tort law attest. How are we to explain the Codification Movement, theUniform Commercial Code and other uniform acts, the Lousiana Civil Code,workers' compensation statutes, the Federal Employer's Liability Act, and thePrice-Anderson Act?
There are a number of theoretical puzzles here as well. If judges do not adoptrules that actually increase social wealth, but only rules that do so certerisparibus, why would legislatures not act to correct their mistakes? Indeed, giventhat legislative activity is a major reason why common-law rules that appear tomaximize wealth might not do so in fact, legislative modification of judicialrules should be relatively commonplace. Moreover, if legislatures haveincentives to create efficient tort rules, why don't they just do it themselves?Why has this task been delegated to an antimajoritarian body with no particularexpertise in economics? One cannot respond that legislatures are likely to muckit up, since we have already postulated that it is in everyone's interest tohave wealth-maximizing rules of tort law. On the other hand, if it is not ineveryone's interest to have wealth-maximizing rules, wealth-maximization is notan uncontroversial social policy, and why would legislatures willingly delegatethe task of creating such rules to common-law judges?
Even putting these difficulties to one side, Landes and Posner still have notidentified a causal mechanism. What ideological force creates the unconsciousdelegation of functions that their theory requires? In other words, how can webe sure that judges will do what they are supposed to, especially if they arenot aware of the peculiar function assigned to them by Landes and Posner? Theauthors recognize that, even if wealth-maximizing tort law is a public good,
we have not explained the incentive of judges to cooperate in [*1482] the production of this good. To regard judges as simply the agents oflegislators who have decided to provide an efficient law of torts as they havedecided to provide for the national defense ignores the fact that the judicialoffice is hedged about with various safeguards designed to make judgesindependent of legislative preferences. But of course judges are not completelyindependent; and persons are not likely to be elected or appointed as judges ifthey do not share the basic values of the dominant political groupings insociety. We shall not attempt in this book to develop a theory of judicialincentives and relate it to the positive economic theory of tort law, but wefeel on fairly safe ground in assuming that judges are good enough agents ofsociety's dominant groups that if an efficient system of tort law is demandedjudges will supply it -- although less consistently than if they were perfectagents. (P. 19)
Landes and Posner offer the problem but no hint of a solution, other than toreiterate that judges must be under the thumb of the dominant political forcesin society. I am unsure whether this statement is meant to be comforting ordisturbing.
This last point suggests a possible (and quite cynical) explanation that wouldsolve all of Landes' and Posner's theoretical difficulties. Suppose, as criticsof law and economics have been telling us for years, wealth maximization is"biased in favor of the wealthy, oblivious to questions of distributivejustice, and in general disregards all human valuations or motivations that arenot responsive to considerations of price, or cost, in a sense approximatelymeasurable by methods available to economic science." n82 In that case, ifthe wealthy are in control of the executive and legislative branches (a rareoccurrence in history, I admit), they can appoint judges who reflect the samebiased ideology. Then they can claim that wealth maximizing rules are neutral,apolitical standards of conduct which incidentally maximize the size of the piefor everyone, and that to alter the common-law rules by legislative action wouldbe to politicize what is neutral, apolitical, and in the best interests of allconcerned. Under this view, Landes and Posner are quite correct -- the law doesmaximize wealth, with that expression understood as a code for "aiding theinterests of the privileged classes." Under this interpretation, Landes andPosner have been unwitting Marxists all along. n83
I mention this interpretation of Landes and Posner not to suggest that theyreally are closet Marxists, but to show how impoverished and incomplete theirexplanation of social events is. Their theory of how [*1483] tortlaw could become wealth maximizing is riddled with inconsistencies, unexplainedfactors and ad hoc assumptions. Only by recasting it as a vulgar Marxist theorydoes it gain any measure of plausibility at all, and certainly not the sort ofplausibility that the authors would have hoped for.
In sum, we must understand Landes' and Posner's theory less as a serious attemptto explain how the common law became efficient than as a method of making theworld conform to their conservative ideology. The common law should be wealthmaximizing, and all interest groups should recognize that it is in their bestinterest not to alter it; that is how it might come about that the common law iswealth maximizing. Wishes have become horses, so that the authors may gallop totheir conclusions.
VI. THEORIES OF LEGAL CHANGE AND THE POSITIVE THEORY OF LAW
One should not gather from the above remarks that economics can tell us littleabout the development of common-law rules. Changes in population, technology,and economic life do affect rules of law, just as rules of law affect them inreturn. To these factors we must add others equally important: religion,culture, and moral belief. A theory that purports to explain the law must takeinto account both the ongoing evolution of legal doctrine and the historicalfactors that motivate legal change.
The problem with Landes' and Posner's work in this regard is not that they vieweconomics as a force for legal change, but that they have not taken themechanisms of legal change seriously enough. Indeed, their theory of law seemsinconsistent with what we already know about the way law evolves over time.Landes and Posner have hoped to find an explanation of legal rules bydemonstrating that all legal rules have one good thing in common -- efficiency.From that conclusion, they hope to argue that some mechanism produces that goodthing in all or almost all of the rules. However, a plausible theory of legalevolution and legal change is unlikely to produce this result.
A. The Misplaced Search for Equilibrium
Landes and Posner are misled by their understanding of economic science, whichfor them is based upon the belief that human forces acting independently bothseek and achieve efficient outcomes. If this is true for corn and soybeans, whynot for legal rules? Within their world view markets are the paradigm of allhuman endeavor, and markets do not fail us. Their unstated line of reasoninggoes something like this: markets are efficient, all human activity is marketactivity, legal rules are the result of human activity, therefore, legal rulesare efficient.
However, as George Priest has argued, the irony of this economically [*1484] influenced vision is that it is actually inconsistent with the economic theoryof behavior itself. If Landes and Posner were correct:
[I]t would demonstrate that in a significant area of human behavior, an economicequilibrium can result without any of the prerequisites of equilibrium: withoutindividual maximizing decisions, without even the existence of a market or of ashadow market. Such a finding would challenge every empirical result consistentwith the theory of individual behavior in markets because it would provideevidence that individual behavior is irrelevant to equilibrium. The marketitself may be an epiphenomenon. n84
A system of law does not operate in the same fashion as the corn and soybeanmarkets. This does not mean, however, that it is totally impervious to economicfactors. Rather, it means that legal rules will respond to the economic forcesin place at the time the rules are created, although that response will not beof the same nature as market equilibrium.
