Misunderstanding Social Life: A Critique of the Core Premises
of "Law and Economics"
@ 1983 by the Association of Amer!can Law Schools. Cite as 35 J. Legal Educ. 274 (19M).
Mark G. Kelman
Ernest Gellhorn and Glen Robinson take a fundamentally positive view of the impact of economic
analysis on legal education over the past two decades. I share their enthusiasm that law-andeconomics scholars, by forcing legal academicians to consider what they aptly dub the "incidence"
of a legal rule, I discourage the arid verbal analogizing, case-parsing doctrinalism towards which
lawyers traditionally gravitate. But I also firmly believe that the neoclassical orthodoxy that has
provided the most significant spark of light in fancy legal academic writing during the decade since I
entered law school has served a mystifying, obscuring function as well, misleading lawyers and law
students through its simplistic elegance not only into what strikes me as a relatively minor sinmisunderstanding law-but a rather serious one as well-misunderstanding social life in general.
I. Core Premises
Like the principal authors, I am by no means certain whether one can define, without considerable
distortion, a "core" to legal economics.2 My own belief is that critics of the law-and-economics
movement are far more likely to believe that there is a core, a gestalt, a general analysis. The
scholarly practitioners within the law-and-economics movement are more prone to see each instance
of legal economics as a particular policy analysis of an issue that is more or less illuminating in
resolving the issue. For the outsider, the distinctions between instances may often be less significant
than the relentlessness of the attempt to filter the complexity of both social life and individual
identity through the lens I wiU set out. For the outsider, the relative ineptitude of any particular
economic account is not especially significant. Posner's rather comic proposition that premeditated
murder is punished more severely than unpremeditated murder to equalize the expected punishment
of all murderers in a world in which premeditated murderers are (supposedly) less prone to be
apprehended! is still important law and economics: it is part of the attempt to organize reality, to
convince ourselves we understand both particular motivation and social life as the simple aggregate
of these motivated individuals.
The core I discern consists of three relatively simple affirmative propositions and a fourth
"feature" which is at times an affirmative proposition and at times a simple omission. I believe each
element of the core is problematic in distinct ways and that the difficulties in each element bear on
aspects of the law-and-economics movement that are explicitly noted or rather notably omitted in the
main paper. Here is my view of the "core":
(1) Human behavior is adequately described as utility-maximizing behavior of selfish, privatized
individuals. All behavior can be (tautologically) reduced to such behavior, since the definition of
utility-maximizing behavior is simply the observed behavior of a methodologically isolated subject.4
Thus, seemingly altruistic behavior is thought to be adequately understood as the selfish behavior of
a subject who happens to have introjected the goals of other subjects; obviously self-destructive
behavior (e.g., consumption of life-threatening addictive drugs) is the Utility-maximizing behavior
of some unambivalent "governing" subject who makes the consumption choices we observe;
communitarian impulses are reduced to "tastes for participation."
(2) There are no free lunches; almost every good thing in life has a resource cost; and unless we
carefully direct our attention to the resource costs of desirable ends, we will "overpurchase" these
goods.5 Thus, for instance, hardly anyone wants accideD:ts, but if, as is inevitable, it is costly to
diminish their frequency, one must carefully account for those costs (preferably by charging the
beneficiaries) in order to insure that one does not overspend on prevention.
(3) For most goods of interest, demand curves are downward sloping; thus, we can reduce the
consumption of any significant good, or activity, by raising its price. Moreover, legal commands
(whether labeled punishment or liability judgments) can best be thought of as prices.
The most significant impact of these observations is that by taking advantage of the fact that
people are selfish and demand curves downward sloping, we can order the inexorable conflicts in
social life, the clashes of selfish egos, without resorting to detailed central directives or inculcated
communitarianism. We can rely, instead, on unregulated markets that are set against a backdrop of
simple, general legal rules, where failure to observe these clear duties translates into an obligation to
pay a price that varies in the particular circumstance in which the rule is applied.?
(4) There is no "macroeconomy" in any number of significant senses. First, there is no problem of
capacity underutilization: i.e., the legal economic assumption (if only by neglect) is that if the
potential full employment level of demand for a productive factor covers its marginal cost, the factor
is inevitably utilized. Second, absolute jelly-like factor mobility, both intra- and international, either
is assumed, or the problems created by specialization of factor inputs and price rigidities are ignored.
