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Easterbrook, Frank H --- "The Inevitability of Law and Economics" [1989] LegEdRev 2; (1989) 1(1) Legal Education Review 3

[*] Judge, United State Court of Appeals for the Seventh Circuit. University of Chicago Law School.

© 1989. [1989] LegEdRev 2; (1989) 1 Legal Educ Rev 3.

[1] OW Holmes, The Path of the Law (1897) 10 Harv L Rev 458, at 460–61.

[2] See J Hirshleifer, The Expanding Domain of Economics (1985) 75 Am Econ Rev 53. For applications of economics outside the customary field, see GS Becker, A Treatise on the Family (Cambridge: Harvard University Press, 1981); RA Posner, The Economics of Justice (Cambridge: Harvard University Press, 1981). Contrast RH Coase, Economics and Contiguous Disciplines (1978) 7 J Legal Stud 201.

[3] For example, S Schwab, A Coasean Experiment on Contract Presumptions (1988) 17 J Legal Stud 237; E Hoffman & M Spitzer, Experimental Law and Economics: An Introduction (1985) 85 Colum L Rev 991. Both of these articles not only report the results of experiments but also discuss similar literature.

[4] See GS Becker, The Economic Approach to Human Behaviour (Chicago: University of Chicago Press, 1976) at 1–68; AA Alchian, Uncertainty, Evolution, and Economic Theory (1950) 58 J Pol Econ 211. It is not altogether fanciful to treat this view of group rationality as a dose kin to evolutionary theory in biology. See RR Nelson & SG Winter, An Evolutionary Theory of Economic Change (Cambridge Massachusetts: Belknap Press, 1982).

[5] See FH Easterbook, Criminal Procedure as a Market System (1983) 12 J Legal Stud 289; See also RA Posner, An Economic Theory of the Criminal Law (1985) 85 Colum L Rev 1193.

[6] See generally EW Kitch ed, The Fire of Truth: A Remembrance of Law and Economics at Chicago 1932–1970 (1983) 26 JL & Econ 163.

[7] For an overview See RA Posner, Economic Analysis of Law, 3rd ed (Boston: Little Brown, 1986); R Cooter & T Ulen, Law and Economics (Glenview Illinois: Scott, Foreman, 1988); CJ Goetz, Cases and Materials on Law and Economics (St Paul. West, 1984); AM Polinsky, An Introduction to Law and Economics (Boston: Little Brown, 1983); P Burrows & CG Veljanovski eds, The Economic Approach to Law (London: Butterworths, 1981); WZ Hirsch, Law and Economics: An Introductory Analysis (New York: Academic Press, 1979) and many other sources. For more along the lines of the text, including a complaint by Laurence Tribe about the use of economics in law, see FH Easterbrook, The Supreme Court 1983 Term — Foreword: The Court and the Economic System (1984) 98 Harv L Rev 4; LH Tribe, Constitutional Calculus: Equal Justice or Economic Efficiency? (1985) 98 Harv L Rev 592; FH Easterbrook, Method, Result and Authority: A Reply (1985) 98 Harv L Rev 622.

[8] Sears, Roebuck & Co v Stiffel Co [1964] USSC 68; (1963) 376 US 225.

[9] Aronson v Quick Point Pencil Co [1979] USSC 35; (1979) 440 US 257.

[10] PW Huber, Liability: The Legal Revolution and its Consequences (New York: Basic Books, 1988) at 161–70.

[11] RB McKenzie & WF Shughart 11, Deregulation and Air Travel Safety (1987) 11 Regulation (Nos 3/4) 42.

[12] GE Frug, A Critical Theory of Law [1989] LegEdRev 5; (1989) 1 Legal Educ Rev 43.

[13] On the consequences of employment at will, see RA Epstein, In Defense of the Contract at Will (1984) 51 U Chi L Rev 947; DL Martin, The Economics of Employment Termination Rights (1977) 20 JL & Econ 187.

