Showing papers in "The Journal of Legal Studies in 1980"

Strict Liability versus Negligence

Abstract: This chapter compares strict liability and negligence rules on the basis of the incentives they provide to "appropriately" reduce accident losses. Under strict liability, the outcome is efficient, and again the reasoning is a little different from that in the last subcase. Under the negligence rule, restaurants will decide to avoid liability by taking appropriate precautions to prepare meals under sanitary conditions. The unilateral case is studied for two reasons. First, it is descriptive of situations in which whatever changes in the behavior of victims that could reasonably be expected to result from changes in liability rules would have only a small influence on accident losses. The second reason is pedagogical; it is easier to understand the general bilateral case after having studied the unilateral case. In the bilateral case, two additional liability rules are considered, strict liability with a defense of contributory negligence and the negligence rule with that defense.

An Introduction to Privacy in Economics and Politics

Abstract: THE enormous increase in interest in privacy in our society is evident in the public press and in the statute books In some respects this interest in privacy is paradoxical, for the average citizen has more privacy-more areas of his life in which his behavior is not known by his fellows-than ever before He lives in a large city, where no one is his keeper; in the small towns of former times privacy was won only by the cleverest people He works in large organizations, and indeed he (or, more likely, some self-appointed spokesman) laments his alienation He can shake off most of his past simply by moving-to the South, the West-and no earlier generation except the immigrant waves before World War I was as mobile If then the privacy issue is a real issue, and not one of those contrived issues that march across the headlines for a time, it probably exists because of the vast growth of government Governments (at all levels) are now collecting information of a quantity and in a personal detail unknown in history Consider: it would have been quite impossible for a public official in 1860 to learn anything of the income of a citizen chosen at random without leaving Washington, DC Today the files of Social Security, the Internal Revenue Service, the Securities and Exchange Commission, the microfilms of banking transactions, and other sources are potentially available to answer the question, to say nothing of the fact that perhaps one family in three or four receives payments directly or indirectly from the federal government In addition the government has become the major instrument by which the information-collecting and information-using practices of private citizens are controlled Technology has enormously changed the mechanics of gathering and disseminating information, but it is politics and economics that direct the uses of the machinery Three topics in this large subject are explored here: the nature of privacy in economic behavior; the economic effects of

Is Wealth a Value

Abstract: IN this essay I consider and reject a political theory about law often called the economic analysis of law. (That name is the title of an extended book by Professor Richard Posner,' and I shall be concerned largely, though not entirely, with arguments that Posner has himself presented.) The economic analysis of law has a descriptive and a normative limb. It argues that common law judges, at least, have on the whole decided hard cases to maximize social wealth, and that they ought to decide such cases in that way. I shall discuss the normative limb of the theory mainly, although at the end of the essay I shall argue that the normative failures of the theory are so great that they cast doubt on its descriptive claims, unless these descriptive claims can be embedded within a very different normative theory. The concept of wealth maximization is at the center of both the descriptive and normative aspects of the theory. But it is a concept that is easily misunderstood, and it has been misunderstood, in a certain way, by its critics. "Wealth maximization" is a term of art within the theory, and is not intended to describe the same thing as "Pareto efficiency." In this introductory section, I shall try to explain each of these terms, to show why it misunderstands the economic analysis of law to suppose, as critics have, that the lawyer's definition of the former is a botched attempt to capture the meaning of the latter. Wealth maximization, as defined, is achieved when goods and other resources are in the hands of those who value them most, and someone values a good more only if he is both willing and able to pay more in money (or in the equivalent of money) to have it. An individual maximizes his own wealth when he increases the value of the resources he owns; whenever he is able, for example, to purchase something he values for any sum less than the most he would be willing to pay for it. Its value to him is measured by the money he would pay if necessary; if he is able to pay, say $4, for what he would pay

