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The Future of Law and Economics, Part 1

  • Joshua D. Wright

    • I’m very interested in the history, the present, and the future of the law and economics methodology and movement. Recently, I’ve been giving some thought to the direction of the movement, especially as it currently exists in the legal academy. Some of my thinking has been inspired by this post from Larry Ribstein, the comments to this post at Prawfs (especially those from Brian Leiter and Kate Litvak), and Steven M. Teles’ book on the Rise of the Conservative Legal Movement, each of which highlights some of the trends and tensions emerging in the field as well as what has made it so successful. Much of the discussion in those blog posts has to do with whether a Ph.D. is necessary or sufficient to do modern L&E scholarship, or at least, whether there is room interdisciplinary scholarship for those without the PhD or equivalent technical skills. That all debate has been hammered out fairly thoroughly. My target in what I hope will be a series of posts is different, though not orthogonal to that debate: where is L&E now and where is it going?

    There are a couple of general trends pushing on the law and economics movement from different directions that make speculation about the future of the movement interesting and raise a number of interesting questions. I don’t think I know the answers to these questions, but I thought it would be fun to write a series of blog posts that sketch out my tentative thinking on these general trends, identify some potential strengths and weaknesses of the L&E movement in its current form, share some thoughts about where it is headed, and hopefully stimulate some discussion.

    In this first post, I’m going to try to set the stage by identifying some of the trends in the L&E movement in particular and their causes and consequences. In future posts, I’ll try to shed some light on where I think the L&E movement in law schools is going, where it isn’t going, and where I’d like it to go in the next 5-10 years. First, lets start by sketching the landscape with the identification and description of some general trends and patterns in L&E below fold.

    1. Increasing Mathematical Formality & Specialization

    The issue of modern economics’ relevance to the real world should be familiar to economists (or anybody using modeling or quantitative empirical methods) in the legal academy. I don’t think there is much dispute about this trend so I won’t spend too much time documenting it. For casual empiricists, check out the programs at ALEA for the last several years, or the publications in JLE, JLS, ALER, Review of Law and Economics, or other field journals. The trend is evident. A large and growing fraction of law and economics work involves formal modeling or empirical models. Here is how Kate Litvak describes, I think fairly accurately, the state of play:

    You can’t do serious law-econ work today without either really, really knowing math, or really really knowing statistics, or really really knowing micro. If you can’t do serious regressions, you must model. If you can’t model, you must do serious regressions. If you make the tiniest noise about “excessive fees” or “bargaining power,” be prepared to either model them in excruciating detail or show original data. Chatter on a vague subject of “markets” and “efficiency” is basically ignored.

    I say “fairly” accurately because I would like to leave room for a few categories of work that I believe are still valuable to L&E scholarship but don’t satisfy the formal mathematical modeling or empirical work requirement. For example, work that conducts detailed descriptive analysis of legal institutions and how they operate might fall into this category. So would some work in economic history. But there is no doubt that Kate has the general trend absolutely correct: more formal work, more empirics. This is the same trend that has taken place in economics more generally over the past 30 years.

    One consequence of the increase in formal theory and empirical work is increased specialization in economics, and therefore, in economic analysis of the law by economists. Most young economists graduating from top programs either model or do empirical work, but not both. It is also the case that the economics discipline has become specialized across fields in the sense that many disciplines do not “talk” to one another or across their respective literatures. I had this discussion with a financial economist the other day who was lamenting the lack of sophisticated in that field with respect to industrial organization economics. I suspect increased specialization has resulted in a similar detachment between many other fields in economics as well. There are many benefits from this sort of specialization. But I think it is now clearly the case that most job market candidates in L&E are either theorists or econometricians, not both. I suspect that law departments will tend towards hiring the econometricians because many lawyers are able to at least understand the intuition of regression models and read results but very few are able to read and understand theoretical models of the type published in top economics journals. But I suspect the days of the “general L&E” scholar who does theory, empirics, and dabbles in some legal doctrine are numbered.

    2. Decreasing Relevance of L&E?

    Assuming that the modern economics literature is indeed trending towards mathematical sophistication, the most obvious and likely consequence is that L&E will become less relevant to legal and policy audiences. There are at least three possible avenues through which the increase in formalization could be costly for L&E:

    My own sense is that right now, #1-3 are all important potential issues for L&E. And I’m certainly not forgetting that increased formalization and specialization might bring some important benefits to economics and to L&E specifically. I’ll address the benefit side of the equation in a later post. For now, I want to focus on some of the potential costs. (For interested readers, Larry Ribstein also highlights these problems in his posts.)

    From my perspective, the most pressing of these problems is #2, what I’ve described here as the “the retail problem.” The problem of economists ignoring the law and legal institutions is no doubt real and significant, as is the problem of legal scholars without sufficient training publishing empirical work (there is more “bad” empirical scholarship than modeling as statistical software packages lower the cost of entry for empirics but less so for modeling). Bad work will always be a problem and I suspect always has been and always will be. Perhaps the increase in formalization has made bad work of both types more or less likely. I suspect it has allowed room for more bad empirical work than would exist otherwise, but I’m not sure how large this effect is.

    But what about the good stuff? The most important, and I think the most interesting, problem to analyze is what happens to the good L&E work — whether formal or otherwise. I realize their is quite a bit of subjectivity in determining what counts as high quality L&E work, but I think there are a lot of issues here than can and should be discussed: will high quality informal scholarship be “crowded out”? Has or will L&E become so formal and specialized that the “retail problem” will render the methodology useless to the very audience that made it a success story by incorporating its insights into the law? Is that happening already in some fields? What efforts can be made to secure the benefits of specialization and formality while minimizing the likelihood of detachment from the traditional “legal” audience? Will L&E move to economics departments and out of law schools in 5 years? 10 years? What role can law schools and other institutions play in ensuring that L&E remains interdisciplinary and relevant? Should they be concerned with these trends at all? These are the types of questions I’ll be interested in starting a dialogue about in future posts.

    3. Distinguishing Accessibility versus Relevance

    Finally, let me offer one last point of clarification regarding two issues I often hear conflated in the context of discussing the increased mathematical formality in L&E scholarship: accessibility and relevance. I hope the clarification will be useful at least in understanding my own thinking as I try to work through these issues. First, there is a ton of formal work, both theoretical and empirical, that is relevant. For example, many highly sophisticated empirical models are not accessible to the majority of legal scholars because of the technical skills required to meaningfully evaluate the article, but they easily pass the relevance bar. Equally, there are many theoretical papers that are relevant and important to policy and have important implications for the law but are not accessible in the same manner. It is not accurate or helpful, in my view, to describe formal mathematical work as irrelevant simply because most of the legal community cannot understand it at a high level.

    On the other hand, there exists a plethora of highly formal theoretical work in economics and L&E that requires impressive modeling skills but is not relevant to much of anything in the way of solving any real world problems, producing testable implications, or policy guidance. Similarly, empirical work that fishes for, finds, and publishes any spurious correlation that survives a few specifications in STATA can involve complex empirical specifications, but not pass the relevance bar. Of course, as readers of legal scholarship well know, “informal” scholarship can also be simultaneously irrelevant and inaccessible, but I am focusing here on “formal” economics scholarship only for the moment.

    Ok, that’s all that I wanted to get accomplished in the way of a background. I will be traveling this week, but hope to continue the series in a few days with a post exploring the “retail problem” in greater detail and making some predictions about where L&E might be headed in the near future.