In Law & Economics in Japan, Harvard’s Mark Ramseyer tries to explain why Japanese scholars have mostly not embraced law and economics to the extent of their peers elsewhere. He tries on some explanations — “the location of legal education in the undergraduate curriculum, and the long-term Marxist domination of economics faculties” — but is ultimately unsatisfied with these explanations. Here’s why:
The reason for the explanatory difficulty lies in the absence of a profits constraint at the modern university. For-profit firms adopt efficient technologies or die. By contrast, university departments with preposterous theories can survive for decades (witness literature departments in the U.S.). Universities do compete, whether in the U.S. or Japan. But they do not compete with anything approaching the intensity of ordinary economic markets. Spared that intensity, they need not converge on superior scholarly technology. In some departments in some universities in some countries, scholars will adopt the better technology. Elsewhere, they will thrive for decades without it.
In other words, how can we really explain what does and doesn’t work in academia when schools and scholars everywhere lack the profit motive to compete?
As with many things, Henry Manne noted this long ago. As I summarized his views (published in Henry Manne: Intellectual Entrepreneur, in Pioneers Of Law And Economics (Lloyd R. Cohen and Joshua D. Wright, eds.,. Elgar Publishing, 2009):
Manne (1993) pointed out that universities are run as non-profit institutions under a board of trustees, a system in which nobody has a property right in the institution’s success. Power therefore has devolved to university faculties. This is complicated in the case of law schools by the lawyer cartel’s significant control over legal education. In other words, unlike the corporations that Manne studied, universities and law schools are not basically market institutions. Thus, even if the market demanded specialization and product differentiation, it is not clear that the governing bodies of universities would respond to this demand. Instead, schools could be expected to continue to make things comfortable for their tenured faculties. There is no market for control to deal with recalcitrant university administrators.
Manne’s article is Comment On Peter Byrne’s “Academic Freedom And Political Neutrality,” 43 J. Legal Educ. 340 (1993).
Manne notes that the lawyer cartel (aka licensing and accreditation laws) is at least partly responsible for the lack of competition in legal education. I emphasize that in a forthcoming and soon-to-be posted paper. Elimination of the accreditation constraint could take care of both problems by enabling for-profit law schools.
Josh, forgive me for being a bit breezy. I meant to say “that’s the problem with law & econ (when compared with straight econ).” I actually find that economists are slower to jump to sweeping normative judgments than their law & econ counterparts. But I’m being way too sweeping myself.
This post makes two incorrect assumptions. The first incorrect assumption is that law & economics is “superior scholarly technology.” I know of no epistemological theory that establishes law & economics as “king of the hill” so to speak. Many of the purveyors of the ridiculed theories in English departments may consider L & E theories “preposterous” (certainly econ still has its old reputation as “the dismal science” in many other departments).
The second incorrect assumption is that injecting the profit motive into academia would result in “superior scholarly technology” rising to the top. This not only requires L & E being inherently superior, but also for a critical mass of consumers of “superior scholarly technology” to recognize it as such. Universities get their money from tuition, donations (many of which come from former tuition-payers), and endowment interest (from endowments built through donations built through happy tuition-payers). Unfortunately, tuition payers (students) may not recognize L & E as “superior.” Creating a profit-driven University would likely have the side effect over time of the uneducated leading the educated because the “superior” method would be the one that attracted the most tuition payers (and kept these tuition payers satisfied enough to become paying alumni). Whatever the students think is “superior” rises to the top — maybe L & E, maybe crazy theories from the English dept.
This would be a backward way to run an institution of “higher learning.”
“But that’s the problem with law & econ: it takes descriptive econ theories and gives them a normative spin.”
Compared to what? Offering normative spin without any theoretical or empirical foundation? Certainly you aren’t claiming that non-L&E scholarship is less normative. And that is holding aside the notion that normative “spin” is bad. For example, in antitrust economics, the claim that lower consumer welfare is not as good an outcome as higher consumer welfare isn’t too controversial.
I have a problem with Ramseyer asserting that law & econ is “superior scholarly technology.” This isn’t physics. Just because scholars in a majority of U.S. & European jurisdictions have adopted law & econ doesn’t make it “superior.” I didn’t think economists were supposed to make value judgments! But that’s the problem with law & econ: it takes descriptive econ theories and gives them a normative spin. Instead of framing it in “superior/inferior” terms, maybe Ramseyer should have just discussed the factors that led Japan to adopt different methodologies than their Western counterparts. But then I guess that would be sociology.