For example, Landes and Posner argue that as insurance becomes cheaper and morewidely available, there is less of a need for tort law to provide insurance.Hence, there should be a move towards negligence and away from strict liability(p. 66) because "insurance through the tort system is normally more costlythan market insurance" (p. 121). n85 This is the mindset of persons lookingfor equilibrium -- who believe that law is affected by economics in the mannerof supply and demand curves. However, what has actually happened in thetwentieth century is precisely the opposite. As insurance has become more andmore widely available, people have begun to view tort law as having an insurancefunction, and tort law has moved from negligence to strict liability. Theeconomic forces that have produced the growth of modern insurance markets havealso contributed to the zeitgeist that allows us to see accidents in anactuarial sense, and to view tort law as a means of risk spreading.
This is not to suggest that the causal connection between economic changes andhuman thought runs in only one direction -- economic forces and ideas influenceeach other. Rather, the point is that the growth of insurance markets, themovement to strict liablity, and the modern actuarial vision of accidents areall manifestations of the same shift in consciousness. In contrast, Landes' andPosner's equilibrium centered view of economic influence argues that lack ofdeveloped insurance markets creates a demand for a good which strict liablity intort supplies. This misunderstands the way in which economic forces and ideasinteract with each other. There may indeed be a large scale economic [*1485] equilibrium that leads to simultaneous changes in productive forces, legal rulesand social consciousness. However, if there is, Landes and Posner are searchingfor it from too limited a vantage point.
B. The Diachronic View of Legal Evolution
It seems reasonable to accept Landes' and Posner's most basic premise that thelaw responds to economic forces through an evolutionary process of adaptation.Is so, the law may well have some tendency towards efficient rules, or at leasttowards rules that are not too inefficient. n86 However, if there is a generaltendency in the law towards efficiency, we should expect as a proof of this factthat there will be significant numbers of doctrines that are inefficient whenjudged by today's standards.
This seemingly paradoxical statement will make more sense if we consider theconcept of an evolutionary theory in general. By "evolutionarytheory," I do not mean only biological evolution, but any theory thatexplains change over time, whether within a species of animal life, a language,or a system of law. A theory of evolution is above all an historical theory. Itattempts to describe how change occurs based upon forces that work over time.For that reason, it is always a mistake to view the results of an evolutionaryprocess synchronically -- that is, at a given slice of time. Rather,evolutionary theories must be understood diachronically -- over a span of time.Landes' and Posner's book is essentially synchronic -- they attempt to show thatall or almost all of the doctrines of tort law as they exist at a particularmoment in the 1980s are efficient. But this involves a serious misunderstandingof how evolutionary theories work.
We can understand this point better if we compare legal evolution to the mostfamiliar type of evolutionary theory -- natural selection. If we viewed naturalselection as Landes and Posner view legal evolution -- synchronically -- wewould be led to a number of incorrect conclusions. To begin with, it is afallacy to assume that if an organism has a particular feature, that featurepresently assists in its survival in the environment. For example, humans havefive toes on each foot, with a little toe that is barely moveable, and anappendix. These may have present evolutionary advantages, but then again, theymay not. Rather, all that the principle of natural selection allows us to deduceis that a present feature may have had some relative evolutionary advantage atone point, or that it was genetically tied to another feature that had arelative evolutionary advantage. n87
[*1486] The presence of historical remnants like vestigial organstends to make Darwinian evolutionary theory lack confirmation when one views anorganism synchronically, but actually provides strong proofs of the principle ofnatural selection when organisms are viewed diachronically. n88 The samereasoning applies to an evolutionary economic theory of the law. If there is ageneral tendency for the law to become efficient over time, it does not followthat every rule or even most rules are presently efficient. It may mean onlythat rules that exist were (more or less) efficient at some point in time giventhe "environment" -- the social, political and economic factors of thetime, as well as the other rules in force -- in which they came into being.Rules may develop and solidify at a particular time because they serve usefulsocial functions, or because they are concomitants to other rules that whentaken together as a whole, are more efficient than the alternatives presented.This suggests that new areas of law, which are steadily developing, are morelikely to respond to present concerns of efficiency than well settled rules,which may have many of the quaint, puzzling, but essentially harmless featuresassociated with vestigial organs.
Of course, Landes and Posner do try to view rules historically -- they do try toshow how laws change to promote efficiency n89 -- but they always assume that ifthere has been no change, that is because the present rule must be presentlyefficient. This is the synchronic fallacy, and it betrays the conservatism ofthe authors, whose ideology assures them (to paraphrase the old saying) that ifthe law didn't fix it, it wasn't broken. Thus, Landes and Posner expend greatenergy trying to demonstrate that rules like the defense of custom, the fellowservant rule, and the oldest rules of all -- those in intentional tort, are allefficient rules.