Third, investment decisions and paths are unproblematic; because little attention is paid to profit
expectations or liquidity preference, entrepreneurs inevitably and instantaneously arrive at the
cheapest potential production cost technique (net, of course, of the costs of discovering that
technique). Fourth, there is little discussion of variations in labor productivity, of the political and
cultural conditions in which workers are either more productive, in the sense that they produce more
goods with the same psychic input, or exploitable, in the sense that they produce more as a result of
increases in uncompensated input. Fifth, no problems are posed by money; there are no difficulties
with general price levels or the effects of central bank attempts to control price levels. To the extent
that there is a theory of interest, for instance, it is one in which there is a simple classical product
market in "loanable funds" rather than one' continuously manipulated by a government concerned
with aggregate prices. Sixth, the pressures on domestic economies routinely caused by international
payments imbalances are either wished away (because of the hypothesized reequilibrating effects of
floating exchange rates) or ignored.
It is certainly convenient that legal economists wish away the macroeconomy. I am reminded of a
comment by Richard Zeckhauser, a highly regarded policy analyst, that "macroeconomists give us
microeconomists a bad name." The reality, of course, is that even the most technically skilled
economists know, with anything approaching certainty, very very little about the economy. Few
patterns in the macroeconomy are even readily observed-for instance, there is no reasonable
consensus on whether the Phillips curve we all hear so much about, suggesting that unemployment is
negatively correlated with price inflation, really exists.8 And the patterns we
do observe seem quite clearly beyond comprehension: witness the unsuccessful efforts to predict
even short-run shifts in the economy on the basis of macroeconomic models.9
D. Critiques of Core Premises
1. Utility Maximization. I have written before about the ways in which the first core axiom, the
utility-maximizing proposition, is distorting and misleading.l0 Suffice it to say, for now, that I
remain convinced that it is not enough to say, as Gellhorn and Robinson do, that it is not "a very
bold hypothesis" that "behavior can be explained by assuming that people generally act rationally to
fulfill personal objectives."l1 The "person" who is so acting has a continuous identity over time; the
chooser, or "behaver" governs at a single moment in- time, and there is no a priori reason to assume
intertemporal consistency of desire. Neoclassical theory simply does not cope at all with regretted
choices or ambivalence (except by misdefining them as information problems); choices made under
more or less constraint or duress (except by reducing constraint to a resource availability or price
effect); or the "history" of chosen positions. But, for now, I want to focus on a different concern,
brought out by the principal authors' discussion of constitutional! administrative law.
I strongly share their distaste for the absence of serious attempts to explain the political theory that
underlies judicial and legal academic attachment to various allocations of political authority:12 Few,
if any, stock phrases in my legal education are more vacuous than the routine assertions of
differential institutional competence or invocations of the genius of our federal system, without any
attempt to justify these statements about expertise or the wondrous effect of jurisdictional variety.
But the Stiglerian account of political behavior,l3 which I take it Robinson and Gellhorn would feel
has a good deal more bite in helping us rethink institutions than the more abstract public choice
theory associated with Arrow,14 suffers quite deeply from its assumption that political behavior (like
all human behavior) should be as closely analogized to other profit-seeking market behavior as is
possible. There is certainly insight to be gained from seeing that bureaucrats may advocate
government expansion solely to gain job security or that local voters may use antidevelopmental
zoning to maximize the value of their property. But as our world view increasingly constricts so that
we are unable even to comprehend the distinction between our public-regarding preferences as
citizens and the private-regarding preferences we express when we believe that no society-defining
issues are at stake, we will have greatly impoverished both our understanding of how politics now
works and, what is worse, ultimately impoverish our own political behavior and the political
behavior of everyone we influence.15
2. Free Lunches and the Demand Curve. Propositions two and three-no free lunches; use general
laws-that-translate-to-prices to control conflictual interaction-have been extremely influential in the
private-law corecurriculum subject matters. Once more, there obviously is something to be said for
the economic approach to private law. It is a real relief that goodhearted liberal students are now less
likely to confuse a judge's decree ordering a habitable dwelling with a magic trick producing a
habitable dwelling. There is plenty to be said, though, for the proposition that the pop version of
economics has deluded more people than it has enlightened, and that once one moves beyond the
pop version, economics gives very little guidance in real disputes.