Can Litigation Improve the Law without the Help of Judges

Abstract: Is the common law "efficient"? Do actual tort liability rules minimize the sum of accident costs and accident-prevention costs? Do actual nuisance rules lead to optimal levels of output, optimal location patterns, and optimal use of "clean" technologies? At the least, have common law rules improved (on an efficiency scale) over time? These questions have been raised explicitly and implicitly by the growing literature on law and economics.' Three justifications for the statement that the common law tends towards efficiency have been offered: (i) judges actively seek efficiency;2 (ii) inefficient rules are litigated more often than efficient rules (differential litigation);3 and (iii) litigants who benefit from an efficient rule invest more in the litigation than those who favor an inefficient one.4 The first justification relies upon judicial insight to improve the law, whereas the second and third justifications do not. Certainly the law can improve over time due to judicial insight. For example, it can be shown that the standard of negligence in liability law would evolve towards efficiency if judges amend it according to a simple calculation of benefits and costs.5 However, it is difficult to contend that

Risk Taking and Reelection: Does Federalism Promote Innovation?

Abstract: Politicians must take risks if they hope to be reelected. They must make decisions on the basis of imperfect information about voters' preferences and challengers' behavior. They must commit resources to projects with uncertain outcomes. Some projects are technologically certain but politically uncertain. Repairing potholes is a simple task, but a politician with scarce funds must calculate the uncertain electoral consequences of repairing one neighborhood's potholes sooner than another's. For other projects, both kinds of uncertainty are important. Politicians who spend tax funds to develop new ways to combat juvenile delinquency face the uncertainty inherent in all innovative activity. They cannot know just what results the project will generate, and, in addition, they are not sure how voters will react to whatever results are produced. Their attempts to innovate may even backfire, if, for example, the youths in the project organize for radical political activity. In some cases political choice may also be affected by the voters' attitudes toward risk. For example, if the politician commits government funds to projects that will not produce results until after the next election, then voters' risk preferences may enter the politician's calculations. In deciding how to vote, citizens may judge candidates not only on the expected value of their promises but on the riskiness of their platforms as well. This paper considers the relationship between government structure and risk taking. I contrast the behavior of politicians in a centralized system with that of elected officials in a decentralized multiple government regime. After these polar cases are examined, I consider the "federal" case where the interactions of national and local decision makers determine the kind and quantity of innovative activity. Throughout the paper governments are assumed to be representative democracies, each controlled by a single politician who seeks to maximize his or her probability of reelection under condi-

Constitutions, Statutes, and the Theory of Efficient Adjudication

Abstract: THE aim of this essay is to formulate an economic theory of public law adjudication, corresponding to the economic theory of the common law propounded by Richard Posner and others.' Posner claims that judicial resolutions of private disputes not governed by enacted law conform to the dictates of economic efficiency, not perfectly, but with a regularity so impressive that "the rules of the judge-made law are best explained as efforts-however unwitting-to bring about efficient results."2 Along with this empirical claim of an economizing regularity in the common law, Posner has tentatively offered an account of rationally self-interested judicial behavior that might explain the observed regularity-roughly, that judges serve their own interests best by gaining approbation from publics whose interests are, in turn, well served by efficient law.3 The empirical and explanatory theses together constitute a complete, positive economic theory of the common law.

Privacy: Its Origin, Function, and Future

Abstract: EXPLORERS must accept the bad with the good. In the new-found lands gold may lie on the ground for the taking, but pioneers are likely to encounter rattlers and desperadoes. Recently a new territory has been discovered by economists, the intellectual continent we call \"privacy.\" The pioneers are our peerless leaders Posner and Stigler whose golden findings have already dazzled the world. It is high time for rattlers and desperadoes-that's the rest of us-to put in an appearance. Of course, I ought to add parenthetically, \"new\" is relative to one's point of view. Our pioneering economists, like explorers in other places and other times, found aborigines already inhabiting the territory-in this case intellectual primitives, Supreme Court justices and such. Quite properly, our explorers have brushed the natives aside, and I shall follow in that honorable tradition.