This attempt is surely misguided. To pursue the biological metaphor [*1487] further, the fellow servant rule is like a mastodon preserved in a glacier -- itwas rendered obsolete by workers' compensation, and, given the general trend oftwentieth century tort law, there can be no question that if workers'compensation were abolished today few courts would follow the fellow servantrule in industrial accident cases. n90 The authors' attempt to explain the rulesof intentional tort in terms of modern day economic conditions is similarlyinappropriate. In fact, Landes' and Posner's assumptions are much less those ofan evolutionary biologist than those of a creationist -- one who believes thatexisting organisms are perfect from their inception. The evolutionary thinkerknows that the best proofs of her hypothesis are the imperfections of thesubjects of her study: "[r]emnants of the past that don't make sense inpresent terms -- the useless, the odd, the peculiar, the incongruous -- are thesigns of history." n91
C. Conclusion: Bricolage and the Common Law
Finally, I suggest that any evolutionary theory of intellectual production musttake into account the concept of bricolage. Bricolage is a term first coined bythe French anthropologist Claude Levi-Strauss to describe the manner in whichprimitive peoples created mythologies to explain the world to themselves. Abricoleur, in French, is a kind of handyman who does various odd jobs. When abricoleur is called upon to fix a leaky faucet, or replace a loose shingle on aroof, the bricoleur may not have tools that are perfectly suited to the task:The bricoleur simply makes do with what is at hand. Levi-Strauss argues thatthis is exactly what human beings do in forming conceptual structures -- theytake what they are familiar with and adapt it to their present needs, lateradapting that result to needs that arise in the future, and so forth. Inconstructing conceptual devices, says Levi-Strauss, we never write on a blankslate. We simply make do with what we have and analogize from it. Hence, ourconceptual structures are the result of history and not of necessity; they arenot the only possible ways of looking at things, but the result of what wehappened to do with what we had at a given time. n92
Defamation is a good example of bricolage in the law. The action [*1488] for slander developed in the ecclesiastical courts; it was imported into thecommon-law courts in the sixteenth century. Litigants could escapeecclesiastical jurisdiction if they could show that the slander caused temporalharm, thus paving the way for the requirement of special damages, which is stillpart of the law of slander today. n93 The law of libel, a product of the StarChamber in the seventeenth century, was brought into being by the development ofthe printing press and the need to stamp out dissemination of seditiousmaterial. n94 Thus, libel became known as a tort involving printed material, todistinguish it from slander, which involved oral accusation, and because of itsdifferent origins, no showing of special damages was required. Later courts,attempting to make sense of the distinctions, added a complicated set of rulesof pleading and proof. The doctrine of special damages, which originally servedthe function of establishing the jurisdiction of temporal courts, became a meansof weeding out claims where no real damage had been done, or (as plaintiffs'counsel sometimes put it), a way of keeping cases from juries. n95
The property of bricolage requires that human conceptual structures -- whichinclude doctrines of law -- are always makeshift to a large degree. They have noclaim on being the best way of dealing with problems -- they only represent away that worked at a given time, given what had come before. n96
History, then, is the key to any true evolutionary theory of the common law. Inan evolutionary theory, legal rules will bear the stamp of history upon them asmuch as the stamp of efficiency. This suggests that the proper way to look atrules is the way a paleontologist would look at a sedimentary formation: eachlevel of rock represents a different time span, and the fossils found in eachlayer would be those common to that era. I have always felt that the law oftorts is much like a [*1489] sedimentary formation: the laws ofintentional tort are the oldest, dating back to the middle ages, while the lawof professional malpractice and common carrier liability are relics of theeighteenth and early nineteenth centuries. Much of negligence law is the productof the nineteenth and early twentieth centuries, and we have recently seen thedevelopment of new areas of the law, such as products liablity, that clearlybear the stamp of modern times.
In contrast, Landes' and Posner's work offers us an economic theory of lawwithout bricolage, without the imperfections and maladaptations thatevolutionary mechanisms inevitably display. The products of evolution are tootrue to be good; Landes' and Posner's theory is too good to be true.
n1 R. Posner, Economic Analysis of Law (3d ed. 1986).
n2 See, e.g., M. Friedman, Essays in Positive Economics 4 (1953).
n3 For an introduction to the problems of defining a positive economic science,see id.; T. Hutchison, "Positive" Economics and Policy Objectives(1964); H. Katouzian, Ideology and Method in Economics (1980).
n4 R. Posner, supra note 1, at 434; W. Nicholson, Microeconomic Theory: BasicPrinciples and Extensions 204 (3d ed. 1985).
n5 See R. Posner, supra note 1, at 436.
n6 See, e.g., Baker, The Ideology of Economic Analysis of Law, 5 Phil. &Pub. Aff. 3 (1975); Donohue & Ayres, Posner's Symphony No. 3: Thinking Aboutthe Unthinkable, 39 Stan. L. Rev. 791 (1987); Kelman, Misunderstanding SocialLife: A Critique of the Core Premises of "Law and Economics," 33 J.Legal Educ. 274 (1983); Kronman, Wealth Maximization as a Normative Principle, 9J. Legal Stud. 227 (1980); Leff, Economic Analysis of Law: Some Realism AboutNominalism, 60 Va. L. Rev. 451 (1974); Symposium on Efficiency as a LegalConcern, 8 Hofstra L. Rev. 485 (1980).
n7 R. Dworkin, Law's Empire (1986).
n8 Id. at 45-53. For a discussion of Dworkin's theory of interpretation, seeBalkin, Taking Ideology Seriously: Ronald Dworkin and the CLS Critique, 55U.M.K.C. L. Rev. 392 (1987).
n9 R. Dworkin, supra note 7, at 52.
n10 Id. at 166 (discussing the interpretive theory of conventionalism).
n11 See, e.g., p. 243 ("[e]conomics provides a clearer guide tounderstanding the structure of tort law than an approach that relies onnoneconomic concepts such as causation"); p. 251 ("lawyers' referencesto cause may conceal economic insight"); p. 255 n.62 (noting lack ofsuccess of noneconomic attempts to give coherent accounts of the law ofcausation).
n12 Landes and Posner recognize this fact implicitly; they defend their versionof the Kaldor-Hicks criterion as "an ancient and honorable guide to socialpolicy" (p. 17), and as a relatively noncontroversial and important socialvalue that "has long commanded broad support" (p. 18). The import ofthese remarks is clear. The maximization of wealth is a "good"explanation of tort law not only in terms of fit but in terms of justification,because it is a relatively neutral value -- everyone wants the size of the pieto be larger. See pp. 15-16 ("Where systematic redistribution is difficultto achieve, an interest group's best strategy is to support policies that willincrease the wealth of the society as a whole, because the members of the groupcan be expected to share in that increase.").
n13 Landes and Posner also conclude that the concept of gross negligence as adefense to contributory negligence serves no allocative purpose (pp. 91-92).
n14 Given any actuarially fair gamble (for example, half the time one gets anextra dollar, half the time one loses a dollar), a risk neutral person will beindifferent as to whether to take the gamble or not. Suppose that a personvalues keeping the last dollar she already has more than the possibility ofgetting an extra dollar (so that for her the marginal utility of income isdecreasing). Then she will not take the actuarially fair gamble, which is thesame thing as saying that she is risk averse.
n15 On the general problem of consumer information and risk assessment asobstacles to optimal economic decisionmaking in the insurance market, see G.Calabresi, The Costs of Accidents: A Legal and Economic Analysis 55-64 (1970);Wortham, The Economics of Insurance Classification: The Sound of One InvisibleHand Clapping, 47 Ohio St. L.J. 835, 870-74 (1986).