Consider, for example, the fairly simple proposition that it is not worthwhile to establish a legal
rule that forces an actor to install a precaution whose marginal cost exceeds its marginal benefits
(premise 1: there is no such thing as a free lunch). Therefore, the legal rule should be such that the
defendant is induced to pay for all those precautions, and only those precautions, whose marginal
damage-averting benefits exceed marginal cost.16 Both strict liability and a classic Hand-formula
negligence rule will ordinarily do so,17 so defendants should be liable in accord with these rules
(premise 2: use simple, general legal rules which generate price schedules for a range of possible
activities to guide social interaction).
There are at least four critical problems with this simple "solution," some of which the more
sophisticated legal economists have pointed out, but which have rarely intruded on the "pop"
understanding:
First, unless we are able to account for pecuniary externalities, there is simply no way of knowing
whether it is efficient to impose a cost (through a finding of liability) on an activity simply because
the actor is traditionally negligent. Assume that there is an active party A-a backyard barbequer, for
example-and a passive-victimized party, the flower gardener V. The activity of A destroys some
flowers, and V can do nothing to diminish the loss. Further assume that A can prevent $50 of flower
damage by installing a $49 precaution. In a world in which there are no transaction costs the
precaution would (and ought to) be installed. But imposing this joint cost on A-as one does if there is
a rule of strict liability or negligence-will not mimic the outcome of the transaction-costless world if
the shapes of the relevant demand curves for A and V are such that the imposition of what amounts
to a $49 flat tax on A destroys more consumer surplus than the sum of (a) the consumer surplus that
would be lost if a $50 loss fell on V and (b) the $1 of saved joint-cost. Of course, since we rarely
have any idea what the shape of demand curves is, the notion that courts do or could find an efficient
solution in these interactive harm situations is doubtful.
Second, if the court imposes the supposedly efficiency-justified Hand negligence formula focusing
solely on the marginal benefit of marginal precautions, ignoring the aggregate costs of engaging in
an activity, then actors will often engage in inefficient conduct, though seemingly induced to behave
properly by a law-price system. An example is given in the footnote.18 Once more, when one
recognizes the possibility that activity levels, as well as marginal precautions, should be subject to
court scrutiny, the prospect of a court doing a reasonable efficiency determination declines
considerably and the relevance of efficiency analysis to tort law declines accordingly.
Third, in the example in note 18, the use of a strict liability rule, rather than negligence, will permit
an efficient result. If, though, damages vary with the conduct of both active and victim parties, no
simple legal rule will result in an efficient outcome in the typical case.19
The thrust of the second and third "critiques" is that parties constrained by "proper" tort rules will
not get to the point they would have reached using transaction-costless bargaining: they simply will
not adjust activity levels to maximize the gain from increased activity net of interactive damage, nor
will they split the ultimate interactive costs so as to minimize the loss of consumer surplus.
The recognition that parties cannot be constrained by "proper" tort rules to come to an optimal
position is more significant ideologically than it is as a technical recognition about the limits of our
ability to "engineer" efficient solutions. The fascination that writers like Posner and Calabresi have
with the possibility of efficient tort rules is ultimately predominantly a political one. The actual
significance of the effort for tort law reform seems to me quite dubious: while one could readily
argue that The Costs of Accidents addresses the actual tort system, Calabresi's work in the '70s seems
to me not to address any issues of "administrative" concern but simply to tell a soothing story about
a world of harmony.20
One may describe the legitimating task that faces the advocate or apologist for liberal capitalist
culture in a number of different ways. For instance, one may sense that the apologist must deal with
a fundamental ideological! cultural contradiction, to wit that:
. . . the goal of individual freedom is at the same time dependent on and incompatible with tbe
communal coercive action that is necessary to achieve it. Others. . . are necessary if we are to
become persons at all-they provide us the stuff of ourselves and protect us in crucial ways against
destruction. . . . But at the same time it forms and protects us, the universe of others. . . threatens us
with annihilation. . . . Numberless conformities, large and small abandonment of self to others are
the price of what freedom we experience in society.21
According to this view of the "fundamental contradiction," the role of liberal ideology is to mediate
the terror of facing this contradiction by purporting to resolve it through the mechanism of
establishing fixed rights:
In liberal theory. . . a person who believes in rights is in a position to deny that his feelings about
others are contradictory. He can believe that he wants to fuse with them so long as they respect his
rights.22
.