An Analysis of Causation and the Scope of Liability in the Law of Torts

Abstract: ONE person harms another. For the victim to succeed in a suit in tort against the injurer, he must establish two things. He must show that the accident' in which he suffered harm is within the scope of liability-that it is not of a type which certain legal principles, notably \"causal\" in nature, make ineligible for further consideration. And, assuming the accident is within the scope of liability, he must also demonstrate that the injurer is obligated to pay him damages under an applicable rule of liability.2 It is not enough for him to show only the second of these two elements. For example, under the negligence rule, it is not enough for the victim to show that the injurer was negligent. Suppose that smoke suffocates a sleeping man in his bed at a hotel that had failed to install a proper fire escape.3 This accident would be found outside the scope of liability on the principle that the absence of a proper fire escape was not a \"but-for\" cause or \"cause in fact\" or condition sine qua non of the harm: the man would still have suffocated had there been a proper fire escape. Or suppose that an adult thoughtlessly hands a loaded gun to someone's young child who then drops it on his toe, thereby suffering an injury;4 or that a streetcar traveling at excessive speed happens to be at just the point

Joint and Multiple Tortfeasors: An Economic Analysis

Abstract: A

Private versus Public Enforcement of Fines

Abstract: The present paper analyzes the competitive, monopolistic, and public enforcement of fines allowing for the costs of enforcement to differ by the choice of the enforcer. There are a number of reasons to expect such differences. First, the benefits from coordinating enforcement -- for example, avoiding duplication of investigative effort and exploiting economies of scale in information processing -- are obtained under public enforcement and monopolistic enforcement, but not under competitive enforcement. Second, the profit motive might be imagined to lead to lower costs under either form of private enforcement relative to public enforcement. Third, when the revenue from fines under public enforcement is not sufficient to finance enforcement costs, there may be a deadweight burden incurred in making up the deficit from other sources. Conversely, if the fine revenue exceeds enforcement costs, the effective cost of enforcement would be lower. On balance, these considerations suggest that monopolistic enforcement may be cheaper than competitive enforcement, but that public enforcement could be more or less expensive than private enforcement.

Wealth Maximization as a Normative Principle

Abstract: IN a recent article in this journal, Richard Posner attempts to clarify and defend the normative premises of his approach to the analysis of legal rules.' According to Posner, legal rules (at least those promulgated by common law courts) can best be understood as efforts, usually unconscious, to maximize wealth.2 In Posner's view, wealth maximization is an ethically attractive goal. His recent article on the subject seeks to show that wealth maximization has properties that make it preferable, from a moral point of view, to other normative principles, particularly utilitarianism (with which, Posner claims, wealth maximization is often confused).3 Posner has now further elaborated his concept of wealth maximization in a second article, forthcoming in the Hofstra Law Review.4 Taken together, these two articles represent Posner's only extended foray into the field of moral philosophy and his most serious effort to date to justify on normative grounds the underpinnings of what he calls the positive economic analysis of law. Posner's defense of wealth maximization as a normative ideal rests on the claim that wealth maximization is distinguishable from both utilitarianism and efficiency or Pareto superiority. According to Posner, wealth maximization lacks certain morally objectionable features of utilitarianism and is therefore-immune to many of the familiar criticisms directed against the latter theory.s It is also Posner's view that wealth maximization is distin-

The Law and Economics of Rights in Valuable Information

Abstract: T HIS essay describes and analyzes the welfare consequences of the law governing the ownership of information by firms and their employees and the transmission of information from one firm to another. Because I have elsewhere discussed the welfare consequences of the patent system,' the focus here is on the many kinds of information required for the efficient operation of enterprises other than new technology. The essay is intended to draw the attention of economists to the importance of the institutional arrangements other than patents that shape the production and dissemination of industrial information. The first section describes the legal rules and discusses the arguments traditionally offered for them. The ideas used to organize this description are drawn from the modern literature on human capital and theory of the firm. The section argues that in spite of the law's development under such diverse headings as trade secrecy, covenants not to compete, corporate opportunity, fraud and restitution, there is a coherent functional pattern to the common law rules. This pattern has, however, been altered by the federal securities and freedom of information acts. The second section deals with the welfare consequences of the law described. Although a definitive welfare analysis of the rules is not offered, welfare arguments for the common law rules are developed. A principal contribution of this section is to relate recent developments in price theory and finance to these problems. The section also speculates on the implications of the institutional structure of information generation and transmission for some basic issues in industrial organization and monetary theory.