n16 A. Polinsky, An Introduction to Law and Economics 54-55 (1983).
n17 Even though Landes and Posner are able to explain the broad outlines ofstrict products liability under their analysis, they do so only by postulatingthat assumption of risk and contributory negligence are still invoked by courtsin their most pristine form. Thus, they have some difficulty demonstrating theefficiency of modern doctrines like foreseeable misuse, which apply even whenthe victim is the lower cost avoider of the accident (pp. 300-01).
n18 See Hovenkamp, Antitrust Policy After Chicago, 84 Mich. L. Rev. 213, 235-36(1985).
n19 Landes and Posner write the utility function as U = a + bI, where I isincome and a and b are constants. The statement that b is a constant is the(false) assumption that the marginal utility of income is constant, or thatpeople are risk neutral (p. 58). Landes and Posner then assume that all peoplehave identical utility functions, so that a and b are identical for everyone.They simplify the expression by setting a=0 and b=1. The result is that U=I,that is, that utility equals income. Thus, maximizing utility maximizes incomeand vice versa.
Judge Posner gives his own half-hearted attempt at explaining why incomeredistribution is unlikely to increase social utility in R. Posner, supra note1, at 436: "It seems at least as plausible . . . to assume that income andthe marginal utility thereof are positively correlated -- that the people whowork hard to make money and succeed in making it are on average those who valuemoney the most . . . ." This simultaneously explains why children of verywealthy people have champagne tastes -- they're brought up that way -- and whyvery poor people don't really enjoy extra income very much -- they wouldn't knowwhat to do with it if they had it. Judge Posner's keen insight into the natureof the human heart allows him to perceive that an extra pair of designer shoesmade Imelda Marcos much happier than $ 100 to a welfare mother ever could.Moreover, according to Judge Posner, your average mine worker doesn't put innearly as tough a day as your average child of affluence. This is probably dueto all those extra cocktail parties the rich have to attend.
n20 See, e.g., G. Calabresi, supra note 15; W. P. Keeton, D. Dobbs, R. Keeton& D. Owen, Prosser & Keeton on the Law of Torts 24-25 (5th ed. 1984)[hereinafter Prosser & Keeton].
n21 See infra note 80 and accompanying text.
n22 See Prosser & Keeton, supra note 20, at 536-37 (noting modern attitudeamong courts towards risk spreading).
n23 For a discussion of these concepts and their larger significance in legalargument, see Balkin, The Crystalline Structure of Legal Thought, 39 Rutgers L.Rev. 1 (1986); Balkin, supra note 8. The terminology originally comes fromKennedy, Form and Substance in Private Law Adjudication, 89 Harv. L. Rev. 1685,1713-22 (1976) (distinction between individualism and altruism).
We can consider these terms from the standpoint of the plaintiff as well; therelatively individualist position emphasizes the plaintiff's responsibility forher own injury, while the relatively communalist position deemphasizes it. Thus,negligence is a more individualist standard than strict liability, and no dutyis more individualist still.
n24 C. Rossiter, Conservatism in America 136-37, 183, 189-91 (1955); Balkin,Federalism and the Conservative Ideology, 19 Urb. Lawyer 459, 474-76 (1987). Ofcourse, with respect to other liberties like freedom of expression, Americanpolitical conservatism has been relatively communalist -- that is, it has beenmore willing than liberalism to regulate this freedom in the interests ofcommunal ends. Id. at 461-63.
n25 On the other hand, because of the relatively communalist attitude ofconservatives towards freedom of speech (as opposed to freedom of contract),conservatives tend to favor higher standards of liability in libel suits, andliberals tend to argue for relatively individualist positions like the actualmalice rule.
n26 Coase, The Problem of Social Cost, 3 J.L. & Econ. 1 (1960).
n27 E.g., p. 76 (defense of contributory negligence justified where both partiesfail to take due care because it saves administrative costs of cases where noallocative purpose would be served by awarding damages). Similarly, Landes andPosner argue that strict liability has greater claim costs than negligence (p.65). These are defined as the costs of processing and collecting a legal claimother than determining the defendant's level of care (p. 65). However, they notethat where information costs (the costs of determining whether the defendantviolated due care) exceed claim costs, strict liability is preferable tonegligence (pp. 70-71).
n28 E.g., Posner, The Ethical and Political Basis of the Efficiency Norm inCommon Law Adjudication, 8 Hofstra L. Rev. 487, 500 (1980) ("[O]nly a naiveanalysis of the economic consequences of refusing to enforce the leases thatpoor people sign with presumably wealthier landlords would conclude that thepoor would be better off under such a regime.").
n29 E.g., id. at 504-05; p. 15.
n30 See, e.g., Judge Posner's remarks in R. Posner, supra note 1, at 436("Involuntary redistribution is a coerced transfer not justified by highmarket-transaction costs; it is, in efficiency terms, a form of theft.").
n31 See supra note 24.
n32 R. McCloskey, American Conservatism in the Age of Enterprise 22-25 (1964);A. Paul, Conservative Crisis and the Rule of Law: Attitudes of Bench and Bar1887-1895, at 229-30 (1969); see also C. Rossiter, supra note 24, at 33-34, 61,65 (1955) (conservative distrust of majority tyranny); Balkin, supra note 24, at466-67, 475. The conservative solution to this problem has taken many forms. Itbegan with direct opposition to the expansion of suffrage and voting rights. SeeThe Conservative Tradition in American Political Thought 80-83, 115-19 (J.Sigler ed. 1969) (containing selections by John Adams, Distrust of Democracy,and by James Kent, The Argument Against Universal Sufferage). After theJacksonian era, with the adoption of universal white manhood suffrage and thedropping of property qualifications, conservatives shifted to a strategy ofconstitutional limitations on popular interference with property rights,enforced by the federal judiciary. R. McCloskey, supra, at 22; A. Paul, supra,at 230-37. After 1937, conservatives have generally resisted redistributiveprograms in the legislative arena, trying either to cut governmentalexpenditures to these programs or to divert monies to national defense. E.g., B.Goldwater, The Conscience of a Conservative 70-77 (1960).
n33 Compare Landes' and Posner's description of "the dominant theory of thestate among economists," actually a variant of the conservative theory:"interest groups struggle for a place at the public trough; governmentintervenes in the economy to redistribute wealth from politically less powerfulto politically more powerful groups" (p. 15).