But these "rights" can work politically-appear both to those not in a particularly spiffy position in the
society and to those trying to justify their good fortunes to others as something more than the
tyranny of the strong, backed by explicit state force-only if the content (or at least the process of
deriving) the actual rights in view is itself acceptable. Thus, from this perspective, the ultimate
legitimating task for a Posner or a Calabresi is to argue that the particular rights-the particular limits
on both our interdependence and our independence-can be set with an eye towards neutral,
unarguably beneficial results, attaining the outcomes that autonomous actors would have come to
had they negotiated among themselves to improve each of their lots.
Alternatively, and not entirely dissimilarly, the ideological task for liberal apologists may be seen
as dealing with the need to assure people that the openly selfish, asocial liberal culture does not
sacrifice their altruistic caring sides; that, wonder of wonders, they can in fact act fully selfishly and
serve the public good because, given proper background conditions, egoistic cacophony magically
turns to social harmony. Of course, the convergence of the selfish and se1f1ess depends on the
proper design of the background conditions; thus, for instance, the selfish profit maximization of the
producer/seller of goods is deemed to work out selflessly only if the background conditions are
proper, i.e., if a competitive market is maintained. Once more, the i4eological program of the
"efficient tort rule" proponents is to assure Us that we can design background conditions (efficient
tort rules) that enable us to act solely in accord with our selfish interests when we think about our
interactions with "competing" users without fear of wreaking the least bit of havoc.
'
Calabresi seems acutely aware that the social role of the story of efficient tort rules is to preserve the
ideological vitality of the liberal state from collectivist attacks in a world in which transaction costs
prevent a fully voluntarist, liberal social organization.23
Tort law, and more particularly the rule of liability is, I submit, the paradigmatic law of the mixed
society. The purely "liberal" laissez-faire polity prefers contracts, the truly collective state the
criminal sanction.24
While the possibility of true voluntarist liberalism is obviated by the presence of complex
interdependence and the associated insurmountable transaction costs between parties who affect one
another adversely (". . .(liability rules) enable actions to take place when contractual behavior, before
harm, would not be feasible"),25 tort rules permit the state to intervene as little as possible, to
minimize the domain of state action. "By varying the size of the applicable damages. . . the
collective decision makers can go a long way toward enforcing their views without engaging in
minutiae of control that would not be worthwile."26 But Calabresi's opposition to the collective
imposition of particular standards of behavior goes further than this expressed sense that direct
collective action is cumbersome, inefficient, and "not worthwhile." If the state directly prohibits or
orders certain activities, rather than allowing private actors to adjust their conduct selfishly to a more
generalized background, tyrannical grabbing by those who will wield significant state power is
inexorable: "The corruptibility of the 'allocating state,' of the state which decides too many things
which affect too many people, becomes more manifest every day."27
As along as Calabresi can maintain the faith that this at least potentially corrupt state is unneededas long as selfish actors, calculating in a regime of general tort rules attain the precise results the
most omniscient, fairminded, -and incorruptible central bureaucratic manipulator could hope forthen the proponents of collectivist solutions will seem to promise us only the risks of subjugation to
those with fearsome power, with no promise of doing any more than matching the decentralized
outcome.
The fourth and final problem in the efficient tort literature is that given the factual ambiguity
inherent in many significant causal judgments, it is difficult to know how the legal system ought to
interpret an efficiency-based standard that requires an actor install precautions where marginal
benefit exceeds cost. The benefits of precaution-taking will quite often be unknown and
hypothetical. Problems of causal apportionment and ambiguities in burden-of-persuasion standards
in situations in which probabilistic assessments of harm are made should loom large in designing a
supposedly efficient tort system. They have, until quite recently, been completely skirted to maintain
the simple elegance of pop law and economics.28
In sum, the economics that has filtered through to lawyers has either oversimplified typical
private-law problems, giving rise both to random policy recommendations and-more significantly in
my view-a model of a non-controversially beneficent private-law system. More complex economic
accounts of the same sorts of problems demand unavailable descriptions of the real world to be
policy-relevant; they seem to add confusion, not order, to the chaotic world of disputes.
3. The Exclusion of Macroeconomics. Although it may be an accidental oversight, I was struck that
in their discussion of the uses of economics in the law school, Gellhorn and Robinson did not
mention the tax field. I take this as extremely significant, not simply for the parochial reason that I
teach tax but because one of the relevant economics in tax is the macroeconomics I see uniformly
ignored in the law school. (The other branch, optimal tax theory, fits more comfortably with pricetheory concerns.)
