Law and Economics as Interdisciplinary Exchange

Philosophical, Methodological and Historical Perspectives

Péter Cserne, Magdalena Małecka, Péter Cserne, Magdalena Małecka

• Publisher: Routledge
• Year: 2019
• Print ISBN: 9780367135058
• eBook ISBN: 9780429648892
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Law and Economics is an established field of research and arguably one of the few examples of a successful interdisciplinary project. This book explores whether, or to what extent, that interdisciplinarity has indeed been a success. It provides insights on the foundations and methods, achievements and challenges of Law and Economics, at a time when both the continuing criticism of academic economics and the growth of empirical legal studies raise questions about the identity and possible further developments of the project.

Through a combination of reflections on long-term trends and detailed case studies, contributors to this volume analyse the institutional and epistemic character of Law and Economics, which develops through an exchange of concepts, models and practices between economics and legal scholarship. Inspired by insights from the philosophy of the social sciences, the book shows how concepts travel between legal scholarship and economics and change meanings when applied elsewhere, how economic theories and models inform, and transform, judicial practice, and it addresses whether the transfers of knowledge between economics and law are symmetrical exchanges between the two disciplines.

Part I

Searching for the right “paradigm”

1 Knowledge claims in Law and Economics

Gaps and bridges between theoretical and practical rationality

Péter Cserne

The interdisciplinary character of Law and Economics raises many meta-theoretical questions for both participants and observers. The aim of this chapter is to address some of these questions. With reference to some key insights from the philosophy of science on interdisciplinarity and through a number of examples, this chapter reflects on the types of knowledge various approaches to Law and Economics (L&E) can produce. While this topic lies at the crossroads of different ways of doing research in both parent disciplines of L&E, it has rarely been addressed in a systematic fashion. The main contribution of this chapter is to show that an important but hitherto neglected aspect of the observable plurality within L&E is concerned with the interplay of theoretical and practical rationality in both parent disciplines and in L&E as well.

In the following, I shall first argue that Law and Economics is plural and that the dynamics of the meta-theoretical debates in its two parent disciplines do not fully determine how corresponding debates are carried out within Law and Economics. I shall also suggest that the distinction between the theoretical and practical is an important ingredient of this plurality (1). Then I briefly characterize the age-old divide between theory and practice, referring to Aristotle and Kant, and show that both parent disciplines, economics and legal scholarship, combine knowledge claims that are theoretical and practical (2). While for philosophers this is unsurprising, both economists and legal scholars tend to ignore this question. Yet, it has important implications for the various ways of interaction between the two disciplines. As an illustration, in section 3, I refer to a recent controversy in the United States over the use of quantitative data in supporting claims about case law in an authoritative Restatement of the Law (3). In the last substantive section, 4, I shall suggest a typology of the interactions between the theoretical and practical branches of legal scholarship and economics; these represent the main variants of Law and Economics. Section 5 concludes.

1. The plurality of interdisciplinary exchanges in Law and Economics

Philosophers of science have recently turned their attention to interdisciplinarity, distinguishing forms and modes of interdisciplinary exchange. Following the general trend in philosophy of science of moving from an a priori prescription to a humbler observation of scientific practices, researchers of interdisciplinarity have come to analyze and better understand exchanges of methods, models, tools and routines across disciplinary boundaries – before assessing them critically (Mäki and Grüne-Yanoff 2014, 54). In the course of this mapping, philosophers have provided illuminating typologies that help us better understand the variety of exchanges between disciplines, including law and economics. For instance, Mäki and Grüne-Yanoff (2014, 55) distinguish thirteen types of possible interdisciplinary exchanges in a two-discipline environment, according to “who uses” “what object” “to address what problem”. The abstractness of such typologies is helpful: from a certain distance, it is easier to observe and also to conceptually grasp issues that would otherwise be easily missed by those who are working “in the field”: more precisely on the borderline of economics and legal scholarship.

An important insight of this philosophical research is that interdisciplinarity itself is plural: “[t]here are many more varieties of interdisciplinarity than suggested by popular conceptions, which tend to require that they be integrative or collaborative to count”. (Mäki and MacLeod 2016, 323–324) At closer inspection, Law and Economics seems to confirm this result: it turns out to be not a single interdisciplinary enterprise but a combination of several types of interdisciplinary interactions. This chapter will discuss some of these strands of L&E in more detail.

