Law and Economics: An Institutional Perspective

276 Pages·1980·9.4 MB·English

by  Warren J. Samuels, A. Allan Schmid (auth.), A. Allan Schmid (eds.)

LAW AND ECONOMICS
CONTRIBUTORS
Josef M. Broder, Department of Agricultural Economics, University of Georgia
Ronald C. Faas, Department of Agricultural Economics, Washington State
University
Nicholas Mercuro, Department of Economics, University of New Orleans
Warren J. Samuels, Department of Economics, Michigan State University
A. Allan Schmid, Department of Agricultural Economics, Michigan State Uni-
versity
James D. Shaffer, Department of Agricultural Economics, Michigan State Univ-
sity
LAW AND ECONOMICS:
AN INSTITUTIONAL
PERSPECTIVE
Edited by
Warren J. Samuels
A. Allan Schmid
Kluwer· Nijhoff Publishing
Boston/The Hague/London
Distributors for North America:
Kluwer Boston, Inc.
190 Old Derby Street
Hingham, Massachusetts 02043
Distributors outside North America:
Kluwer Academic Publishers Group
Distribu tion Cen tre
P.O. Box 322
3300 AH Dordrecht, The Netherlands
Library of Congress Cataloging in Publication Data
Samuels, Warren] 1933-
Law and economics.
Bibliography: p.
Includes index.
1. Law - Addresses, essays, lectures. 2. Economics
- Addresses, essays, lectures. 3. Trade regulation
- Addresses, essays, lectures. I. Schmid, Alfred
Allan, 1935- joint author. II. Title.
K487.E3S36 343'.07 80-13735
ISBN-13: 978-94-009-8768-5 e-ISBN-13: 978-94-009-8766-1
DOl: 10.1007/978-94-009-8766-1
Copyright © 1981 by Martinus Nijhoff Publishing. Second printing 1982.
No part of this book may be reproduced in any form by print, photoprint,
microfilm, or any other means, without written permission from the publisher.
To Alice anq Sylvia
ACKNOWLEDGMENTS
Chapter 1: "Welfare Economics, Power, and Property" reprinted with per-
mission of the Institute for Research on Land and Water Resources, The
Pennsylvania State University, from Perspectives of Property, G. Wunder-
lich and W.L. Gibson, eds. (University Park: Institute for Research on Land
and Water Resources, Pennsylvania State University, 1972), pp. 61-127.
Chapter 3: "Interrelations between Legal and Economic Processes" reprinted
with permission from the Journal of Law and Economics 14 (October 1971):
435-50. Copyright 1971 by the University of Chicago Law School.
Chapter 4: "Ecosystem Policy and the Problem of Power" reprinted by per-
mission from Environmental Affairs 2, no. 3 (1972):580-96.
Chapter 5: "Normative Premises in Regulatory Theory" reprinted from Journal
of Post Keynesian Economics 1 (Fall 1978):100-14. © M.E. Sharpe, Inc.,
901 N. Broadway, New York, N.Y. 10510.
Chapter 6: "A Research Approach to Institutionalist Alternatives in the Ad-
ministration of Agrarian Development Programmes" reproduced from Agri-
cultural Administration 2 (I 975):285-305, by permission of Applied Science
Publishers Ltd.
Chapter 7: "Citizen Participation in Michigan District Courts" reprinted with
permission from Citizen Participation in Natural Resource Decision Making,
Allan Randall, ed. (North Central Research Strategy Committee for Natural
Resources, Department of Agricultural Economics, University of Kentucky,
November 1978).
Chapter 9: "Commentary: An Economic Perspective on the Compensation
Problem," Wayne Law Review 21 (November 1974): 113-34. Printed with
permission of the Wayne Law Review.
Chapter 10: Reprinted from "The Role and Resolution of the Compensation
Principle in Society: Part One-The Role," with permission of J AI Press,
Inc., from Research in Law and Economics 1:157-94. Copyright © 1979
by JAI Press, Inc.
CONTENTS
Introduction
I PARADIGMATIC AND THEORETICAL STUDIES 7
1 Welfare Economics, Power, and Property
Warren J. Samuels 9
2 Predicting the Performance of Alternative Institutions
A. Allan Schmid 76
3 Interrelations between Legal and Economic Processes
Warren J. Samuels 95
4 Ecosystem Policy and the Problem of Power
Warren J. Samuels 111
5 Normative Premises in Regulatory Theory
Warren J. Samuels 128
II APPLICATIONS: FUNDAMENTAL PROCESSES AND
INSTITUTIONAL IMPACTS 143
6 A Research Approach to Institutional Alternatives in the
Administration of Agrarian Development Programmes
A. Allan Schmid and Ronald C Faas 145
7 Citizen Participation in Michigan District Courts
Josef M. Broder 166
8 Medical Cost Containment: An Empirical Application of
Neo-Institutional Economic Theory
A. Allan Schmid and Ronald C Faas 179
9 Commentary: An Economic Perspective on the Compensation
Problem
Warren J. Samuels 188
10 The Role of the Compensation Principle in Society
Warren J. Samuels and Nicholas Mercuro 210
11 Regulation and Regulatory Reform: Some Fundamental
Conceptions
Warren J. Samuels, A. Allan Schmid, and James D. Shaffer 248
Index 267
vii
LAW AND ECONOMICS
INTRODUCTION
This book brings together a number of articles, for the most part already pub-
lished, that develop a contemporary institutionalist approach to the study of
the economic role of government. The institutionalist tradition in these matters
began with the work of Henry Carter Adams on economics and jurisprudence!
and Richard T. Ely on the relation of the institutions of property and contract
to the distribution of wealth.2 It continued with John R. Commons's monu-