Law amid Flux: The Economics of Negligence and Strict Liability in Tort

Abstract: THE economic efficiency approach to the analysis of the common law, particularly the law of torts, has been growing rapidly in recent years and shows no sign of abatement. Nevertheless, some very fundamental analytic problems have not even been recognized in this literature, much less solved. It is the purpose of this essay to raise these problems in the context of the perennial conflict between negligence and strict liability. The first and major part of this paper will consist of a detailed study of the efficiency rationale for negligence law. Next, we shall analyze some of the economic aspects of a system of strict liability. The overall conclusion is that efficiency, as normally understood, is impossible as a goal for tort law. The law cannot and should not aim toward the impossible. Consequently, both the normative and positive justifications for the efficiency approach to tort law must be rejected. Our reasons for this conclusion can be divided into static and dynamic considerations. The most important by far, however, are the dynamic factors: Precisely because we live outside of general competitive equilibrium and in a world of unpredictable flux, the efficiency case for negligence must fail. In such a world, it is impossible to compare alternative liability systems in terms of judicial cost-benefit analysis or "fine tuning." Instead, they must be analyzed in terms of institutional efficiency-the certainty and stability that these rules impart to the social framework. A static world of general equilibrium would make an efficient tort law possible, and yet render it unnecessary; in such a world, markets would be universal. A dynamic world, however, demands the certainty and simplicity of static law.

Retribution and Related Concepts of Punishment

Abstract: What we may call the retributive view is that punishment is justified on the grounds that wrongdoing merits punishment. It is morally fitting that a person who does wrong should suffer in proportion to his guilt, and the severity of the appropriate punishment depends on the depravity of his act. The state of affairs where a wrongdoer suffers punishment is morally better than the state of affairs where he does not; and it is better irrespective of any of the consequences of punishing him.'

First come, first served: an economic analysis of "coming to the nuisance"

Abstract: been adequately studied. To the extent that it has been considered at all by economists, "first come, first served" has been thought of as an inferior method of allocation in comparison to the price system; philosophers have, for the most part, ignored the issue entirely; whereas the judicial system, which is forced to confront the issues involved in being first, has often been confused. In this paper, I analyze the appropriate role of being first in determining the allocation of property rights and the distribution of liability within the context of nuisance law.'

Insider Trading: Rule 10b-5, Disclosure and Corporate Privacy

Abstract: THIS paper considers what has been for the last fifteen years the most rapidly growing area in all of federal corporation law-the Securities and Exchange Commission's (SEC) rule 10b-5'-as it relates to the required disclosure of material nonpublic information by those trading in a company's securities. After a brief account of the rule's adoption and legal setting, we will consider at some length different conceptions of its objectives and their implications. Since adoption of the Securities Act of 1933, formal disclosure requirements, involving a registration statement and prospectus, have been imposed by law on the sales of new security issues by corporations and on secondary distributions of a company's securities by its controlling insiders. There are some limitations. Private placements by a company of its securities, usually with institutional investors, are exempt under section 4(2) of the 1933 act, and resales by insiders in limited amounts to unsolicited purchasers are exempt under section 4(1) of the 1933 act and the SEC's rule 144. By and large, however, sales by a corporation and its controlling insiders of its securities are subject to rather specific and elaborate disclosure requirements, which tend to stress investment risks and take a conservative view of expected returns. The 1933 act did not apply to purchases by a company or its insiders of its securities. In 1942, however, the SEC staff became concerned about reports of a company president who was buying up its stock by telling shareholders

Selective Characteristics of Litigation

Abstract: T HIS paper discusses theories of the content of common law rules. Its principal subjects are the general, comprehensive theories of the composite set of common law rules rather than the particularistic theories of small sets of cases that lawyers devise each day to predict judicial decisions. Lawyers may predict with some success the outcome of a dispute from the observation of earlier similar cases, just as today's weather allows a reasonable prediction of tomorrow's. But the "theories" or working hypotheses' upon which such predictions are based do not address either the pattern of the earth's climate or the broader structure of the common law.