While the plurality of approaches within L&E has been noted previously, it is usually taken as a reflection of the plurality of economic schools, methods, assumptions or explananda which, in turn, reappear in L&E. To be sure, such typologies of various “schools and approaches” (Chicago, old institutional, new institutional, Austrian, public choice, New Haven etc.), as reconstructed in e.g. Mercuro and Medema’s (1997) or Mackaay’s (2000) overview and distinguished in the Elgar Encyclopedia (Bouckaert and De Geest 2000), make a lot of intuitive sense. For instance, mainstream or heterodox, institutional or Austrian economic approaches to law are indeed likely to result in significantly, even radically, different versions of L&E.¹

1On schools or paradigms in L&E, see also Chapter 2, by Bystranowski, in this volume.

One could argue, however, that L&E, such as it is, institutionally established through scholarly associations and specialized journals, does not in fact reflect the plurality characterizing economics – a certain version of mainstream microeconomics dominates L&E, perhaps even more than it dominates economics more generally.

One could also object that, in spite of its recognition of a certain kind of plurality, this perspective on pluralism simplifies the picture. It suggests, at least implicitly, that L&E is essentially the result of an imperialistic extension of the methods of economics (however plural) to legal problems. The umbilical cord of L&E links it to economics only.²

2Incidentally, this simplified view is in line with Guido Calabresi’s plea in his recent book (2016) for the role of law in enriching and reforming economic analysis. The pattern of disciplinary interaction Calabresi envisions here is that of economics as an abstract theory being controlled and revised in confrontation with the richness of human experience, embodied in law. Yet, once we recognize that “law” is neither simply a passive subject matter of economic analysis (or even analyses in plural) or an undistorted atheoretical mirror of human experience, we are confronted with a(n even) more complex pattern of disciplinary interactions.

This is the point where some general insights of the philosophy of science prove helpful. For instance, Mäki and Grüne-Yanoff conjecture (2014, 55) that if agents in discipline A use methods of A to solve a problem in domain B and if agents in B borrow methods of A to solve a problem in B, these are two different types of disciplinary exchanges. Thus, economists’ L&E – or economic analysis of law, in the terminology of Calabresi (2016) – is analytically distinct and possibly also empirically different from lawyers’ L&E, i.e. legal scholars relying on economics. The typology I shall suggest in section 4 below takes some initial steps toward testing this idea. It would be a fruitful study to test this hypothesis systematically. Intuitively, such differences are plausibly expected to arise from different disciplinary cultures. One expression of this difference in disciplinary cultures is that different standards of adequacy apply to explanations in purely economic, purely legal and L&E contexts.

Further, again in line with insights from the philosophy of interdisciplinarity, it could be argued that after several decades of exchange and collaboration, there is an emerging disciplinary culture of L&E that reflects its “differences in epistemological or methodological conventions and practices” (Mäki and Grüne-Yanoff 2014, 57) from both of the parent disciplines. At the moment, this generalization is a hypothesis, mainly based on the intuitions of someone who has been reading L&E scholarship for over twenty years. A complete analysis would require an explanation of both the epistemic reasons and the institutional (historical, sociological) contingencies of this interdisciplinary dynamic of exchange and/or integration between legal scholarship and economics.

If this hypothesis is at least plausible, then this suggests a number of further related hypotheses about the interdisciplinary character of L&E. First, intradisciplinary controversies within economics and legal scholarship, respectively, carry over selectively to the new context. Second, L&E as an interdisciplinary field of research has not only inherited controversies from its parent disciplines but has also added a new layer of questions associated with the conflicting knowledge claims of the two disciplines. In sum, the dynamics of the meta-theoretical debates in the two parent disciplines do not fully determine how corresponding debates are carried out within L&E.

Let me briefly illustrate these two claims. First, the epistemic controversies of the parent disciplines are transposed to L&E selectively. On the one hand, questions that are at the forefront of discussions in, say, legal scholarship may hardly register within mainstream L&E. What counts as an important doctrinal distinction in legal scholarship may be irrelevant in L&E for when it comes to economic analysis, what matters is the (“extra-legal”) impact of classifying a case one way or another on the actual or potential behavior of legal subjects. For instance, in economic analyses, the intricate doctrinal categories of contractual duress are often reduced to a simple distinction between welfare-enhancing and welfare-reducing contracts.³ On the other hand, what counts as a successful model in economics may be heavily discounted in L&E for its neglect of legal variables or disregard of institutional barriers to implementation in policy. And issues that seem settled in a particular way within economics at large may be openly questioned in legal context. This is illustrated in how economic analysis conceptualizes property rights.⁴

3On the distinction of legal and extra-legal consequences of laws, see Cserne (2011b).

