Contemporary economic analysis of law is a product of the confluence of standard microeconomics with a legal tradition heavily influenced by American Legal Realism. The effect of this merger has been an analysis of legal institutions from the perspective of the Holmesian "bad man," who sees predicted legal actions as merely various expected material costs or benefits to be taken into account. This might be illuminating for the purposes of an "outsider," such as a sociological behaviorist or perhaps even a legal advisor alerting her "bad man" client to the risks of adverse legal consequences. But it produces bizarre results when used in an attempt to understand basic legal concepts, such as the notion of property, that in fact reflect the perspective of "insiders," that is, persons who try to shape the law to achieve various purposes and those citizens who willingly conform their conduct to the law's requirements. The resulting distortion is demonstrated by an analysis of Calabresi and Melamed's famous article, "Property Rules, Liability Rules, and Inalienability: One View of the Cathedral." It is shown that, once one attends to the insider's perspective, the categories of property, liability, and inalienability must be understood as categories of directives addressed to law-abiding citizens, rather than as categories of remedies or enforcement mechanisms, as the now conventional view would have it. Recognizing this allows one to open up the discussion of what form of enforcement is appropriate as to any particular rule instantiating any particular category. In particular, it allows one to distinguish between a liability rule, on the one hand, and a property rule that is protected only by a compensatory damages remedy. Conventional law and economics cannot perceive such distinctions and thus has a distorted "view of the cathedral." In the end, the culprit responsible for this distortion is not economics, but the Holmesian "bad man" jurisprudence within which economics has often been applied. Relegating the latter to particular contexts of demonstrated relevance stands to improve our thinking about the relationship between law and economics.
Place of Original Publication
Virginia Law Review
83 Virginia Law Review 837 (1997)
Nance, Dale A., "Guidance Rules and Enforcement Rules: A Better View of the Cathedral" (1997). Faculty Publications. 392.