The Static Conception of the Common Law

Abstract: O NE of the most persistent themes in the legal literature is that the common law grows and matures in response to social change. For generations, legal historians have examined the common law in order to document this theme. Older principles are distinguished away or swept aside by judges who recognize their obsolescence. Today economists echo this theme when they claim there is, whether by conscious choice or by social necessity, a strong tendency for the common law to adopt "efficient" legal rules.' The primacy of change is underscored by the pantheon of great judges. Men like Bramwell, Pitney, and Mitchell are forgotten while Coke, Mansfield, Cardozo, and Traynor are praised for the new paths they opened.2 Innovation, not stability, is the order of the day, and the hallmark of fame and recognition.

A Taste for Privacy? Evolution and the Emergence of a Naturalistic Ethic

Abstract: IN his paper "Privacy: Its Origin, Function, and Future," Jack Hirshleifer has attempted to link the modern theories of sociobiology to the legal rules governing privacy.' Stated in its most general form, the subject of his inquiry is whether a theory of natural selection can explain an inborn preference for privacy and a collective impulse for its legal protection. His work rests in large part upon the biological theory of natural selection-developed by Darwin in the nineteenth century and enriched by modern evolutionary theory-as it relates to both kin selection and sociobiology. The basic precepts of the modern view towards evolutionary principle are in essence two.2 The first is that individual patterns of behavior are subject to the same sorts of selection pressures as anatomical structures or biochemical processes. The second is that the principle of inclusive, not individual, fitness functions as the test for natural selection. Inclusive fitness concentrates not upon the survival of the individual organism as such, but upon the propagation of its genes over future generations. The shift in focus from the individual to the gene has enormous consequences, because it introduces a limited and specialized altruism, as individual behavior, in addition to individual selfinterest, must take into account the effect of behavior an organism has upon all its biological relations, discounted by the remoteness of the relationship.3

The Value of Wealth: A Comment on Dworkin and Kronman

Abstract: THE original plan of this Symposium called for Professor Kronman to comment on Professor Dworkin's paper. But Kronman later decided that what he had to say about the subject matter of Dworkin's paper-that is, about the theory of wealth maximization-warranted independent treatment. His comment, therefore, became an article, and the task of commenting on both papers' devolved on me: their principal target. As Dworkin explains, wealth maximization is "achieved when goods and other resources are in the hands of those who value them most, and someone values a good more if and only if he is both willing and able to pay more in money (or in the equivalent of money) to have it."2 The difference between wealth and utility is that wanting something very much, but not being able to pay more for it than its owner or competing demanders, does not establish a claim to a good in a system of wealth maximization, although it might do so in a system of utility maximization.3 Wealth maximization thus excludes claims based on pure desire-claims not backed up by willingness (implying ability) to pay. Resources are efficiently allocated in a system of wealth maximization when there is no reallocation that would increase the wealth of society. I and other economic analysts of law have argued that efficiency in this sense provides a good explanation of many common law rules and principles.4

Legal Change, Judicial Behavior, and the Diversity Jurisdiction

Abstract: T HE how and why of legal change are of interest to people who study the legal system from any of a variety of different perspectives. It is, for example, of great interest to the economic analyst of law. Although this fact is not widely appreciated, the positive economic theory of the common law,, on which the present authors have written, contains an implicit theory of legal change. It is this: if the common law is an instrument by which society reduces divergences between private and social costs, and otherwise promotes the efficient allocation of resources, it should follow that changes in economic conditions-in relative values-will lead to changes in common law rules. Because this hypothesis is testable by examining the response of the common law to changes in relative values, it provides a tool of potentially great value in the empirical analysis of the economic theory of the common law. Surprisingly, this tool has been little used. Its potential is illustrated by Harold Demsetz's study some years ago of the property rights systems of North American Indians.2 Demsetz treated the customary law of primitive societies rather than the common or judge-made law of our society, but his study casts at least an oblique light on the proposition that the law