[14] See for example, VA Aivazian, MJ Trebilcock & M Penny, The Law of Contract Modifications: The Uncertain Quest for a Benchmark of Enforceability (1984) 22 Osgoode Hall LJ 173; TJ Muris, Opportunistic Behavior and the Law of Contract (1981) 65 Minn L Rev 521.

[15] See A Schwartz, Justice and the Law of Contracts: A Case for the Traditional Approach (1986) 9 Harv JL & Pub Pol’y 107; RA Epstein, The Social Consequences of Common Law Rules (1982) 95 Harv L Rev 1717.

[16] [1988] HCA 40; (1988) 80 ALR 362.

[17] On which see WM Landes & RA Posner, The Economic Structure of Tort Law (Cambridge: Harvard University Press, 1987); S Shavell, Economic Analysis of Accident Law (Cambridge: Harvard University Press, 1987).

[18] L Brilmayer, Governmental Interest Analysis: A House Without Foundations (1985) 46 Ohio St LJ 459; L Brilmayer, Related Contacts and Personal Jurisdiction (1988) 101 Harv L Rev 1444; JH Ely, Choice of Law and the State’s Interest in Protecting its Own (1981) 23 Wm & Mary L Rev 173; Posner, supra note 7, at 553–54.

[19] GS Becker, M Grossman & KM Murphy, An Empirical Analysis of Cigarette Addiction (unpublished paper, May 1987); see generally GS Becker & KM Murphy, A Theory of Rational Addiction (1988) 96 J Pol Econ 675. The pattern holds for alcohol too. See D Coate & M Grossman, Effects of Alcoholic Beverage Prices and Legal Drinking Ages on Youth Alcohol Use (1988) 31 JL & Econ 145; H Saffer & M Grossman, Beer Taxes, the Legal Drinking Age and Youth Motor Vehicle Fatalities (1987) 16 J Law Stud 351. Much evidence shows that other “addictive” substances also can be discarded when the users decide to do so. Almost all of the American servicemen who used heroin in Vietnam gave up the drug on returning to the United States. See generally the extensive survey of the literature in J Orford, Excessive Appetites: A Psychological View of Addictions (Chichester New York: Wiley, 1985).

[20] I Ehrlich, On the Usefulness of Controlling Individuals: An Economic Analysis of Rehabilitation, Incapacitation, and Deterrence (1981) 71 Am Econ Rev 307.

[21] Motor Vehicle Manufacturers Association v State Farm Mutual Insurance Co [1983] USSC 148; (1983) 463 US 29.

[22] Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co (1988) 78 ALR 407. The case has since been reversed by the High Court of Australia which did not discuss the line of argument advanced in the text. See [1989] HCA 6; (1989) 83 ALR 577; 63 ALJR 181.

[23] United States v Aluminium Co of America (1945) 148 F 2d 416.

[24] United States v Carolene Products Co (1938) 58 S Ct 978.

[25] See generally BA Ackerman, Beyond Carolene Products (1985) 98 Harv L Rev 713. I put to one side the question whether the Supreme Court got anything right in Carolene Products. It quite obviously misunderstood the purpose and effects of the statute, uncritically treating it as public interest rather than private-interest-group legislation. See GP Miller, The True Story of Carolene Products [1987] Sup Ct Rev 397.

[26] See FH Easterbrook, Statutes’ Domains (1983) 50 U Chi L Rev 533; FH Easterbrook, The Role of Original Intent in Statutory Construction (1988) 11 Harv JL & Pub Pol’y 59.

[27] “Purchased” does not imply bribery or any other illegal act. It means organised political activity — contributions, turning out volunteers, monitoring public positions and engendering support, finding sympathetic persons to be candidates (even the most crass interest group wants true believers to be candidates; it is never wise politics to elect a cynic, whose loyalties may shift). The methods by which political support may be created are many. Clever interest groups use them all.

