False Efficiency and Missed Opportunities in Law and Economics

This Article points out a simple flaw common to many law-and-economics analyses, ranging from fundamental models like the Hand Formula to narrower arguments like those that oppose the doctrine of unconscionability. The flaw is straightforward: economic analyses of law often assume, either implicitly or explicitly that when it is more efficient for an activity to occur than for it not to occur it is efficient for legal rules to encourage the activity. Even on grounds of efficiency alone, however, knowing in isolation whether an activity produces more wealth than its absence is insufficient to conclude that the activity is efficient. The determination of efficient legal rules requires an answer to a further question too often neglected by legal economists: what are the activity\u27s alternatives? Even if an activity is more efficient than its absence, it may produce less wealth (perhaps significantly less wealth) than its alternatives, once its harms are taken into account. Encouraging all activities that appear to produce wealth on their own runs the risk of encouraging opportunistic behavior whose effect is more to transfer wealth than to create it. As a simple example, a legal regime that followed the Hand Formula would encourage businesses to earn $100,000 by causing$95,000 worth of unavoidable harms to others; that incentive alone, while probably objectionable for other reasons, is not inefficient because, instrumentally speaking, the $100,000 social gains justify the$95,000 social losses. But a rule based on the Hand Formula would also encourage economic actors to engage in that $100,000-earning activity rather than one that paid$90,000 but caused no harms; that incentive is inefficient. Some economic analyses acknowledge related points, but the law-and-economics movement insufficiently understands the flaw that this Article describes. Similarly critics of the law-and-economics movement -- while aware of other fundamental flaws in legal-economic analysis, such as the inapplicability of the rational-actor model in many circumstances -- do not readily enough engage economic models on their own terms. This Article attempts to remedy those oversights, and in doing so, it suggests greater caution in applying economic reasoning to law

Rational Ignorance, Rational Closed-Mindedness, and Modern Economic Formalism in Contract Law

This article considers the relevance of several kinds of post-offense events for the justice of punishment under a fair-play account of retributivism. If the justice of punishment depends on something like an offender-centered tally of benefits and burdens, it may be difficult to explain why offenders should be punished by a criminal justice system in situations where they have been punished privately or have lost the relevant benefits they may have received from their offenses. My fault is past. But, O, what form of prayer Can serve my turn? \u27Forgive me my foul murder? That cannot be; since I am still possess\u27d Of those effects for which I did the murder, My crown, mine own ambition and my queen. May one be pardon\u27d and retain the offence? -King Claudius, Hamlet, Act III, Sc. II

False Efficiency and Missed Opportunities in Law and Economics

This Article points out a simple flaw common to many law-and-economics analyses, ranging from fundamental models like the Hand Formula to narrower arguments like those that oppose the doctrine of unconscionability. The flaw is straightforward: economic analyses of law often assume, either implicitly or explicitly that when it is more efficient for an activity to occur than for it not to occur it is efficient for legal rules to encourage the activity. Even on grounds of efficiency alone, however, knowing in isolation whether an activity produces more wealth than its absence is insufficient to conclude that the activity is efficient. The determination of efficient legal rules requires an answer to a further question too often neglected by legal economists: what are the activity\u27s alternatives? Even if an activity is more efficient than its absence, it may produce less wealth (perhaps significantly less wealth) than its alternatives, once its harms are taken into account. Encouraging all activities that appear to produce wealth on their own runs the risk of encouraging opportunistic behavior whose effect is more to transfer wealth than to create it. As a simple example, a legal regime that followed the Hand Formula would encourage businesses to earn $100,000 by causing$95,000 worth of unavoidable harms to others; that incentive alone, while probably objectionable for other reasons, is not inefficient because, instrumentally speaking, the $100,000 social gains justify the$95,000 social losses. But a rule based on the Hand Formula would also encourage economic actors to engage in that $100,000-earning activity rather than one that paid$90,000 but caused no harms; that incentive is inefficient. Some economic analyses acknowledge related points, but the law-and-economics movement insufficiently understands the flaw that this Article describes. Similarly critics of the law-and-economics movement -- while aware of other fundamental flaws in legal-economic analysis, such as the inapplicability of the rational-actor model in many circumstances -- do not readily enough engage economic models on their own terms. This Article attempts to remedy those oversights, and in doing so, it suggests greater caution in applying economic reasoning to law