4See the chapters by Solari and Stojanović in this volume.

The second claim is that new perspectives may open in L&E that show methodological issues within the parent disciplines in a different light. In fact, compared to the parent disciplines, methodological pluralism may be reduced but new meta-theoretical questions emerge as well. For instance, new analytical techniques and substantive challenges may filter through to L&E in surprising ways. Thus, findings of the behavioral sciences often come into the view of legal scholars and practitioners through economics, rather than directly from psychology and cognitive science – an issue of double interdisciplinary exchange that surely deserves closer attention in science studies. Another example is a potential reverse effect of L&E on economics. The dominant self-perception of academic economic research seems to be linked to a strict divide between positive and normative analysis, with priority given to the former. The relevance and impact of L&E in practical policy contexts can give further support to the less prominent view, expressed e.g. by Varian (1989), namely that economics is ultimately a “policy science”. To the extent that this view is accepted, it both highlights the age-old notion of economics being concerned with practical rationality, i.e. the good governance of a community, and makes economics a “natural ally” to at least certain kinds of legal scholarship which share this notion of being primarily a reflective endeavor concerned with practically relevant community matters.

As this last point about practice relatedness rarely registers on the radar of philosophers of science, it is important to pay closer attention to it. While the literature on interdisciplinarity occasionally refers to “extra-academic partners or stakeholders”, who engage with academics to cocreate knowledge and solve practical problems at the same time as part of the “institutional framework within which ideas are transferred” (Mäki and Grüne-Yanoff 2014, 55), what is less frequently discussed in this literature is that academic disciplines themselves are more or less closely engaged with practice. It is therefore worth analyzing whether the variety of interactions between disciplines plays out differently in the case of those disciplines that stand with one foot in academia but one foot outside. Both law and economics are obvious cases in point. To be sure, there are also important second-level differences among disciplines in the degree they acknowledge and/or problematize the fact that they aim at or have their ultimate raison d’etre in some practical context.⁵

5There are, of course, further differences within individual disciplines as well, across time and space.

In sum, this section has made three meta-theoretical claims. First, L&E is in fact a collective term for interactions between the two parent disciplines. Second, the plurality of interactions classified as L&E cannot be reduced to the plurality of economic approaches to law. Compared to this simple view, disagreements in the parent disciplines only partly determine the dynamics of L&E as an interdisciplinary practice. In section 4 I shall introduce a typology that gives a different account of this plurality. Third, both parent disciplines of L&E have been historically closely linked to practice. L&E brings this connection between theory and practice to the fore in a number of ways. This is also one of the sources of the plurality of the interdisciplinary exchanges between economics and law. I shall return to this point in section 4. But first, in the next section, I shall clarify the sense in which I refer to theory and practice and to the practice relatedness of the two disciplines.

2. Theory and practice

The rhetoric of opposing “theory” against “practice” is well known to us from everyday experience. Since at least Kant’s 1793 essay, referring in its title to the “Common Saying: That May Be True in Theory, but It Is of No Use in Practice” (Kant and Wood 1996 [1793])⁶ and John Maynard Keynes’s famous adage about “practical men” unknowingly driven by ideas of long-dead theorists,⁷ there has been ample philosophical reaction to the philistine criticism of theory (and theorists) by practical (wo)men.

6An extremely lucid and helpful interpretation of Kant’s essay, with further references, is Murphy (1995).

7“Practical men who believe themselves to be quite exempt from any intellectual influence are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back” (Keynes 1936, 383).

In Western philosophy, this dichotomy has a confusing(ly rich) history, starting from the opposition of philosophy (contemplation) and politics (political activity) as two forms of life in ancient Greece; Aristotle’s distinction of forms of theoretical, practical and productive knowledge; “the dissociation of theory proper from contemplation in Neop...

Table of contents

• Cover
• Half Title
• Series
• Title
• Copyright
• Contents
• List of contributors
• Acknowledgments
• Introduction
• Part I Searching for the right “paradigm”
• Part II Symmetric and asymmetric transfers of methods and concepts
• Part III Interdisciplinarity in normative reasoning: moral theory, economic theory and adjudication
• Index