Law and Economics In Europe?

Beginning in the late 1960s, the legal approach known as law and economics (L&E) began to transform legal education in the U.S. L&E used tools derived from the field of economics to study legal rules and legal behavior. The questions L&E asked were not so much "is this new environmental regulation constitutional?" or "what legal philosophy does this new environmental regulation reflect?" but "given what we know about human behavior and economic incentives, is it likely this new regulation will do what it’s supposed to?" Similar questions were asked of other laws, such as minimum-wage laws, anti-monopoly regulation, emissions-trading regimes, or "three-strikes" punishment laws.

European legal scholars never really warmed to L&E. The law Europeans study is heavily influenced by deontological thought — the notion that the law reflects fundamental principles of morality independent of practical concerns. You can see this heritage in such principles as the prosecutor’s duty to prosecute every crime of which she becomes aware (because the law was broken and that, in itself, requires a response), or the doctrine that all breaches of contract should be punished because, to quote a little fancy Latin here, pacta sunt servanda — agreements should be consummated. By contrast, L&E argues that breaching a contract "is acceptable, and indeed should be encouraged by contract law," when the net economic benefits of breach are clear. This notion invariably strikes most of my students as amoral and incomprenehsible.

There are German legal scholars doing work in the still-exotic field of L&E (see here (G) and here (G) for examples). However, as Legal Theory Blog reports, a recent paper looked at the topics of publications and showed that Europe still isn’t demonstrating much enthusiasm for the project. Straight to the paper excerpts, with Larry Solum’s commentary in-between:

The hypothesis of this paper is that the academic incentives are a major factor in the level of participation in the L&E scholarship. This incentives hypothesis is presented and then examined empirically on data gathered from the list of authors in L&E journals and the list of participants in L&E conferences. The data generally supports the hypothesis. In the legal academia, the incentives to focus research on L&E topics are the strongest in Israel, they are weaker in North America and weakest in Europe. In fact, the data reveal that lawyers’ authorship of L&E papers weighted by population is almost ten times higher in Israel then in North America; while in Europe it is almost ten times lower then in North America. By comparison, the weighted participation level of economists – who face relatively similar academic environments across countries – in L&E research is not significantly different across countries.

There is an obvious question: are both the participation rates and the incentives caused by some other variable? In particular, by academic and legal culture?Here’s a bit more from the paper:

L&E discourse is highly correlated with academic incentives favoring that discipline. European lawyers usually do not need to write articles in English and for them papers in L&E do not carry substantial academic benefit in appointments and promotion decisions. To the contrary: in many cases such a paper would be much less valuable to their career then a doctrinal paper in their own language. And publishing an article about the local law in a local journal may be easier as well. These are strong disincentives to overcome language and disciplinary barriers.

For Americans and Canadians, interdisciplinary papers are as valuable as legal papers for academic career advancement. There are no language barriers, since the L&E journals are in English. The most prestigious journals are also looking for articles with a national or international interest and L&E papers, like other theoretical or critical legal papers, are often general enough for that purpose. Thus, L&E is another potential course a scholar can take; not necessary more or less valuable then concentrating on any other legal subject or type of legal discourse. Thus, North Americans are much more likely than European lawyers to author and publish L&E papers.

Interesting stuff, especially about the role of language in determining the focus of academic research.

2 thoughts on “Law and Economics In Europe?

  1. Hi Andrew, I agree with you in many respects.
    One addendum, however, is necessary: When studying North-American papers (in particular, with respect to comparative works), I regularly observe many legal (!) deficiencies. In many cases, authors do not examine the legal side and, thus, their work is grounded on impressions how the law looks like rather than on knowledge how the law actually is. Apparently, in North-America, it is easier to get away with legal flaws by virtue of creative economic argumentation. In contrast, European lawyers loose their academic reputation by neglecting the legal side or describing the legal issues in their papers incorrectly, regardless of their economic argumentation. Further, I met many North-American corporate academics who were not certain as to what the legal situation re certain corporate law matters actually is – it is unlikely that you experience similar things in Europe, or more precisely in Germany.

    This is my impression: North-Americans need to enhance the “L”, and Europeans the “E” in L&E.


  2. Great observations, both of you. The North American debate is indeed often shaped by the notion that the law is functionally an instrument (of economics, of social policy, of many different objectives) and hence, it is appropriate to examine laws not just in terms of their coherence within a purely self-referential normative framework, but also in terms of their efficacy in promoting numerous non-legal ideals. At my North American law faculty, it would have been difficult to find a professor who would have argued that a statute, or a decision, should be evaluated purely on the basis of whether it supported principles inherent solely to the law itself (i.e., a tort judgment that was motivated purely by the aim of putting right the loss suffered by the plaintiff). Indeed, there was one such professor – and many students found his ideas somewhat confusing and questionable.

    The North American legal academic world raises competing and diverse claims to the purpose and efficacy of the law. While an L&E proponent will have one view of a statute, someone who believes that the law must reflect notions of social equality, or redistribution, or the protection of parties with limited capacity to assert their own interests, will have a widely differing view. It is rare that these perspectives can be compared to one another – in fact, it is rare that scholars from one field can even communicate to others, since the debates within one field are consistently framed by jargon (Andrew’s language issue).

    Dirk’s analysis is appropriate for German tax law as well. There is a fundamental ideal within German tax law that the tax codes are designed to raise revenue while ensuring that each taxpayer bears a burden proportionate to his or her economic circumstances. The original German tax codes were designed to achieve this ideal – and no other. Of course, this objective has been (German view) ‘contaminated’ over multiple generations of amendments with increasingly specific provisions designed to redistribute income, or shelter certain types of income, or economically stimulate certsin groups or industries, or to influence the economic choices made by taxpayers. Many German theorists cringe at these provisions: tax reform efforts are largely directed toward reestablishing the original revenue-raising purity of the tax laws. Redistribution should be undertaken by other more ‘political’ statutes.

    Compare this with the North American approach, which enthusiastically endorses tax legislation as an instrument of fiscal policy (small business credits, education credits, deductions for R&D – all are established and influential policy instruments that are not separated – even theoretically – from the revenue raising objective. It is rare that German and North American theorists in this field find any common ground.


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