The Future of Law and Economics Part 4: Potential Solutions

Cite this Article
Joshua D. Wright, The Future of Law and Economics Part 4: Potential Solutions, Truth on the Market (May 06, 2008),

In a series of posts (Part I, Part II and Part III), I’ve sketched out how the trend toward increasing detachment in L&E scholarship might reduce the influence of the L&E movement at the retail level and become its ultimate undoing. I must say, writing this series has been a lot of fun but has also been a bit depressing as somebody with more than a theoretical stake in the future of L&E in law schools, and more importantly, somebody who views the “retail” success of L&E as critical to its growth.

In this post, I decided to get a little bit more optimistic and focus on some potential solutions. As it turns out, the post is pretty long. So let me at least tell you upfront what I’m going to talk about so you can avoid it, skip to the bottom, or read the whole thing depending on your level of interest. Here’s the set of issues I want to address:

  1. What efforts can be made to secure the benefits of specialization and formality while minimizing the likelihood of detachment from the traditional “legal” audience?
  2. And what role can law schools and other institutions play in ensuring that L&E remains interdisciplinary (not leaning too far toward its “home discipline”) and relevant?
  3. Relatedly, what can be done to save “Retail” L&E?

Notice that each of these issues starts with the presumption that retaining retail L&E is a good thing, and because L&E in the law school is conducive to the dissemination of L&E to relevant policy audiences it is also a good thing. I try to justify these presumptions in Part II, but won’t spend much additional time with them here. Instead, I want to focus on some institutional strategies that aim to minimize the detachment problem without throwing away the gains from specialization from having well trained economists do L&E.

There are several institutions than can play a role here, but lets start with the law schools.

1. What Can The Law Schools Do?

I should be clear that I believe the stakes are high here for L&E. There have been many important challenges to L&E in its development, and many critical moments. In his Intellectual History of the George Mason School of Law, Henry Manne cites to the revival of the Journal of Law and Economics at Chicago, publication of Richard Posner’s Economic Analysis of Law, publication of Guido Calabresi’s The Costs of Accidents: A Legal and Economic Analysis, and the first offering of the Economics Institute for Law Professors (which would later become inextricably intertwined with George Mason’s Law and Economics Center). 

I should make a small note about the last of those here that relates to the importance of retail L&E. The caretakers of the intellectual movement of L&E had these detachment concerns in mind from the very start.  Henry Manne notes that preferences for initial invitations to the Economics Institute for Law Professors were given to schools with group applications, “the more the merrier.”  This not only had the obvious effect of producing some L&E scholars by arming them with the tools of price theory, but it also increased the likelihood that economic concepts would be taught to law students.  Less obviously, having L&E friendly groups at law schools (even if not producing L&E scholarship) had the effect of increasing the likelihood that economics-oriented job market candidates would be palatable to the faculty as whole.  Moreover, the selection of Alchian & Allen’s University Economics (which is surely one of the most influential books in L&E), which avoided much mathematical formality, was surely deliberate.

The institutional challenges facing first and second generation L&E pioneers were quite different from those facing L&E now.  L&E was not an accepted intellectual movement then.  It is now. L&E scholars were undervalued on the job market, making it relatively cheap to stockpile L&E talent at a single law school like George Mason.  This is no longer the case.  Top L&E job market candidates regularly score entry level positions at top 20 law schools.  One of the most substantial challenges facing the earlier generation was to demonstrate the intellectual power of economics in solving problems relating to the law and institutions.  The intellectual power over economics, and L&E, had to be marketed to a skeptical legal academy.  Now, even those who disfavor economics now mostly accept that L&E adds value to modern policy discussions (Hillary Clinton aside). The modern challenges are those faced by a more mature discipline, and are in some ways natural consequences of L&E’s success.  While the current challenges might be natural and the byproduct of a successful intellectual program, they are serious challenges.  Indeed, this is a very important stage in the development of L&E. 

So what can the law schools do in light of some of the issues we’ve discussed? To repeat, the primary problem causing the trend toward detachment from the legal academy is the increasing formalization of economics itself.  There is not much law schools can do about that movement per se, and I’m not sure that they would want to if they could. The law school’s mission here should be to encourage good L&E scholarship, whether it is formal, informal, empirical or theoretical.  With respect to both formal economic theory and econometrics, law schools must find a way to encourage work that is likely to be relevant to the world that the legal academy lives in and reflects some careful thought about the law and legal institutions.