This is not the place to discuss substantively any of the macro issues that are associated with
taxation.29 There is a point, though, that I think is well worth making: for lawyers (and law students)
steeped in the micro economic analysis of law and life, simplistic "supply side" micro theories of the
macroeconomy, to the effect that we can expect all manner of wondrous production booms simply
by changing taxes so as to alter the relative price of "production" and "nonproduction," are likely to
have an appeal even beyond the considerable ideological appeal they would have to those interested
in developing new apologia for inequality. It is much easier to understand that the work-leisure
trade-off would be affected (how much?) by its price-the post-tax return to work-than to come to
terms with far thicker theories of investment that focus on the impact of certainty on investment
planning30 or more overtly sociological views that work discipline, at least in the advanced
capitalist Western factories we observe, reality is filtered to fit our simple model; particularly
deplorable, in my view, because the distortions are so uni-directionally right-wing in implication.
Not only do we simplify traditional macroeconomic policy issues by taking a price-theory focus,
we tend to forget to focus on what economies, if not economics, are about: the creation of better
lives. The concerns of a decade ago-materialism (whether wealth "works"), job satisfaction, hierarchy, and the like-are all blunted in a world in which we stop looking at the economy. In some
sense, I deeply admire Posner's relatively recent attempts to develop wealth maximization as a
principle,32 even though his formulation is technically deficient,33 because he refocused attention
on the issue of what it is we should expect from our economic system if we can get it running right.
Law and economics generally has distracted us from that critical focus.
Mark G. Kelman is Professor of Law. Slanford University.
1. Ernest Gellhorn 8e Glen O. Robinson. The Role of Economic Analysis in Legal Education,
33 J. Legal Educ. 247. 252 (1983).
2. The principal authors' position about the nature of the core is set out on their paper, id. at
247-511.
3. Richard A. Posner. Economic Analysis of Law, 2d ed., 174 (Boston: Little, Brown, 1977).
4: The feature is most prominent in the most "imperialistic" of the Chicago School works. See, e.g., Gary S. Becker. The
Economic Approach to Human Behavior (Chicago: Univ. of Chicago Press. 1976). which explicitly disclaims the
relevance of richer accounts of motivation. But it is surely the case that exogenous preference is the starting point of any
economic science. Guido Calabresi spoke often, at the conference, of the role that economists can play in theorizing
about preference formation. I take it that he is simply referring to price effects one order removed (i.e.. X develops taste
Y because it is relatively cheap to develop it). If he is talking about something else, I wish he would specify.
5. A somewhat related observation, is that people who desire something with a cost of provision will tend ultimately to
pay for it or not get it, even if one orders others to provide.' it for them as a right, because the "free goodie" will
somehow inexorably be attached to a product whose cost, quality of quantity will vary. Thus, habitable dwellings have a.
resource cost; if X has a right to them, the price of housing will rise, or if the price is fixed too low, the supply of housing
will ultimately diminish.
6. "In the economic analysis of criminal law. the criminal sanction is simply a method of pricing conduct."
Posner,
supra note 3. at 172. One of the reasons the "economics of crime" literature seems so Martian to most criminal law
professors is that imprisonment is seen. simply as an in-kind substitute for fines, and the level of punishment is seen as
reflecting the cost of violations. raised only because apprehension is imperfect. The moral separation of crime
and
tort is simply wiped out. ld. at 167-61.33 JoornBi of legBi Ed. 1'10.2-3
7. It is-not simply, or even predominantly, a Chicago School belief that we can aspire with fair optimism to a conflict-free
social wor1d of egotists. As I will note in the text, Calabrcsi's forays into tort law since The Costs or Accidents: A Legal
and Economic Analysis (New Haven, Conn.: Yale Univ. Press, 1970) have largely had the same ideological end. See text
accompanying notes 21-32 infra.
, 8. See, David Wheeler, Is There a Phillips Curve?, in Unemployment and Inflation: Institutionalist and Structuralist Views,
ed. Michael J. Piore (White Plains, N.Y.: M. E. Sharpe, 1979).