mental analytical and historical study of the legal foundations of capitalism,3
Edwin E. Witte's work on the role of government in the economy,4 and Ken-
neth Parson's study of economic developmenLs The approach to law and
economics that is developed in this book centers on (1) an identification of the
objective fundamentals of the interrelations between legal and economic pro·
cesses and (2) the development of skills with which to analyze and predict
the performance consequences of alternative institutional designs.
We must stress that our principal goal is quite simply to understand what
is going on-to identify the instrumental variables and fundamental issues
and processes-in the operation of legal institutions of economic significance.
We envision government as an object of legal control. We also see law as an
instrument of securing economic gain and advantage-that is, as a wealth-
producing and -acquiring alternative. Government-the law-is (1) an insti-
tution available for the use of whoever can control it; (2) an arena of power
and power play; (3) an important part of the larger social decision-making
and valuational process; and (4) both an independent and dependent variable,
the former insofar as other persons, groups, and institutions are law takers,
the latter insofar as others can secure control of and use government as law
makers. Government, in short, is a set of handles by which various power play·
ers endeavor to manipulate social structure and the distributions of oppor-
tunity, wealth, income, and welfare.
In emphasizing objective understanding, we intend to differentiate between
two uses of the term positive economics and between both of them and norma-
tive economics. The form of positivism that we endeavor to pursue is principally
concerned with the objective, neutral identification of what is the case. The
other form of positivism is concerned with what is necessary or instmmentally
useful given what ought to be done, while normativism is concerned with what
ought to be the case. As human beings, we have our own, private sentimental
2 INTRODUCTION
and nonnative longings; indeed, we disagree with one another from time to
time. But that level of discourse we endeavor to exclude as much as possible
from our work as scholars. We are interested in identifying and analyzing funda-
mental legal-economic processes-in part, to understand them as a distinct and
important subject in their own right and, in part, to be able to analyze and
predict institutional performance, particularly those institutions in the public
sector and those that reside in the legal-economic nexus. Such a viewpoint and
such a limited set of objectives often are disappointing to those who want to
rationalize certain general or specific arrangements as "optimal" (or criticize
others as "exploitative"). We are not intellectual eunuchs in such matters, but
we prefer that the great bulk of our work be positivist in the first sense, and
such is what we have brought together here. This approach is taken not because
we think valuation, or choice, is not important. On the contrary, we stress the
ultimate normative (rather than technical) character of the fundamental opera-
tions and interactions between legal and economic processes. If anything, as
scholars, we want our work to make the choosing process both more infonned
and more open, whatever choices are made.
In contrast, we fmd that most conventional analysis is nonnative, presump-
tive, and misleading in important respects. Accordingly, some of our work has
been critical in the sense that we have endeavored to reveal the limits and
faults of conventional work as a sort of ground-clearing operation, which we
hope will raise the level of both analysis and debate. We find, for example,
that analysis of "regulation" as a concept distinct from "rights" can mislead
and selectively channel analysis. We fmd that the concept of efficiency as sep-
arate from distribution is false. Distribution has allocative implications; effi-
cient solutions are distribution (rights-structure) specific (that is, efficiency
has distributive assumptions and implications); and the legal system is neces-
sarily a fundamental detenninant of the distribution of economic welfare,
including resource allocation. We also fmd that the market is not separable
from government and that policy issues should be seen not in tenns of more
or less government, but in tenns of who is using government for what purposes.
In general, we find that the role of government is important, not aberrational-
that it is indeed a fundamental decision-making process whose operation is
channeled by, among other things, beliefs relating to the dysfunctional or
aberrational nature of government. (These beliefs are typically highly specific,
if only implicitly, in regard to whose interests should count.) The decision-
making process is also channeled by beliefs amounting to wishful thinking
about what is circumstantially or fundamentally possible for government to
accomplish.
Thus, part of our work has assumed a demythicizing role. We have attempted
to transcend the modern Western economy's view of itself, in part to identify