Exploring the Intersection of Law and Economics in Interpretation

In recent decades, economic theory has made inroads into the study and practice of law, mainly in the domain of commercial transactions and corporate organization. But economics may also have a lot to say about how our governments are organized and how political actors engage in bargains and exchange.

Professors Robert Cooter and Michael Gilbert are leading experts in the field of economics and law. Robert is the Herman F. Slevin Professor of Law at UC Berkeley and the co-author of the textbook, Law and Economics. Michael is the vice dean of University of Virginia’s law school. He and Robert’s new book, Public Law and Economics, explores the impact economic scholarship has on the study and practice of public law like the separation of government powers and elections.

Robert, Michael, and Greg discuss why the disciplines of economics and law go hand in hand, how economics can inform the behavioral impact of legal rules, and how economic theories play out in a judicial context.

*unSILOed Podcast is produced by University FM.*

Episode Quotes:

Why law and economics has become so important in law schools

02:40 First of all, much of economics is about incentives, that is to say, the reasons why people are motivated to do things. For example, if the price goes up, there's an incentive for people to buy less of the good. It turns out that the law can be regarded as an incentive system. For example, if the speed limit is increased from 55 to 65 miles an hour, that provides incentives for people to go ahead and drive faster. Furthermore, if the fine is increased from 100 to 150 dollars for exceeding the speed limit, that's an incentive for people not to exceed the speed limit. So, it turns out that many of the laws can be regarded as incentives to change people's behavior.  

How economics can often be applied to humanistic practice of interpretation that lawyers are involved in

52:58 My impression is that a lot of interpretation, especially in the hard cases where there's room to maneuver, it ends up being a function of people's intuitions. And sometimes, their intuitions are good, but sometimes they lead us astray. And economics isn't about a single person's intuitions; it's programmatic, it's general, it's built on a set of tools and assumptions that you can pinpoint. It isn't just myths in one person's mind. And I think that can be very helpful for interpretation.

Understanding what efficiency means

15:23 People equate efficiency with money and profit. And that's not what efficiency is, as any economist will tell you. Efficiency is about the satisfaction of people's preferences, and economists place nearly no limits or constraints on what the content of those preferences are.

Is having more judiciary independence always better?

43:51 You need independence in order to free the judges from outside influence and allow them to apply the law correctly and objectively, rather than taking bribes or deciding based on threats or whatever else. On the other hand, there's something a little perplexing about this. So, if you give them too much independence, you're empowering them to decide the law objectively, free from influence, and that's good. But you're also empowering them to do anything they want. Maybe they'll ignore the law. Maybe they'll read their own preferences under the law. Where's the constraint now? (44:36) The other thing I'll say about this is that almost every state elects judges in one capacity or another. And when I've talked to people, especially non-US citizens, they just across the board think this system is absolutely crazy because it just cuts too much into the independence of the courts. And maybe it does. And yet, I think most states are perceived to have the rule of law and have for decades and decades. So we’re constantly navigating this trade-off.

Show Links:

Recommended Resources:

• Richard Posner 
• Coase theorem

Guest Profile:

• Robert Cooter’s faculty profile at UC Berkeley
• Michael Gilbert’s faculty profile at University of Virginia

Their Work:

• Public Law and Economics

Robert's Work:

• Law and Economics
• Solomon's Knot: How Law Can End the Poverty of Nations
• The strategic constitution