Contract Meta-Interpretation

This Article provides a general framework for resolving the contract law’s ambivalence between textualism and contextualism, one of the most difficult questions in modern contract interpretation. Simply put, the Article’s argument is that courts need to determine the parties’ preferences as to how their contracts should be interpreted; this “meta-interpretive” inquiry can then direct the court’s interpretation or construction of the parties’ substantive rights and duties. Moreover, the Article argues that while contextualist interpretation is not, and should not be, mandatory for all interpretive questions under contract law, contextualism is necessary to resolve the initial “meta-interpretive” question: What interpretive regime do the parties prefer? Recognizing this distinction, and applying this twostep inquiry, can resolve some of the academic and practical debates between textualists and contextualists, and it can also explain some features of modern contract law

Explaining the American Norm Against Litigation

In the United States, a social norm discourages people from vindicating at least some of their rights in court. However, if courts are an instrument of justice and of sound public policy-for instance, if they provide fair compensation for injured parties and efficient incentives for potential injurers-then a norm against using courts is puzzling. This Comment explores and evaluates explanations for the norm against litigation; the Comment\u27s goal is to provide a plausible account of the norm. As such, the Comment is largely descriptive. However, normative implications may follow from my exploration; for instance, to the extent that an explanation of the norm is plausible, the explanation may help to frame the debate about tort reform in the United States

Rational Ignorance, Rational Closed-Mindedness, and Modern Economic Formalism in Contract Law

This article considers the relevance of several kinds of post-offense events for the justice of punishment under a fair-play account of retributivism. If the justice of punishment depends on something like an offender-centered tally of benefits and burdens, it may be difficult to explain why offenders should be punished by a criminal justice system in situations where they have been punished privately or have lost the relevant benefits they may have received from their offenses. My fault is past. But, O, what form of prayer Can serve my turn? \u27Forgive me my foul murder? That cannot be; since I am still possess\u27d Of those effects for which I did the murder, My crown, mine own ambition and my queen. May one be pardon\u27d and retain the offence? -King Claudius, Hamlet, Act III, Sc. II

The Significance of Private Burdens and Lost Benefits for a Fair-Play Analysis of Punishment

This article considers the relevance of several kinds of post-offense events for the justice of punishment under a fair-play account of retributivism. If the justice of punishment depends on something like an offender-centered tally of benefits and burdens, it may be difficult to explain why offenders should be punished by a criminal justice system in situations where they have been punished privately or have lost the relevant benefits they may have received from their offenses. My fault is past. But, O, what form of prayer Can serve my turn? \u27Forgive me my foul murder? That cannot be; since I am still possess\u27d Of those effects for which I did the murder, My crown, mine own ambition and my queen. May one be pardon\u27d and retain the offence? -- King Claudius, Hamlet, Act III, Sc. II

Three Problems (and Two Solutions) in the Law of Partnership Formation

This Article considers several foundational questions concerning the formation of general partnerships, a topic that has received little modern attention and that is governed largely by classical axioms rather than adaptive modern considerations. Its three main topics concern (1) the timing of partnership formation, (2) the aggregation of multiple distinct questions under the single heading of “partnership formation,” and (3) the rarely challenged proposition that general partners ought to be liable for partnership obligations, a doctrine that is surprisingly at odds with the rest of modern business-entity law

The Significance of Private Burdens and Lost Benefits for a Fair-Play Analysis of Punishment

This article considers the relevance of several kinds of post-offense events for the justice of punishment under a fair-play account of retributivism. If the justice of punishment depends on something like an offender-centered tally of benefits and burdens, it may be difficult to explain why offenders should be punished by a criminal justice system in situations where they have been punished privately or have lost the relevant benefits they may have received from their offenses. My fault is past. But, O, what form of prayer Can serve my turn? \u27Forgive me my foul murder? That cannot be; since I am still possess\u27d Of those effects for which I did the murder, My crown, mine own ambition and my queen. May one be pardon\u27d and retain the offence? -- King Claudius, Hamlet, Act III, Sc. II

Explaining the American Norm Against Litigation

In the United States, a social norm discourages people from vindicating at least some of their rights in court. However, if courts are an instrument of justice and of sound public policy-for instance, if they provide fair compensation for injured parties and efficient incentives for potential injurers-then a norm against using courts is puzzling. This Comment explores and evaluates explanations for the norm against litigation; the Comment\u27s goal is to provide a plausible account of the norm. As such, the Comment is largely descriptive. However, normative implications may follow from my exploration; for instance, to the extent that an explanation of the norm is plausible, the explanation may help to frame the debate about tort reform in the United States