For examples of conservative arguments that common-law adjudication is superiorto legislation, see R. Posner, supra note 1, at 495-507; M. Friedman, Capitalismand Freedom 177-95 (1971); F. Hayek, Law, Legislation and Liberty: Rules andOrder 94-144 (1973); B. Leoni, Freedom and the Law (1961); Rubin, Why is theCommon Law Efficient?, 6 J. Legal Stud. 51, 61 (1977); Stigler, The Theory ofEconomic Regulation, 2 Bell J. Econ. 3 (1971).
n34 Indeed, so firmly is this idea embedded in conservative ideology that Landesand Posner profess bewilderment at the modern movement to statutes providing forcontribution among joint tortfeasors:
Because contribution seems to be a less efficient rule than no contribution, thequestion arises why so many states have abandoned the common law approach. We donot have a complete answer to that question, as we have no idea what politicallyeffective interest group is benefitted by contribution among joint tortfeasors.However, whatever the benefits may be, presumably they are weighted against theefficiency losses, which are costs to some group, in the politicaldecision-making process. (P. 219)
Implicit in this statement is the assumption that only rent seeking could leadto a change in the common-law rule. Landes and Posner do not consider thepossibility that modern legislatures have moved to contribution because it isdeemed substantively fairer. Note also the irony of this analysis whenconstrasted to Landes' and Posner's earlier statement that in general, rules oftort law do not aid particular classes in society (p. 15).
n35 Posner, A Theory of Negligence, 1 J. Legal Stud. 29 (1972).
n36 Landes and Posner show that strict products liability is an efficientdoctrine by arguing that information costs to consumers are relatively highwhere the risk of injury from a defective product is small (pp. 280-81, 293).Landes and Posner thus demonstrate the efficiency of strict products liabilitywithout the need to assume risk aversion (p. 273), that markets are notcompetitive (p. 274), or that "consumers have psychological traits thatcause them to misperceive risks systematically" (p. 274). Once again, thechoice of assumptions is consistent with the authors' ideological views. No selfrespecting Chicago economist would assume that markets were not competitive; theimportance of risk neutrality has already been discussed. As for the lastassumption, the Coase Theorem does not operate if consumers systematicallymisperceive risks. Thus, if one assumed misperception of risk, one could notguarantee that unregulated contractual solutions would produce an efficientsolution in many of the situations that Landes and Posner describe as involvinglow transactions costs.
n37 See, e.g., Kline v. 1500 Massachusetts Ave. Apartment Corp., 439 F.2d 477(D.C. Cir. 1970) (recognizing duty of landlord to protect tenants from criminalassaults on premises).
n38 See, e.g., Rowland v. Christian, 69 Cal. 2d 108, 443 P.2d 561, 70 Cal. Rptr.97 (1968) (establishing general duty of reasonable care towards trespassers,licensees, and invitees).
n39 For a good discussion of the role of models and assumptions in law andeconomics literature, see Lachman, Knowing and Showing Economics and Law (BookReview), 93 Yale L.J. 1587 (1984) (reviewing A. Polinsky, An Introduction to Lawand Economics (1983)).
n40 See M. Friedman, supra note 2, at 15 ("the relevant question to askabout the 'assumptions' of a theory is not whether they are descriptively'realistic,' for they never are, but whether they are sufficiently goodapproximations for the purpose in hand."). Friedman's argument not onlyexplains the justifiable need for abstraction in economic theory, but alsounwittingly establishes the value-laden element in the building of economicmodels -- what is "sufficiently good . . . for the purpose at hand" isnot a value-free choice. See Lachman, supra note 39, at 1598 n.59 (definition ofefficiency relates to goals).
n41 That is, when the level of activity under each rule is disregarded (pp. 64,66). In the following example, I follow Landes and Posner in assuming thatoptimal plaintiff care is zero (p. 63). Where optimal plaintiff care is greaterthan zero, one can generalize the argument to show that negligence and strictliability with a defense of contributory negligence are equally efficient (pp73-80).
n42 This is implicit in Landes' and Posner's argument that strict liability hashigher claim costs than negligence (p. 65). It costs more to administer a strictliability standard because more people will sue.
n43 Of course, I have not even begun to show how much more complicated thismodel can get. For example, I should really take into account, under bothnegligence and strict liability, the cost that defendants will have to pay inlegal expenses. This amount is likely to be different for negligence and strictliability standards -- more people will sue under strict liability, whilenegligence presents more varied issues of proof. When the differing cost oflegal expenses are added to expected damages and the cost of exercising care, wecan see that the question of which rule is actually more efficient is becominghopelessly complicated.
n44 E.g., pp. 45-46 ("Under a reasonableness standard an injunction will beissued [in a nuisance case] if damages are for some reason inadequate, a generalprinciple of remedies law that we shall ignore."); p. 63 ("Understrict liability (with no defense of contributory negligence), the potentialvictim . . . has no incentive to take care, because he is fully compensated forhis injury . . . ."); p. 76 (where care is sequential, "[i]f theinjurer happened to take less than due care . . . the victim, observing this,would have no incentive to take due care unless there was a defense ofcontributory negligence. For without such a defense he would expect compensationif he was injured; hence any expenditures on care would reduce his incomewithout producing offsetting benefits to him.").
n45 Landes and Posner argue that:
If transaction costs are low, an optimal allocation of resources to safety as toother activities will be achieved by negotiation regardless of the liabilityrule in force. In these circumstances whatever is customary is, at least primafacie, optimal. . . . If a higher standard of safety were optimal, it would paythe manufacturers to provide it, because the incremental price of the [safetyimprovement] would more than offset the incremental cost of additional safety.(As a first approximation, consumers will be willing to pay a higher price equalto the expected reduction in accident damages from a safer [product].) (P. 132)
n46 Landes and Posner use the term "information costs" in two senses:(1) the cost of determining whether a defendant exercised due care (p. 65), and(2) the cost to the parties to a transaction of determining whether the terms ofthe transaction are in their best interest (pp. 139, 280-82, 284-87). The latteris the more traditional use of the term, and I use it in this sense. Informationcosts are thus a type of transactions cost which would prevent the Coase Theoremfrom operating.
