LAW AND ECONOMICS
Susan Rose-Ackerman (Yale Law School)

Law and economics has expanded far beyond its origins in antitrust and regulated industries to encompass a broad range of topics that overlap with applied microeconomics, industrial organization, and public finance. The field has infiltrated most of the major American law schools. An active professional association, the American Law and Economics Association (www.law.yale.edu/alea), organizes an annual research conference and is in the process of launching a new journal, The American Law and Economics Review. Several other peer-reviewed journals and most of the student-edited law reviews publish in the field.

Beginning in the 1960s, law and economics scholarship in torts, contracts and property transformed those fields through an analysis of the incentive effects of alternative legal rules. The game theory revolution in economics found a fertile field in contract law and other areas of commercial law since the strategic aspects of these legal subjects had long been obvious. A weakness was the lack of empirical testing since ready-made data seldom exist, and one must often collect one's own numbers. Nevertheless, in recent years a number of scholars have taken up the challenge of finding, creating and analyzing empirical information to illuminate our understanding of legal phenomena from the operation of the courts, to the impact of products liability tort law, to the price of bail bonds.

In the law schools the younger generation of lawyer\economists consists almost entirely of people with degrees in both economics and law plus some fellow travelers with legal training alone. Straddling two fields can be a challenge for a beginning scholar. In spite of several decades of productive cross-fertilization, the fields remain quite distinct. Law schools value faculty who can function as economists as well as lawyers. Nevertheless, one is not likely to succeed on a law faculty without publishing non-technical articles in law reviews that can be read and discussed by the law faculty as a whole. Lawyer\economists need to be able to explain their work to noneconomists - an exercise in exposition that might be recommended to all economists whatever their field. They also need to be willing to entertain a broader set of normative concerns than just the achievement of Pareto Optimality. Some prominent members of the field urge scholars to avoid any taint of normative analysis beyond a concern for efficiency. Those who follow that advice and refuse to engage the concerns of the legal academy risk becoming isolated from the broader range of legal scholarship and debate.

Law and economics has fragmented in recent years so it is difficult to point to a clear direction for future research. Work on corporate governance and corporate law is thriving and is part of a growing interest in law reform in developing countries and those in a transition from socialism. Applications of game theory to legal problems continue to produce insights. Empirical work is increasingly seen as valuable. Recently, the overlap between economics and psychology is influencing legal scholarship and may produce interesting insights especially in the regulation of risk. Even antitrust and public utility law are reviving in the shadow of recent important antitrust cases and the deregulation of electricity and telecommunications. The application of public finance and political economy to public law fields such as administrative law and environmental law is a promising development.

The mixture of economic theory and applied public policy that is characteristic of law and economics implies that the field's focus will shift over time. To my own thinking too many talented people are worrying about corporate governance and products liability and not enough are focusing on such less populated fields as evidence, labor law, and international and comparative law. The rediscovery of institutions by the economics professions, however, implies that the scope for a productive, ongoing overlap will continue into the foreseeable future and may also include political scientists with an interest in political economy and rational choice.

Susan Rose-Ackerman is the Henry R. Luce Professor of Law and Political Science, Yale Law School. She holds a Ph. D. in economics from Yale University.

Return to the Newsletter Page