There are really two problems here. The first is encouraging L&E scholars to do relevant work. This can be a challenge for freshly minted Ph.D.’s who are preparing for an economics job market where there is a substantial premium on fancier mathematical elegance and real world relevance sometimes takes a back seat. The second is that formal methods might prevent law school colleagues from valuing L&E work that is also highly relevant. We want to take advantage of the benefits of formal methods while retaining relevance. Law schools can also play a proactive role in solving this second problem.

Encouraging Relevant Work. What can law schools do to encourage L&E scholars to do more relevant work? The first thing is to help produce the next generation of L&E scholars and influence the type of work that they do. I’m going to address that supply side issue separately (see below). Other than helping produce JD/PhD candidates that will join the legal academy, there are a number of possible strategies. Here are a few:

  • Hire Empiricists/ Econometricians. One obvious way that a law school can do this is to hire more empiricists than theorists. This is not to say that law schools should “give up” on L&E in favor of a more general Empirical Legal Studies movement. Empirical L&E is and should harness the insights from economics. This is its primary source of advantage over other forms of empirical legal studies. But the implication of this series of posts has been that the detachment of the modern economic theorist from the legal academy has already started, and is a trend that will continue. Better for law schools to be ahead of this trend then behind it.
  • But Don’t Just Hire Any Econometrician. The key is that law schools want to hire L&E scholars whose work will be valuable and relevant to the legal community. Hiring committees wanting to be ahead of these trends should be looking for empiricists who know the law, are interested in it, and have an interesting and relevant research agenda. By the way, this is hard work by hiring committees and others can pay off. I don’t mind saying that when I came on the academic job market this was the major hang up that most law schools I interviewed with were willing to share with me (at least, it was one of them). At the time, I was a freshly minted PhD with a dissertation full of economics papers on shelf space contracts and vertical contracting problems. George Mason faculty members asked me over and over whether I was interested in the law, where my research agenda was going in 2 years? 5 years? I had to try to convince them that despite not having written ANYTHING yet about the law, I was interested. Plus I had to sell them that the tools I was using in my economics work had more general application. Luckily, George Mason is a receptive audience for that line of argument. While my answers must not have overwhelmed them, they were willing to give me a VAP to “wait and see” how things turned out. The point is that this type of questioning and really understanding your potential hires can help to identify economists that are going to do relevant work. You just have to ask them and then listen!
  • Encourage Collaboration. Collaboration is one way to recruit economists to work on problems that are relevant to legal institutions while also ensuring that the work reflect careful thought about those institutions rather than assumptions and modeling decisions that strip the analysis of relevance.  I have in mind here combinations of economists and legal scholars across departments, but it can certainly involve economists in law schools (think Kobayashi and Ribstein; or Klick, Kobayashi and Ribstein).  Of course, many of these collaborations arise naturally without any coaxing from the administration.  There are a lot of incentives to collaborate in this fashion.  I do think this sort of thing arises naturally at George Mason because of the intellectual environment. I can think of two co-authored projects that I’ve worked on that came about because of “hallway” conversations. But greasing the tracks for this kind of thing cant hurt. I’m not saying that the school needs to set up a bounty for co-authored work, but more subtle steps might be appropriate: have an L&E Workshop, bring in interesting speakers to that workshop and encourage faculty wide attendance, have non-economists collaborate with the L&E folks to decide who is invited to give what papers.  Any other ideas out there?
  • Hire Economists Who Can Teach Law Students. Of course, law schools want all of their professors to be able to teach. But my point here is that to the extent that law schools are concerned about detachment created by specialization and formality, there is nothing like an economist who can get up in front of a room and explain the intuition of his model, or his identification strategy, to a room full of non-economists. I get nervous when I meet economists who cant do this but can prove every proposition in MGW. Hyperplanes, fixed point theorems, instrumental variables and first-order conditions are all important.  But a good economist in a law school environment ought to understand price theory (along with other things) and ought to be able to explain both economic concepts and his scholarship to general audiences.  Hiring L&E scholars that can wholesale their ideas to non-economist colleagues, collaborate, participate in school’s intellectual community, and retail economics to students, is a good way to avoid or at least minimize the detachment problem.