[28] See Rodriguez v United States [1987] USSC 36; (1987) 107 S Ct 1391, at 1393; see also KMart Corp v Cartier Inc [1988] USSC 96; (1988) 108 S Ct 1811, at 1834–35 (Scalia J concurring and dissenting).

[29] See BP Pashigian, Environmental Regulation: Whose Self-Interests Are Being Protected? (1985) 23 Econ Inq 551.

[30] Northern Indiana Public Service Co v Colorado Westmoreland Inc (1987) 667 F Supp 613, affirmed [1988] USCA7 366; (1988) 845 F 2d 1024. See also BA Ackerman & WT Hassler, Clean Coal/Dirty Air (New Haven: Yale University Press, 1981).

[31] See S Rose-Ackerman, Progressive Law and Economics — and the New Administrative Law (1988) 98 Yale LR 341.

[32] It goes with the territory. See, in addition to any randomly selected essay by Holmes, RA Posner, The Jurisprudence of Skepticism (1988) 86 Mich L Rev 827.

[33] See FH Easterbrook, Monopoly, Manipulation, and the Regulation of Futures Markets (1985) 59 1 Bus S103, S115–16, S121–23.

[34] I collect a lot of the studies in FH Easterbrook, Workable Antitrust Policy (1986) 84 Mich L Rev 1696, at 1698 n 5.

[35] One accessible summary of the data appears in J Pound, K Lehn & G Jarrell, Are Takeovers Hostile to Economic Performance? (1986) 10 Regulation (Sept/Oct) 25.

[36] For example, FH Easterbrook & GA Jarrell, Do Targets Gain from Defeating Tender Offers? (1984) 59 NYUL Rev 277.

[37] Although I do not want to demean analytical work, which has made great headway. See A Schwartz, The Fairness of Tender Offer Prices in Utilitarian Theory (1988) 17 J Legal Stud 165.

[38] DG Davies, The Efficiency of Public versus Private Firms: The Case of Australia’s Two Airlines (1971) 14 JL & Econ 149.

[39] Evaluating the safety effects of deregulation is a difficult task, since improvements in safety built in by the manufacturer are extrinsic to the way the planes are used. For the best available effort to separate one from the other, see McKenzie & Shughart, supra note 11.

[40] Riley v National Federation of the Blind [1988] USSC 156; (1988) 108 S Ct 2667.

[41] One wonders why, in other parts of the law, courts are so willing to indulge the assumption that consumers are hapless fodder for predatory businesses. But consistency is not to be expected, and the patterns of inconsistency are beyond the scope of this essay.

[42] See RA Posner, The Constitution as an Economic Document (1987) 56 Geo Wash L Rev 4.

[43] See Business Electronics Corp v Sharp Electronics Corp [1988] USSC 75; (1988) 108 S Ct 1515, at 1523–24.

[44] American Textile Manufacturers Institute v Donovan [1981] USSC 147; (1981) 452 US 490.

[45] Erie Railroad Co & Tompkins [1938] USSC 94; (1938) 304 US 64; See generally, TW Merrill, The Common Law Powers of the Federal Courts (1985) 52 U Chi L Rev 1.

[46] See United States ex re1 Miller v Greer (1 986) [1986] USCA7 262; 789 F 2d 438, at 448–57, reversed [1987] USSC 156; (1987) 107 S Ct 3102.

[47] Ricketts v Adamson [1987] USSC 129; (1987) 107 S Ct 2680; Shearson / American Express Inc v McMahon [1987] USSC 158; (1987) 107 S Ct 2332; Town of Newton v Rumery [1987] USSC 34; (1987) 107 S Ct 1187; Evans v Jeff D [1986] USSC 123; (1986) 475 US 717; Mitsubishi Motors Corp v Soler Chrysler-Plymouth Inc [1985] USSC 203; (1985) 473 US 614.

[48] [1976] USSC 20; (1976) 424 US 319.

[49] See FH Easterbrook, Substance and Due Process [l982] Sup Ct Rev 85, at 109–15.