n47 The examples of malpractice cases that Landes and Posner give in their bookbear witness to the unreality of their assumption. In Quintal v. Laurel GroveHosp., 62 Cal. 2d 154, 397 P.2d 161, 41 Cal. Rptr. 577 (1964), the plaintiff wasoperated on by an opthamologist and suffered cardiac arrest while under generalanesthesia; the charge of malpractice was based upon the failure of the hospitalto provide a surgeon capable of doing open heart massage at every operationwhere general anesthesia was used. In Lucy Webb Hayes Nat'l Training School v.Perotti, 419 F.2d 704 (D.C. Cir. 1969), the plaintiff's decedent was a mentallyill person who broke free from his escort and threw himself out of a closedwindow. Landes and Posner argue that "the . . . deference given customarystandards of care in both cases are . . . appropriate from an economicstandpoint. The existence of a preexisting voluntary relationship betweendoctors and patients suggests that transaction costs were not prohibitive andhence, via the Coase theorem, that customary standards were efficient" (p.107).
We may well ask, however, why there were not very high information costs inQuintal: the patient was unlikely to bargain for an extra surgeon in theoperating room unless he knew that (1) cardiac arrest was a common occurrenceunder general anesthesia; (2) the opthamologist could not perform open heartmassage if cardiac arrest occurred; and (3) an additional surgeon would not beprovided as a matter of course. Of course, all the patient had to do to get thisinformation was ask, but how is the patient supposed to know that thesequestions should be asked in the first place? Similarly, in Lucy Webb, it isridiculous to assume that insane patients will have the wherewithal to bargainrationally about measures designed to protect them from themselves. A betterargument is that their saner relatives will do the bargaining for them, but eventhese persons are unlikely to possess enough information to ask the rightquestions.
n48 60 F.2d 737 (2d Cir. 1932). In The T. J. Hooper, the plaintiff argued thatthe defendant's failure to keep a working radio aboard its tugboat led to theloss of plaintiff's cargo during a storm.
n49 The authors attempt to prove this by examining the facts of every tenth casethat cites Judge Hand's opinion. Of course, this raises serious methodologicalproblems. It is unclear if inspecting every tenth case proves anything at allabout the rule of The T. J. Hooper. It would perhaps have been more convincingif one read not one tenth, but almost all of the cases, and demonstrated thatthe case is regularly distinguished in situations of low transactions costs. Ifone assumes, as Landes and Posner apparently do, that the general trend of thelaw is towards efficient rules, and if an exception for low transaction costssituations is efficient, one would think that it would eventually appear in thecases, first by distinguishing the old precedent repeatedly, then by bolderdoctrinal moves. However, because the rule of The T. J. Hooper is much newerthan the older rule permitting custom as a defense, the more natural inferenceis that it is a more efficient rule than its predecessor.
n50 109 Minn. 456, 124 N.W. 221 (1910).
n51 Id. at 222.
n52 P. 179 (discussing Ploof v. Putnam, 81 Vt. 471, 71 A. 188 (1908)). Landesand Posner argue that the same difficulty would arise whether the shipownersought to protect property (as in Vincent) or personal safety (as in Ploof) (p.179).
n53 The concept of bilateral monopoly is used to explain how two parties in aface to face transaction might not reach an optimal economic solution, becauseof hard bargaining, strategic behavior, or general intransigence. The CoaseTheorem, of course, predicts that in a situation of low transactions costs, anoptimal bargain will be struck. However, where there is only one buyer and oneseller (because of an emergency situation, for example), bargaining strategiesmay preclude the solution that the economic analyst deems efficient. Hence, thisis called a situation of "bilateral monopoly," defined to be a type oftransaction cost or market imperfection that prevents the Coase Theorem fromoperating. The irony of calling face to face bargaining a situation of hightransaction costs has not been lost on commentators. See, e.g., J. Murphy &J. Coleman, The Philosophy of Law: An Introduction to Jurisprudence 258-62(1984) (defining bilateral monopoly); cf. Lachman, supra note 39, at 1587,1592-98 (1984) (decision to label strategic behavior in situations of bilateralmonopoly inefficient involves normative assessment).
n54 See Kelman, Interpretive Construction in the Substantive Criminal Law, 33Stan. L. Rev. 591 (1981) (demonstrating manipulability of broad and narrow viewsof act, intent, causation and time in the criminal law).
n55 Similarly, the existence of bilateral monopoly also depends upon the timeframe in which the situation is viewed. At the height of the storm, there isonly one buyer and seller. Before the storm, however, there may have been manyplaces for boats to dock; that is why there is a market for dockage services.
n56 See, e.g., Mohr v. Williams, 95 Minn. 261, 104 N.W. 12 (1905).
n57 P. 172 (quoting Prosser & Keeton, supra note 20, at 119).
n58 Even where this is done, market imperfections still exist, not because ofthe time frame, but because of high information costs. It is important todistinguish the bilateral monopoly claim about transaction costs from the claimabout inequality of access to information. In the former case, we can easilymanipulate the result by varying the time frame. The latter case is not immunefrom time frame manipulation, but it occurs only with considerably greaterdifficulty. It is true that given a sufficiently large amount of time, a patientmight learn enough about medicine to make an informed judgment about heroperation, but she still has to know what questions to ask in the first place.
n59 E.g., p. 153 (intentional action occurs when costs of avoidance by injurerare low in comparison to social benefits of the activity); p. 229 ("theidea of causation can largely be dispensed with in an economic analysis oftorts"). The reduction of "reasonableness" to economic terms --the equation of reasonable care to the Learned Hand Test to wealth maximization-- is by now familiar (pp. 85-87).
n60 I have argued that tort law is best understood as presenting a series ofconflicting moral principles which oppose each other in each and every area ofdoctrine. Balkin, supra note 23; Balkin, supra note 8.
n61 The more general case is where the "costs of avoidance to the injurerare low relative to the social benefits of the activity" (p. 153).
n62 Because, as we know to be the case, suits for conversion do not offer fullcompensation -- either because of the costs of bringing suit, the inadequacy ofcompensation, and the more than occasional inability of our system of justice tolocate the valuemaximizing defendant -- plaintiffs will still purchase alarmsystems, guard dogs, and the like, in an apparently misguided attempt to protecttheir property.
n63 Landes' and Posner's insistence upon translating every doctrine of law intomarket terms occasionally gives their work an air of unreality. Thus, theauthors justify the award of nominal and punitive damages in Alcorn v. Mitchell,63 Ill. 553 (1872), where the defendant spat in the plaintiff's face, on thegrounds that "the court was implicitly encouraging 'transactions' of thistype to take place in the market" (p. 161). In Vosburg v. Putney, 80 Wis.523, 50 N.W. 403 (1891), a schoolboy was held liable for battery for givinganother child a playful kick on the shin. Landes and Posner argue that "[e]venif the defendant's gain had exceeded the plaintiff's loss, the economic argumentfor liability would still have been compelling because the injury occurred in asetting of low transaction costs" (pp. 168-69). But we may well ask: whereis the market for kicking and spitting on people?