'9. It seems to be the case that aggregate nominal GNP changes may well have been reasonably accurately predicted, over
the long haul, but that forecasters have done a very poor job of predicting turning points in the economy, price-level
shifts, and real GNP growth. Since accuracy as to nominal GNP may be coincidemal (a result of offsetting errors about
price and real growth), the record looks quite unimpressive on the whole. See, e.g., Victor Zarnowitz, On the Accuracy
and Propenies of Recent Macroeconomic Forecasts, 68 Am.Econ. Rev. 313 (1978); Vincent Su, An Error Analysis of
Econometric and Noneconometric Forecasts, 68 Am. Eoon. Rev. 306 (1978).
10. See Mark G. Kelman, Choice and Utility, 1979 Wis. L. Rev. 769.
11. Gellhorn &: Robinson, supra note I, at 249.
12. [d. at 259-62.
13. See, e.g., George J. Stigler. The Theory of Economic Regulation, 2 Bel! J. Econ. &: MgrnL
Sci.8 (1971). Richard A. Posner. Theories of Economic Regulation, 5 Bell J. Econ. &: MgrnL SeL 335 (1975).
14. Kenneth J. Arrow, Social Choice and Individual Values, 2d ed (New York: Wiley, 1963).
15. See, e.g., the early discussion of tbe issue in John Harsanyi, Cardinal Welfare, Individualistic Ethics, and
Interpersonal >Comparisons of Utility, 63 J. Pol. Econ. 63 (1955) and discussions of "commitment" in A. K. Sen,
Rational Fools: A Critique of the Behavioral Foundations of Economic Theory, 6 Phil. 8: Pub. Aff. 327 (1977).
16. Chicago School practitioners, such as Posner, and less ruthlessly simplistic scholars, such as Calabresi, have both
said that if one is interested in efficiency, a party should be legally induced to install a precaution that costs less than the
damage that would arise in the absence of precautions. See Posner, supra note 3, at 122, and Guido Calabresi, Optimal
Deterrence and Accidents, 84 Yale L. J. 656, 658 (1976) (arguing that the precaution should be taken unless the other
party can avert the joint cost more cheaply).
17. Obviously Posner and Calabresi have disagreed about whether strict liability or negligence is preferable in a world of
limited information and administrative costs, but both would agree that the "perfect" versions of the standards induce
efficiency. Compare Richard A. Posner, A Theory of Negligence, 1 J. Legal Stud. 29 (1972) and Richard A. Posner,
Strict Liability: A Comment, 2]. Legal Stud. 205 (1973) (emphasizing the costs of unnecessary suits in a strict liability
system) with Guido Calabresi &: Jon T. Hirschoff: Toward a Test for Strict Liability in Torts, 81 Yale L. J. 1055 (1972)
(emphasizing the possibility of inefficiency in a negligence system when fact finders know less than the active parties
about cost-minimizing strategies
18. Assume party A is a polluter and victim V's damages are unaffected by victim conduct. The schedule of levels of
operation and damage are as follows:
profit to A
damage to V
no operation
0
0
operation with excel1ent scrubber
5
10
moderate scrubber
11
15
no scrubber
15
20
While the transaction-costless market mimicking efficient outcome is for A not to operate (joint profits = 0, negative in
all other cases), if a court interprets the negligence standard in terms of the relative marginal benefit of the defendant's
precautions. the defendant wi11 be deemed non-negligent if he operates with a moderate scrubber since installation of an
excellent scrubber diminishes his profits by 6 while reducing damage to V by only 5. (Of course, operating with no
scrubber would be negligent, even focusing solely on precautions, since profits are increased only by 4 while damages
are increased by 5 when scrubbing is reduced from moderate to none). This point was made in a somewhat confused
fashion by Duncan M. Kennedy, Two Phases of the Fetishism of Commodities (unpublished manuscript, Harvard Uni.v.,
1979); it was later made intelligible by Shavell. See Steven M. Shavell. Strict Liability vs. Negligence. 9 J. Legal StUd. I
(1980).
19. Assume once more the active A polluter and a victim V homeowner who can diminisli
damages by living further from the pollution source. The schedule of damages is as follows:
no house
A B C
no operation
0 0 0
excellent scrubber
5 0 0
D
0
5
live far
A B C D
live Close
A B C D
0 20 0 20
0 21 0 21
5 20 2
5 21 10 16
23
moderate scrubber 11 0 0 11
11 20 9 22
11 21 15 17
no scrubber
19 0 0 19
19 20 21 18
19 21 25 15
column A " profit to A from level of operation B " profit to V from location C = joint costs visited directly upon V
D "net profit (A+B-C)
The "efficient" result is that A installs excellent scrubbing and V lives far, but no simple general rule leads to that result
(one needs a direct administrative order specifying that result if one is to use the legal system). Unless it is optimal for V
to live far regardless of what A does (which it is not, since if, for instance, A uses no scrubber, no house is optimal) and
for A to install an excellent scrubber regardless of V's activity (which it is not, since if V lives close, no operation is
optimal and if he has no house, no scrubber is optimal), no general rule will force an efficient adjustment.