Encourage faculty to understand the relevance of L&E. The second problem is that L&E scholars doing formal but relevant work might still be detached simply because the work is too mathematically-oriented for attract the interest of colleagues. I’d like to think this would not be a major problem and that law faculties would be interested in important empirical work in their field or what insights economic theory could provide.  Or that it could be solved by paying attention to the problems discussed above, e.g. integrating L&E faculty into the general intellectual activity of the law school, not letting your econometrician sit in his office and run STATA programs all day, encouraging L&E scholars to workshop their projects in-house as well as at economics conferences, informal workshops and lunches, etc.

Here, I think it is the general legal community that is going to have to adjust more than the L&E scholars thanks largely to the success of the empirical legal studies movement of which empirical L&E is a part. Sophisticated estimation methods are simply part and parcel of this project, and they clearly add value to the scholarly discourse in virtually every area of the law. Even if non-economist colleagues want to dismiss this kind of work, or have the type of general aversion to quantification and measurement that is not uncommon amongst law students, good empirical work isn’t going anywhere. Better for the law school to embrace it and work towards setting up an institutional culture that values this work. A good way to start is providing research support for your econometrician(s): funding for RAs, statistical software packages, and data. A second step is to make sure those seeking placements in peer reviewed economics journals know that there work will be valued at the tenure review stage.

2. Training the Next Generation of L&E Scholars

A separate, but obvious, implication of the detachment theme is that there is a profitable opportunity for the production of L&E scholars who will produce, translate, and retail accessible scholarship. This does not necessarily mean informal scholarship. It includes theorists and econometricians who understand and are interested in studying law and legal institutions, and who also have the ability to communicate with both economists and legal academics. Competition among empirical L&E types in law schools will intensify as these methods increase in value and entry level JD/PhDs find homes at top programs. But what about theorists doing relevant and accessible work? What about informal L&E scholars and economic theorists in the model of Coase, Alchian and Demsetz? What about price theory and the law in the spirit of Becker?

Who will train the next generation of L&E scholars? Notice first that this question was a critical one in expanding the original L&E movement beyond its first and second generations. Henry Manne has explained the importance of training economics graduate students, and avoiding precisely the detachment problem we’ve been discussing, to the Law and Economics Center (the bold is mine):

Another important part of the Center prospectus was the proposal for a specially designed law degree for PhDs or near-PhDs in Economics. At the
time there was no organized program for the production of new law and
economics scholars. There were, of course, a few people in law teaching who had advanced degrees in Economics. But some of them were too mathematical in their orientation to be of much practical use in the popular interdisciplinary work, since ultimately the value of this scholarship would be in its use to judges and practicing lawyers.

So there was not a reliable source of future law and economics scholars, and, unless such a source could be guaranteed at this critical stage, the field could easily fizzle out. This argument for producing future scholars appealed to a new law and economics enthusiast by the name of Frank O’Connell, a lawyer, who, as it happened, was the President of the then newly active John M. Olin Foundation. O’Connell presented the entire prospectus of the Law and Economics Center to Mr Olin, who himself then became an enthusiast for the field and agreed to fund five three-year fellowships for economists to attend law school under the Center’s aegis. The existence of high-quality graduate students gave the Center a panache and an excitement that it did not have before – or after. Ultimately there were 33 of these John M. Olin Fellows at Miami and Emory, at least 16 of whom ended up in academia, a pretty good percentage even for Harvard or Chicago but almost unbelievable for Miami and Emory.

So who will be this generation George Mason? Or Emory? Here are a few possible answers.