Moreover, even accepting this market analysis, in both Alcorn and Vosburg, onemight easily argue that transaction costs are quite high because of the problemof bilateral monopoly: in Alcorn, the person who made the defendant mad enoughto spit was the plaintiff, in Vosburg, the defendant wanted to tease thisparticular classmate and not another. In such cases, we might argue, the rule ofpunitive damages is inefficient -- by forcing the parties to engage in"market transactions" in a situation of high transaction costs, therewill be insufficient amounts of kicking and spitting.
n64 This shows once again the role that ideology plays in interpretiveexplanations. Even if there is a high degree of fit between the theory andexperience, the "weirdness" of the explanatory theory makes us rejectit. However, "weirdness" is not an inherent property of theexplanation, but a function of who is explaining what to whom. Imagine a groupof "sleepologists," who had spent their entire academic careersstudying human sleeping habits, and whose lives were totally absorbed in thisfacet of human life. To some of these scientists, the sleep maximizationhypothesis might not seem bizarre at all. However, our likely response would bethat those sleepologists have a narrow and incomplete picture of reality whichtempts them to believe that all human problems can be reduced to theirparticular field of study.
n65 The simplest version of this deconstruction notes the dependence of marketbehavior on other forms of human practical reason. For example, in a market,people choose rationally to maximize the satisfaction of desire, but marketbehavior presumes that there are other methods of choice to determine tastes andpreferences. One cannot know what wealth is in a society until one relateswealth to a system of desires and values. Thus the rationality of marketbahavior ultimately depends upon nonrational decisions (or other forms ofnonmarket choice) used to create these desires, values, and preferences. AsDavid Hume expressed it, "reason is . . . the slave of the passions."D. Hume, An Enquiry Concerning Human Understanding § XII, pt. I (Selby-Biggeed. 1894).
The above deconstruction has argued that the value to be maximized -- wealth --depends upon other values. Similarly, we can argue that rationality of choice inthe economic sense is only a special case of a more general method of humandecisionmaking. For a useful compendium of social science research demonstratingthe many different strategies that people use to make decisions (some quiteinconsistent with Landes' and Posner's model of rational market behavior) see R.Nisbett & L. Ross, Human Inference: Strategies and Shortcomings of SocialJudgement (1980).
n66 P. 21 ("there is no well-developed theory of what motivates or explainstort law besides efficiency"), pp. 252-55 (noting failure of legal writersto devise noneconomic theory of causation).
n67 See Balkin, supra note 8, at 415-16.
n68 Balkin, supra note 23; Balkin, supra note 8, at 408-22.
n69 More precisely, because the authors' theory is interpretive, the problem ishow the rules of tort law could have developed so that an outside observer wouldfind that the best explanation of the rules is that they promoted efficiency.
n70 This raises a serious methodological difficulty for Landes and Posner. Howcan we know if incentives towards efficiency are created unless we know that theactual outcomes are efficient? Landes' and Posner's strategic retreat on thispoint may gain plausibility only at the cost of making their"positive" theory effectively nonfalisfiable. See M. Friedman, supranote 2, at 13.
n71 Compare Landes' and Posner's attempt to rebut (as their theory requires) theconservative claim that strict products liability law is inefficient:
actual case outcomes may be quite different [than the model predicts] andsupport the conservative criticisms. This is a general limitation of ouranalysis. We can (or we think we can) assess the efficiency of the substantiverules of tort law and illustrate those rules with many cases that make economicsense. But we make no attempt in this book to evaluate the overall efficiency ofany field of tort law, which depends on the actual administration of the law byjudges, juries, lawyers, insurance claims adjusters, and others. (P. 27(emphasis added)).
n72 This is the problem of second best, see Lipsey & Lancaster, The GeneralTheory of Second Best, 24 Rev. Econ. Stud. 11 (1957), which is conspicuous byits absence in this book as in most of the other writings of Landes and Posner Ihave encountered.
n73 See Rizzo, The Mirage of Efficiency, 8 Hofstra L. Rev. 641 (1980).
n74 "[O]ur theory . . . is a theory about judicial behavior rather thanglobal optima . . ." (p. 98). Thus, they admit that "Courts ordinarilydo not consider technological possibilities not urged by one of the parties, and. . . this may mean that judicial decisions do not always reach optimalresults" (p. 98). The positive theory requires only that "[t]heapproach [judges] employ is efficient within the framework of the factspresented to and recited by the court in its opinion" (p. 98).
n75 Rubin, Why is the Common Law Efficient?, 6 J. Legal Stud. 51 (1977).
n76 Priest, The Common Law Process and the Selection of Efficient Rules, 6 J.Legal Stud. 65 (1977).
n77 Goodman, An Economic Theory of the Evolution of the Common Law, 7 J. LegalStud. 393 (1978); see also Terrebonne, A Strictly Evolutionary Model of CommonLaw, 10 J. Legal Stud. 397 (1981); Note, The Inefficient Common Law, 92 Yale L.J.862 (1983). The latter note advocates a theory with precisely the oppositeconclusion -- that the common law is getting less efficient over time.
n78 For an excellent discussion of the economic evolutionary theories, and ofevolutionary theories of the law in general, see Elliott, The EvolutionaryTradition in Jurisprudence, 85 Colum. L. Rev. 38 (1985).
n79 E.g., Elliott, id. at 64-71; Clark, The Interdisciplinary Study of LegalEvolution, 90 Yale L.J. 1238, 1266-72 (1980); see also Cooter & Kornhauser,Can Litigation Improve the Law Without the Help of Judges, 9 J. Legal Stud. 139,144-45 (1980) (decisions by litigants without the help of judges areinsufficient to bring about tendency towards efficient rules). Professor Priesthas modified his views since his original article and is now less convinced thata clear tendency to efficiency exists. Priest, Selective Characteristics ofLitigation, 9 J. Legal Stud. 399 (1980); Priest & Klein, The Selection ofDisputes for Litigation, 13 J. Legal Stud. 1 (1984). Landes and Posnerthemselves have concluded that
this literature has overstated the tendency of a common law system to produceefficient rules, although areas can be identified where such a tendency canindeed be predicted on economic grounds.
