Academic

Paul Stephan on Erin O'Hara & Larry Ribstein, The Law Market

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

Welcome to the Conglomerate Book Club.  As promised, today we focus on Erin O'Hara and Larry Ribstein's new book, The Law Market.  We're posting a series of reivews, as well as author responses, and we hope you'll join our discussion in the comments.  First, we're grateful to Paul Stephan, the Lewis F. Powell, Jr., Professor of Law and Elizabeth and Richard Merrill Research Professor at the University of Virginia School of Law, for the following review:

The Law Market as Project

                Large states have certain advantages. If they can organize an internal free market (not always a given: look at Russia), they can scale up the benefits of innovation and comparative advantage. One argument about why the U.S. economy enjoyed so much success between 1870 and 1970 was the large internal common market.  But small states with many neighbors also have some advantages. They face competitive pressure that, unless it overwhelms them, encourages innovation and adaptation. So, if you want to optimize the prosperity of a population, it is not obvious what is the best size of a state might be. Moreover, it is at least plausible that optimality might vary with the task at hand: That the optimal size of a currency union might be different from the optimal size of a military structure, for example.

                U.S.-style federalism arguably offers an ideal solution to this problem. The United States is huge, by population and resources as well as by area. But its semi-autonomous subunits (the states) traditionally have been allowed a wide range of experimentation with regard to economic and social policy. The Constitution commits us to a national common market and a common defense, but over the last 220 years we have seen a variety of configurations respecting currency, business regulation, fiscal policy and family structure. A vast literature is devoted to exploring the effects and mechanisms of this centrally controlled jurisdictional competition. The Law Market is a welcome and admirable extension of this project.

                The Law Market exemplifies a body of scholarship that examines how interjurisdictional competition works and how it affects social welfare. This aspect of the scholarship?the positive dimension?is compelling. When I was a law student, the idea that the U.S. approach to corporate law produced a race to the bottom that harmed shareholders was still accepted wisdom (although my teachers at Virginia were among the early skeptics). Today, overwhelming empirical evidence supports the claim that the U.S. structure, which allows states to assign corporate governance rules to corporations formed in their jurisdiction and requires other states to respect that assignment, produces great benefits for shareholders. It is a race to the top, and we have a good understanding of the features of the industry and the legal rules in question that make this a successful market.

                The tricky thing, however, is the normative impulse that lies at the heart of The Law Market. When positive analysis yields persuasive arguments that a robust law market makes people better off, the temptation is to argue that we need to have more and more robust law markets. But normative arguments are tricky. One needs to defend the criteria for distinguishing good from bad outcomes. One must justify using data based on the world as it is to support changing that world into something else. Lawyers often, although not necessarily, end up resting on deductive and nonfalsifiable assumptions, rather than on testable hypotheses. The move from analysis to advocacy is natural for lawyers to make, but hard to pull off successfully.

                This is a difficult point for me to make, because I have been an active contributor to the literature on law markets and share many of the core normative commitments that seem to underlie Ribstein & O?Hara?s book. I believe that liberty is an essential element of any scheme to enable human flourishing. I believe there are many situations where private ordering produces less wasteful, more fulfilling outcomes than does state management. I am particularly skeptical of reductionist appeals to ex post civil litigation as the principal means of regulating conduct among equals. I want all arguments for state intervention to take account of the possibility of government failure.

                Having said all that, the extent of the normative ambition of The Law Market leaves me breathless. I?ll focus on two overlapping arguments, one for the growth of a law market in family law, especially for marital rights and civil unions, the other for adoption of federal legislation to bolster choice-of-law rules based on private autonomy.

                Ribstein and O?Hara make the (to me) appealing argument that individuals ought to be free to form the kinds of family unions they wish in jurisdictions that allow them to do so, and that other states should respect those choices when the members of those unions later move. Why same-sex families excite the kinds of hostility that they do, and why so many people find their prospect threatening, are mysteries to me. But consider this unpleasant fact: Not a single jurisdiction in the United States has adopted same sex marriage (as distinguished from civil unions) through the regular democratic process. Such states as have reached this seemingly sensible outcome have done so through constitutional litigation, in the case of California provoking a retaliatory constitutional amendment. Whatever the ultimate sources of this foolishness, it nonetheless is strong evidence of profound cultural barriers that will block an effective market for family law in the United States. If Ribstein and O?Hara want to propose a work-around for this problem, they must explain how the evident obstacles will go away. Their book assumes that the benefits of their proposal are obvious, and to me they are. But there is a considerable body of evidence indicating that a political salient portion of the population of most, if not all, states currently do not share this insight. How are they to be brought along? Ribstein and O?Hara don?t say.

                More generally, consider Ribstein and O?Hara?s argument for a federal choice-of-law statute designed to facilitate a law market. There is nothing inherently contradictory about a central command structure mandating a decentralized economy, but we know this outcome is not inevitable. The statute they envisage probably would enhance general welfare, at least if you make the assumptions, and share the normative commitments, that they (and I) are willing to make. But the only existing federal statute (as far as I know) that addresses a choice-of-law issue is the so-called Defense of Marriage Act, a misbegotten and foolish enactment that impairs, rather than promotes, private ordering. I am not the person who needs to be persuaded that the Ribstein-O?Hara statute would be a good thing, but their arguments are couched in terms that someone with my priors would find congenial. Where are the arguments that would turn around the authors of the Defense of Marriage Act? And isn?t it likely that the people who wrote and voted for the Defense of Marriage Act are more representative of the legislators who would vote on the Ribstein-O?Hara proposal than is any of us law professors?

                In conclusion, Ribstein and O?Hara have assembled the arguments and the evidence that support strong law markets. Especially in these troubled times, when the enemies of liberal democracy seem on the rise, we need to be reminded of how private ordering can expand human potential and greater happiness. But we cannot rely on the case for greater markets and greater human freedom to be self evident. By pushing a strong normative agenda without fully assembling the case for liberty and autonomy, Ribstein and O?Hara have left themselves, and the law market project, exposed to their critics.

Full post as published by Conglomerate on March 18, 2009 (boomark / email).