  • George Mason / Vanderbilt Model. The George Mason model is still alive and kicking. Indeed, the George Mason Law and Economics Program still produces some excellent joint degree JD/PhDs along with the GMU Economics Department, and also offers Levy Fellowships to PhD candidates seeking a law degree at George Mason. Jonathan Klick (heading to U Penn from Florida State), one of the most exciting young empirical L&E scholars in the nation, is the pride of the Levy Program and its biggest success story. Vanderbilt Law’s new PhD in L&E program offers the same type of model with a slightly different emphasis and curriculum than George Mason’s Ph.D. program (Vanderbilt lists its principal fields as including “behavioral law and economics, risk and environmental regulation, and labor and human resources.” But the model here is the interdisciplinary model in a manner which addresses some of the “detachment” problems that we’ve discussed by housing the training of the student in the law school and being mindful of the production of scholarship that is important to the legal academy.
  • In-house Training. Another possibility, and one that might deserve further discussion, is that the next generation of L&E scholars are already in the legal academy and just don’t have the economics training. The logic is that if the economics departments don’t care about law or law and economics as a field, we ought to train them ourselves (see above). But what better source for bright scholars that understand the law than law school professors themselves? Some might not have the mathematical chops to make it through an economics PhD program. Some might but might not be interested. Fine. No offense taken. But it strikes me that the subsidization of legal scholars interested in graduate economics education would be a great investment. I know some schools do this some of the time. But it strikes me that this might become a more popular approach in 5 years than it is now. Anybody out there having some PhD economics training subsidized by their institution and want to talk about it?
  • Solum’s Multi-Disciplinary Model. Larry Solum raises the related possibility that law schools take over the production of the next generation of scholars interested in L&E (and other things) and other interdisciplinary methods. Here’s Solum on what this model would look like: “If law ere to follow this path, it would require the creation of multidisciplinary PhD programs in law that introduced future legal academics to empirical legal studies, positive legal theory, formal legal models, normative legal theory, advanced doctrinal methods, and so forth.”
  • Nobody. Sigh. This is the option where L&E withers off and disappears from the legal academy altogether as formal work migrates to economics departments and even the empiricists are viewed as “detached.” I assign a low probability to the extreme version of this option, but a slightly higher probability to more moderate (but still unattractive) versions of this story where bad informal L&E crowds out the good and the mathematical stuff disappears to economics departments.

3. The Olin Foundation is Gone. What’s Next?

There is no doubt that Olin Foundation money was at the heart of the success of the growth and development of the L&E movement. Steve Teles’ Rise of the Conservative Legal Movement goes to great lengths to explain the role of this funding in spreading the gospel of L&E. With the Olin Foundation money all wrapped up, and L&E standing as a mature discipline in the legal academy, what role can other institutions play in making sure that the L&E movement doesn’t unravel while its influence on policy discourse slowly dies?

I have three ideas I want to raise and that I hope start some discussion.

Academic Law and Economics Centers. There are a number of law and economic (or similarly oriented) centers housed at law schools around the country: UCLA, USC, George Mason, Texas, Stanford, Berkeley, Chicago, Harvard, and Yale all have them. As do others. I can’t think of any that are more active than Northwestern’s Searle Center, where I’ve had the pleasure of participating in a number of programs over the past year or two. But they’ve got what I think is the right model.  One of the themes of Steve Teles’ Rise of the Conservative Legal Movement and that comes up frequently in discussions with first and second generation L&E scholars are just how important the early Liberty Fund meetings and similar workshops and conferences were.  The “research roundtable” format bringing together lawyers and economists to discuss specific topics is one that has been highly productive in L&E in large part, I think, because of the collaboration of people and ideas at these events (many of which result in co-authored papers, research projects, etc.).  But law and economics centers can play a critical role in sponsoring these types of events and reaching out beyond hosting the in-house L&E workshop.  It is also a useful way to attract and recruit young economists and PhD students to the problems that we think are important. 

Embracing the Young Economists. I think one of the biggest potential solutions for L&E moving forward is not simply avoiding detachment of current L&E scholars but bringing in new blood that is interested in doing relevant and important work. We’ve talked about some of the solutions. But those solutions all assume that the trend within economics is a given. But we can relax that assumption and open the door to some new possibilities. For example, we might not be limited to accepting the fate of having to “train our own” next generation.  Maybe we don’t have to give up economics departments doing the training.  L&E needs to find a way to re-market itself to young economists and graduate students and convince them that its problems are important.  Economists want to do relevant work.  At least most do.  I promise.  Right now, L&E is just unpopular in economics departments.  There is a premium in economics right now is for clever and creative solutions that use a lot of math, whether theoretical modeling or estimation.

But there is no reason not to embrace what is good about formal economics.  That is something that I’ve repeated as a theme through these posts.  Specialization is good.  And advances in econometric techniques have allowed more powerful insights into causal inference (I’m thinking about panel data techniques).  Formal math gets a bad rap in L&E sometimes.  It can be misused.  But so can the written word.  Check out a few of the top law reviews.  You think economists are the only ones who use language to camouflage hidden assumptions?  Or show off their skills in the chosen language at the cost of accessibility to a general audience?  Please.   But new formal techniques are not all window dressing.  They have benefits than can be used to create insights relevant to L&E and the world that we live in. 