Justice, Efficiency, and the Economic Analysis of Law: A Comment on Fried

Abstract: IN \"The Laws of Change,\"' Professor Fried raises fundamental questions concerning the intellectual framework within which the economic analysis of law2 has been developed. As far-reaching as these questions are, an examination of them suggests still other questions, which raise additional doubts concerning the economic analysis of law. Resolution of these questions and doubts is surely necessary before further development of this heretofore promising field can take place. In commenting on \"The Laws of Change,\" I focus on the crucial issues raised in Fried's paper and in the other relevant work of Professors Dworkin, Hayek, Rawls, and Fried himself. I examine Professor Posner's work in light of these contributions. I agree with much of what Fried has written in \"The Laws of Change.\" Rather than merely registering agreement on specific points, or nitpicking, I have gone a bit further afield than one normally does in a comment. I try, nonetheless, to stay with the questions and problems raised by Fried, extending and complementing his analysis where appropriate.

Taxes and Legal Rules for the Control of Externalities When There Are Strategic Responses

Abstract: TORT rules of liability allow accident victims to go to court to try to collect damages from the harming party, unless there is a superseding contract between the parties or there is criminal intent. Since both accidents and accident prevention are costly, the rule which applies has important consequences. This body of law has only recently been the object of economic analysis and it has been found to have interesting and subtle properties.' This paper analyzes the economics of accidents when there is a single legal rule which governs cases where there are transaction costs ex ante as well as where there are not and cases where parties negotiate strategically and where they do not. We analyze situations where participants contract completely (i.e., there are no transaction costs), where participants play a Cournot-Nash game, and where they behave strategically according to the game of Stackelberg. Where there are large numbers of participants both as potential plaintiffs and as potential defendants, then the Cournot-Nash equilibrium resulting from nonstrategic behavior is a very plausible model. However, there are many tort contexts that are one-on-many or one-on-afew or one-on-one in character where strategic behavior by the one is plausible and worthy of study. The set of possible strategies is, of course, immense. Here we shall study the Stackelberg strategy in the hopes that it is illustrative and provocative. The Stackelberg formulation has the advantage of familiarity and simplicity and it captures the central notion of strategic behavior.

Privacy and the Economics of Information

Abstract: IT is clear from the papers in this volume that the law and economics of privacy ranges over a large number of issues. These include the matter of property rights in trade secrets, the question of protection against public exposure of personal and domestic information, and the extent to which parties to a commercial transaction can inhibit (or force) disclosure of information that they deem harmful (or helpful) to their interests. There are common elements running through all-these issues, two of which appear to me especially important. First, all of these issues have to do with the production and dissemination of information and, second, all involve the problems of externalities that are inherent in any analysis of the economics of information. In this paper, I will be concerned with the relationship of externalities and the production of information. Many papers dealing with the economics of privacy either argue or treat as axiomatic the proposition that information is a good, and hence a public policy that aims to increase the amount of information with little or no increase in the cost of producing that information is desirable. Somewhat less explicitly, the following propositions, or versions of them, are sometimes taken to be always and everywhere true. (1) If the cost of producing good X is increased, less of good X will be produced. (2) If the cost of producing good X is decreased, there will be a Paretian welfare gain. (2a) If the cost of producing good X is increased, there will be a welfare loss to the producer who experienced the cost increase.

The System Builders: A Critical Appraisal of Modern American Tort Theory

Abstract: In general, the cause of the present crisis can be ascribed to a shifting in the aims and functions of tort law. Traditional tort law has been concerned with redressing a certain wrong committed by a tortfeasor towards his victim. It is \"corrective justice\"'2 between two parties based on the concept of fault with a clear moral connotation: the blameworthy injurer must compensate the innocent victim.3

Sales Law, Economics, and the Negotiability of Goods

Abstract: T HE issue of ownership is troublesome when a title dispute arises between the owner and an innocent purchaser of stolen goods.1 On the one hand, the owner did not consent to the transfer or mislead the purchaser to believe that he was acquiring good title. The purchaser, on the other hand, was innocent of any wrongdoing or knowledge that the goods were stolen. Thus, there are two seemingly deserving claimants for the same property. Similar issues arise when owners lose their goods through other forms of wrongful behavior such as fraud and the goods are subsequently acquired by innocent purchasers.