Viewed as a contribution to the emergent literature on the positive economictheory of law, our finding that the public courts do not automatically generateefficient rules is disappointing, since it leaves unexplained the mechanism bywhich such rules emerge as they seem to have done in a number of the areas ofAnglo-American judge-made law.
Landes & Posner, Adjudication as a Private Good, 8 J. Legal Stud. 235, 284(1979).
n80 See also p. 14 (source of norms on which conduct is deemed to be wrongfulmay be economic, in which case desire to punish wrongful behavior has aneconomic basis).
n81 Here Landes and Posner are making yet another version of the classicconservative argument against using tort law for redistributive purposes. Landesand Posner argue that it "is all the more plausible [that tort law is apublic good] because it deals with activities (mainly accidents) that do notlend themselves well to redistribution in favor of politically influentialinterest groups" (p. 15). Have the authors never heard of productsliability, landlord tenant law, medical malpractice, and employer's liability?Of course, because some groups, like the poor, have little political clout, itmay be true that there is no politically influential lobbying group that speaksfor them. However, this does not prove that rules of tort law do not haveredistributive consequences that affect them.
n82 Michaelman, A Comment on Some Uses and Abuses of Law and Economics, 46 U.Chi. L. Rev. 307, 311 (1979) (citing Baker, The Ideology of Economic Analysis ofLaw, 5 Phil. & Pub. Aff. 3 (1975)).
n83 Cf. Horwitz, Law and Economics: Science or Politics?, 8 Hofstra L. Rev. 905,905 (1980) ("Like vulgar Marxism, Law-and-Economics treats law as'superstructure,' merely reflecting what is 'real' in the 'base' of economicrationality.").
n84 Priest, The New Scientism in Legal Scholarship: A Comment on Clark andPosner, 90 Yale L.J. 1284, 1292 (1981).
n85 See also pp. 210-12 (because early demand for maritime insurance was great,but market was underdeveloped, admiralty doctrines provided insurancecomponent).
n86 This concession is made with the caveat that "efficiency" isunderstood in more general terms not necessarily identical with wealthmaximization.
n87 A feature of an organism may presently serve no useful function but stillremain because it has not yet become so great a hindrance that it has been bredout. It may exist in its present form because it is a vestigial organ; thefeature may simply be an altered version of an originally beneficial organ thathas "atrophied" over the course of time because having it is now notparticularly necessary to the organism. In the alternative, the feature may havedeveloped a new function different from its original function and have altereditself in various ways; the confluence of different purposes the function hashistorically served now makes it difficult to explain how it could have arisento serve its present function. This phenomenon is sometimes referred to by themisleading expression "preadaptation." S. Gould, Ever Since Darwin:Reflections in Natural History 107-10 (1977); S. Gould, Hen's Teeth and HorsesToes: Further Reflections in Natural History 170 (1983) [hereinafter S. Gould,Hen's Teeth and Horses Toes].
n88 No evidence for evolution pleased Darwin more than the presence in nearlyall organisms of rudimentary or vestigial structures, "parts in thisstrange condition, bearing the stamp of unutility," as he put it . . . .
The general point extends both beyond rudimentary structures and beyond biologyto any historical science. Oddities in current terms are signs of history . . .. The panda's "thumb" demonstrates evolution because it is clumsy andbuilt from an odd part . . . . The true thumb had been so shaped in itsancestral role as the running and clawing digit of a carnivore that it could notbe modified into an opposable grasper for bamboo in a vegetarian descendant.
S. Gould, The Panda's Thumb: More Reflections in Natural History 29 (1980).
n89 See, e.g., p. 23 ("we regard changes in the law as important tests ofthe positive economic theory").
n90 Indeed, even before the fellow servant rule was eliminated by statute inmost states, common-law judges were increasingly prone to create exceptions anddistinctions to mitigate its harshness. Prosser & Keeton, supra note 20, at572; see id. at 575-76 (in remaining cases falling outside of workers'compensation statute, courts avoid application of fellow servant rule when atall possible, and some have decided to abolish it). One can only believe if theissue were litigated more often, the process of its demise would be hastened.
n91 S. Gould, supra note 88, at 28.
n92 C. Levi-Strauss, The Savage Mind 16-36 (1966). Biological evolutionarytheory has its own form of bricolage. Living organisms adapt to theirenvironment, but they do not always choose the means of adaptation that wouldseem most efficient if one were constructing an organism from scratch. Rather,organisms adapt their present features to new needs, with the result that thereare as wide a range of solutions to the problems of survival as there arespecies. See S. Gould, Hen's Teeth and Horses Toes 156-57.
n93 Prosser & Keeton, supra note 20, at 772, 788-94.
n94 Id. at 772.
n95 Beginning with the 1960s, the federal courts in this country applied aconstitutional gloss to the common-law rules, thus adding still another layer tothe doctrines of defamation. Perhaps a complete reworking of defamation law fromthe ground up might have struck a better balance between first amendmentinterests and the protection of personal reputation, but constitutionaladjudication does not operate in this fashion. Instead, the courts took thecommon-law framework and superimposed constitutional limitations.
n96 For an expression of ideas similar to Levi-Strauss' by a legal historian,see S. Milsom, Historical Foundations of the Common Law 6-7 (2d ed. 1981). ForMilsom, the law does not develop by a process of "evolution," see id.at 3-4, by which he means a teleological movement towards some overarching goal,id. at 6 ("The largest changes in the law have never beendeliberate."). Rather, the law changes through the individual decisions oflawyers and clients to adapt the preexisting materials and concepts of the lawto their private ends. As Milsom notes, "[t]he life of the common law hasbeen in the abuse of its elementary ideas." Id. This is the very essence ofbricolage.