Geoff made this point in a comment to a post I wrote about some of the critiques that were going around about “cute-o-nomics,” and the perils of this sort of empirical work.  Toward the end of his comment, he hones in on the exactly the tradeoff we’ve been discussing involving elegant mathematical economics and sophisticated empirical strategies and L&E:

The folks like Levitt who do this work, who can perceive problems and think through creative solutions to them, are applying real economic intuition. They may use a lot of math, to be sure, but the underlying logic is generally quite simple (not as in “easy” but as in “not-complicated”) and complex mathematics is not necessary to explain or to understand what’s going on. It is economics in the style of Tullock and Alchian and Coase. These are real lessons learned through application of a powerful system of analysis. In contrast, too much of economics today seems to be little more than mathematic gymnastics. It is largely devoid of real fundamental understanding of human behavior and of the analytic power of a few simple rules to explain it. The debates don’t turn on seemingly fundamental questions like, “how well does this explain observed behavior?” Rather the debates are about the elegance of complex models and the proper use of this variable or that equation. Important endeavors, to be sure, but hardly deserving of more accolades than the work of incisive “natural” economists.

That’s a great explanation of the problem, but also the promise of harnessing some of the really great talent coming out of economics departments if we, being the legal academy and interested institutions, can convince them that we’ve got problems worth solving. And we do. But we are failing to solve a marketing problem. L&E needs to be marketed to the economists. We’ve got interesting problems to solve. Economists want to do work that matters and that is read. Notice how many of these folks write popular books and blog? Don’t tell me they don’t want to influence large audiences and participate in relevant policy debates. And there is an upside to this trend in empirical economics to use clever identification strategies and instruments to get at causal relationships — even if one can sensibly argue that there are some tradeoffs between cleverness and relevance as well. Here’s what I wrote in defense of Levitt a while back when he was getting some heat from economists about his “clever” research agenda:

One might think that at least one important consequence of Levitt’s research agenda, in addition to adding to our economic knowledge (which used to be enough, didn’t it?), will be a contribution to making popular again economics that is more connected to explaining real world phenomena of all types with economic intuition, models, and data. If that happens, Levitt isn’t ruining economics. He’ll be saving it. Or at least making it more relevant. And definitely more fun. If Levitt is going to take the brunt of the attack for “clever” research, at a minimum, we ought to be willing to give credit for sending the pendulum back towards the empirically-oriented side of the spectrum by making it “cool” to worry about the real world again.

L&E institutions ought to be embracing the economists and graduate students and getting them interested in L&E problems. Lets invite promising economists to conferences, workshops, discussions, for coffee. Let’s fund some dissertations. Let’s make it cool to do L&E in economics departments. Maybe it is impossible to get AER to publish the kind of economics that will have a lot of influence in legal circles. Maybe. But AER isn’t all there is to economics. I really think law schools and legal scholarship have a lot to offer young economists. I think a better pitch needs to be made to recruit economists to come pay attention to our problems. And those interested in the future development of L&E ought to try to improve that pitch.

Training Judges.  I only know what I’ve read about the programs at George Mason’s LEC, and Henry Butler’s (now running the Searle Center, which hosts the Brookings Judicial Education Program) program.  Judicial education is one of the unequivocal success stories of the L&E movement.  Large fractions of the judiciary have come to these programs because they are interested in learning basic microeconomics.  Educating the judiciary in basic economics might be one of the most important functions of the L&E movement.  At least, it is a critical part of L&E’s success at the retail level.  These programs seem to be moving full speed ahead and remain very popular.  While I have no reason to believe that these programs will slow in the near future, one might suspect that detachment would eventually take a toll on the demand for judicial education as well to the extent that economics’ influence on the law declines.   It strikes me that maintenance and expansion of these programs, as well as programs to train interested law professors in economics, should be at the heart of the institutional mission to continue the healthy development of L&E.

I think I’ve got one more post left in me to finish off this series.  I’ll finish up with some additional predictions about what areas in L&E are ripe for development in light of these trends, touch on some items I’ve left out of the discussion completely (what about behavioral law and economics?  neuroeconomics?), and some thoughts about what the distribution of L&E talent across schools might look like in 10 years.