Law and Economics 2.0

Josh Wright —  12 December 2008

Readers of TOTM know that the future of law and economics is a frequent topic of discussion here, and a topic in which I am both personally invested and spend a good deal of time thinking about (see, e.g. my blog series on the future of law and economics here).  Legal Pad (at CNN/Fortune Magazine) announces the Kauffman Foundations plan to reinvigorate a “new” version of law and economics aimed at a new focus on static efficiency to innovation and economic growth.:

On Thursday the Kauffman Foundation will announce that it is making $10 million in initial contributions to found an initiative aimed at reinvigorating, and, to some extent redirecting, the exceedingly influential school of thought that has come to be known as “law and economics.”  The discipline uses economic analysis to try to shed light on which legal rules will most benefit society in all areas of the law, but especially in antitrust, torts, contracts, and property cases.

Kauffman’s new “Law, Innovation and Growth” initiative seeks to refocus the law-and-economics debate to center on the promotion of entrepreneurship, which has long been one of the key goals of that Foundation, which was started in 1966 by pharmaceutical magnate Ewing Marion Kauffman (who started Marion Laboratories). The Foundation, based in Kansas City, Mo., says it currently has a corpus of about $2 billion.

I’ve written before about the general problem that has been caused, in part, by the growing mathematically formality of economic science for the law and economics enterprise in law schools.    An immediate consequence is a reduction in L&E scholars that are interested in “retail” law and economics.  There are a number of causes for this.  But the largest is probably that within economic science there is very little return for doing the sort of work that was the heart and soul of the first generation L&E movement.  Litan acknowledges this as an explicit motivation for his project noting that L&E has “become incredibly mathematical, very niche, highly theoretical, and difficult to understand.”

As I’ve discussed before, these trends beg the question: where will the next generation of L&E scholars come from now that the Olin Foundation is gone?

Here’s what I wrote previously about two ideas centered around the institutional need to develop the next generation of law and economics:

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?

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.

It appears that Kauffman is taking both of these recommendations seriously with $2.2 million of its initial $10 million going to fund research by young assistant professors at law schools to be called Kauffman Legal Research Fellows.  The rest is being allocated to various researchers at a handful of law schools for work on the impact of law and regulation on growth, Harvard’s Berkman Center for Internet and Society, funding seminars at law schools, and the Stanford Intellectual Property Litigation Clearinghouse.  This is an important and positive development for law and economics.  Perhaps the most important component is the investment in young law and economics researchers, though I suspect even more is going to have to be done to overcome the force of the trends away from traditional law and economics, work with policy relevance, and retailing. Specifically, I worry most about a dwindling supply of law and economics researchers, reinvigorating efforts to disseminate price theory, new institutional economics and basic econometrics to law professors, and creating institutional mechanisms that increase the rate of return for “next generation” L&E scholars to invest in “retailing” their work and working on problems that are important to legal institutions.