20. Thus, Calabresi recognizes the problems I have just mentioned in note 19 that are posed for a tort system when both
interactors can take steps to alter joint costs. See Guido Calabresi, Optimal Deterrence of Accidents, 84 Yale L J. 656.
659 (1975). BUt he advances a "solution" to the problem that he makes no real attempt to justify as seriously dealing
with the problem, id. at 669, because th~ "solutions" in fact are so vague that they clearly don't, by any means, solve the
problem he has posed. One emerges from the piece, though, believing that some unspecified private-law system which
places "some" liability for harms on the party "generally" best able to calculate how to minimize net accident costs
solves the problem that selfish actors cannot really be induced to act cooperatively by law. a feat of great ideological, if
not practical. significance.
21. Duncan M. Kennedy, The Structure of Blackstone's Commentaries, 28 Buff. L. Rev. 208,
. 211-12 (1979).
22. Id. at 259.
23. See especially Guido Calabresi, Torts-The Law of the Mixed Society, 56 Tex. L. Rev. 519 (1971). Posner, too, shares
Calabresi's view that tort and aiminallaw basically fill in the gaps ideally served by contracting on those occasions when
bargaining is impossible. See Posner, Economic Analysis of Law, supra note 3, at 43-44, 114-22, ]66. Obviously,
Calabresi is more sympathetic to intervention than Posner on anticontractarian grounds. Compare Guido Calabresi &: A.
Douglas Melamed, Property Rules, Liability Rules, and Inalienability: One View of the Cathedral, 85 Harv. L. Rev. ]089
(1972) (discussing paternalism and moralisms) with Anthony T. Kronman &: Richard A. Posner, The Eco. nomics of
Contract Law 253-61 (Boston: Little, Brown, 1979) (generally denigratin~ paternalist motives). '
24. Calabresi, Torts-The Law of the Mixed Society, supra note 23. at 521.
25. ld. at 529 (emphasis added). '
26. Id. In this regard. Calabresi’s position reads much like Posner's. See Posner, The Economic Analysis of Law, supra
note 3. at 271-86.
27. Calabresi, Torts-The Law of the Mixed Society, supra note 23, at 533.
28. The issue is now getting some attention. See. e.g.. Mario J. Rizzo & Frank S. Arnold. Causal Apportionment in The
Law of Torts: An Economic Theory, 80 Colum. L. Rev. 1399 (1980),
and at least two unpublished manuscripts: Steven M. Shavell, Uncertainty over Causation and The Determination oC
Civil Liability (1982), and Mark Kelman, Causal Uncertainty (1982).
29. For example, monetarist VS. deficit-focused vs. nonmonetarist interest-rate-focused theories of inflation; the impact
of taxation on savings and capital investment (and whether these are inevitably the same questions); the effect of
redistributive programs on work incentives, in Cull-employment and partial-employment contexts; of Social Security on
capital formation; of differing marginal 'tax rates on "work effort"; and of "work effort" on aggregate production.
30. See. e.g., Michael J. Piore, Introduction, Unemployment and In£lation. supra note 8, at xxii-xxvii.
31. See. Charles F. Sabel. Marginal Workers in Industrial Society, Challenge, March-April ,'" 1979. p.22.
32. See Richard A. Posner, Utilitarianism, Economics, and Legal Theory, 8 J. Legal Stud. 108 (1979); Richard A.
Posner, The Value of Wealth: A Reply to Dworkin and Kronman, 9 J. Legal Stud. 248 (1980); Richard A. Posner, The
Ethical and Political Basis of the Efficiency Norm in Common Law Adjudication, 8 Hofstra L. Rev. 487 (1980).
33, See, for example, Jules L. Coleman, Efficiency, Utility, and Wealth Maximization, 8 Hofstra L. Rev. 509, 520-26
(1980); Lewis A. Kornhauser, A Guide to the Perplexed Claims of Efficiency in the Law, 8 Hofstra L. Rev. 591, 592-610
(1980).