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In the last ever episode of Seinfeld -- in case you somehow missed
this year's big media event -- the show's four stars are tried for
failing to help a mugging victim, under a freshly introduced "good
Samaritan" law. Naturally, the four self-absorbed New Yorkers
are jailed, despite their lawyers plea that there is "no such thing as
a guilty bystander". The idea of such a law was regarded as
laughable -- although in some European countries bystanders can
indeed be tried for failing to offer aid to someone in need.
This may be useful information for New Yorkers travelling abroad. But should it concern economists? According to "The New Palgrave Dictionary of Economics and the Law", published this summer (by Stockton in America and Macmillan in Britain} the answer is yes. An essay asking whether it makes sense to enforce good Samaritanship is included in the dictionary's three volumes, all devoted to explaining how the dismal science can improve the workings of the law. Early economists such as Adam Smith often wrote about the economic impact of legal matters. But economics subsequently focused more narrowly on things monetary and commercial. It was only in the 1940s and 1950s, at the University of Chicago Law School, that serious thought was again given to the economic consequences of legal systems -- and the discipline "law and economics" was born. Not until the late 1960s did the discipline's ideas begin to influence mainstream economics. As the weighty new dictionary amply illustrates, law and economics is now a substantial subject. A vast range of legal issues, from adoption to vicarious liability and wildlife law, has undergone economic scrutiny. But has all this admirably stimulating academic activity led to better law-making? A booming business Some successes are claimed in the entry on "Law and economics in action"*. All over the world there is now much more economics taught in law schools, more lawyers and judges are familiar with economics, and more economists are concentrating on law-related work Many economists supplement their academic earnings by appearing in court as expert witnesses, and consultancies earn a fortune by advising governments on economically efficient law- making. It should be noted, though, that the "economics" of the law-and- economics movement is a specific sort of economics, with an orthodox free-market flavour. Law-and-economics thinkers tend to assume that competitive forces in free markets will lead to efficient outcomes and that regulation often harms rather than helps consumers. This orientation may explain why the movement has caught on more in America than elsewhere. The union of law and economics may have had its greatest impact in the antitrust field. The contention that the goal of competition policy should be to maximise consumer welfare (rather than, say, to protect small companies or to inhibit excessive size), put forth by scholars such as Robert Bork, is now mainstream thinking. Trust-busters are no longer predisposed to reject mergers between big firms; instead, they seek to analyse rigorously whether the outcome would be less competition and higher prices. As a result mergers that once would not have been allowed are now routinely approved. Yet the limits of such thinking are not always recognised by its proponents. The law-and-economics framework for analysing mergers, for example, does not obviate the need for trust-busters to make educated guesses about how competition might develop in future. There is still substantial room for differences of opinion -- which may explain why, while Mr Bork is advising Netscape in the Internet firm's encouragement of antitrust action against Microsoft, many other law-and-economics theorists have lined up on Microsoft's side. The biggest failure of law-and-economics to influence policy, according to "Law and economics in action", concerns insider- trading law. In most countries, the law restricts trading in a firm's shares by people who have confidential information about the firm's prospects. Law and economics teaches that insider trading causes no important harm and, by transmitting the inside information to the market, brings an important benefit: more accurate share prices. This argument has, however, failed to persuade most legislators or market practitioners, who object to insider trading on the ground that it might deter outside investors. What "Law and economics in action" omits is more telling than what it includes. It does not mention a vast literature on the economic causes of criminality and how to structure legal incentives to reduce crime, a subject that has largely been ignored by politicians. Nor does it discuss differences among countries' legal systems. Another entry** shows that because of the importance of history and culture, simply looking at the letter of the law may not be enough to understand its economic impact. For instance, the transfer to Europe during the 1980s of an American legal approach to product liability produced far less litigation than in America. For some reason, Europeans find it less necessary to sue when a faulty product causes harm. As for advising governments of emerging economies how best to structure their legal systems, various essays in the dictionary stress the importance of clear property rights, and of ensuring that these are marketable. Corruption, it is noted, is harmful to economic growth. An essay on "Corruption in transition economies"*** spells out several policies that might reduce corruption, such as encouraging legitimate business by reducing marginal tax rates. But it concludes that "the real issue is whether they are politically feasible". Such an insight is unlikely to sell the dictionary to those lucky people forming Russia's new government.
* By Leo Herzel and Addison Braendel. |