Economics--An Imperialist Science?

Abstract: IN a recent paper, "Economics and Contiguous Disciplines," Professor R H Coase speculates on the reasons that induced economists to deal with questions which previously belonged to other social science fields ' Since this process is relatively recent, Coase concludes that it is difficult to decide whether this movement of economists into other fields is temporary, and thus economics will be defined by its subject matter--the economic system, or whether the economic approach which assumes that man is a rational utility maximizer will succeed in providing a comprehensive framework to all the disciplines of the social sciences, and thus the movement of economists into other fields would be permanent2 The purpose of this paper is to continue Coase's arguments by comparing the characteristics of the process taking place today in the social sciences with similar processes that occurred in the natural sciences in the past The arguments follow Kuhn's3 approach to mature sciences and scientific revolutions4 which he applied to natural sciences The similarities between the process which takes place in the social sciences today and those Kuhn exam-

Predictability and the Economic Approach to Law: A Comment on Rizzo

Abstract: M ARIO RIZZO' argues, first, that the type of economic efficiency of the common law discussed by Posner and others is unachievable and thus not a meaningful goal for any system of strict liability and, second, that a more general type of efficiency, \"institutional efficiency,\" can best be achieved under a system of strict liability, such as that proposed by Epstein.2 The hypothesis underlying Rizzo's analysis is that evolutionary models of efficiency in the law such as those proposed by myself, George Priest, and John Goodman, and discussed by Landes and Posner3 will not be able to achieve and maintain economic efficiency. I reject this hypothesis, but in the following discussion I will grant Professor Rizzo his assumptions and analyze his arguments as if the evolutionary mechanism would indeed not be sufficient. In Part I, I discuss Rizzo's criticism of the efficiency explanation of the common law. In Part II, I then examine his claim that strict liability will achieve institutional efficiency in a situation of change and uncertainty. I conclude that, in a dynamic system, an approach based on an economic analysis of costs and benefits will impart a greater measure of predictability to legal decisions than will a system based on strict liability; that is, even if we grant Rizzo his assumptions and goals, the desired outcome will not follow from the policies which he advocates but will more likely be obtained from an economic approach to liability law. His argument is nonetheless * Professor of Economics, The University of Georgia. I would like to thank Ellen Jordan, Chris Paul, and Richard Posner for helpful comments, and the Liberty Fund for financial assistance.

The Laws of Change: The Cunning of Reason in Moral and Legal History

Abstract: TODAY the law is conventionally viewed as something of which we catch a fleeting glimpse as it moves rapidly past us. One does not describe the fixed points of the law so much as its vectors, its varying momenta at various regions, the directions and velocity of change. Every first-year student who studies torts, for instance, studies a moving object proceeding from a regime where one often acted at his peril, to negligence, to strict liability, and perhaps beyond. He or she studies contracts as a moving object, beginning with relations of status, moving to freedom of contract and the will theory, going on to Willistonian objectivism, and on again to a new kind of status law in respect to form contracts, contracts imposed by the state, implied contracts, and, I suppose, beyond. He studies constitutional law, bankruptcy law, property law not to discover the coordinates of the present system but the first and second derivatives of change. So it is not surprising that the most ambitious and enterprising of legal scholars should be engaged in devising, not so much theories of the law, as theories of legal change. In the classrooms where Williston or Scott may have set out the only glacially evolving landscape of contract or trusts, today the talk is of changing paradigms, evolving models, transformations, movements from preclassical to postclassical periods, and the like.' In a sense the study of legal history has become the study of law tout court. The explanation of why law changes, the laws of its change have become the explanation of law tout court. To explain how the common law changes, therefore, is just to explain the law. Let me give two rather different examples. It has recently been suggested by Rubin, Priest, and Goodman2 that law