Rivers of Law and Contested Terrain
A Law and Society Approach to Economic Rationality
Bibliographic Data
| ID | 4084022 |
|---|---|
| Authors | Lauren B Edelman (University of California, Berkeley, corresponding author) |
| Year | 2004 |
| Volume | 38 |
| Issue | 2 |
| Pages | 181-198 |
| Publication date | 2004-06-01 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | Law & Society Review (JOURNAL) |
| Journal identifiers | ISSN: 0023-9216 • E-ISSN: 1540-5893 |
| Publisher | Cambridge University Press (CUP) (PUBLISHER) |
| DOI | 10.1111/j.0023-9216.2004.03802003.x |
| OpenAlex | W2101393871 |
| Language | EN |
| Citations received | 38 |
| References cited | 68 |
The theme of this year's meeting is Rivers of Law: The Confluence of Life, Work, and Justice.1 The river metaphor draws upon the topography of our host city of Pittsburgh, and it symbolically evokes many of the themes of law and society scholarship. Like law, rivers are sites of regulation and of contest; they are sites of violence and death and they help to nurture life; and, like law, rivers direct resources toward some groups and away from others. While the river metaphor evokes themes that are central to law and society (L&S) scholarship, rivers themselves are also central to a social arena that has been too peripheral to L&S scholarship. That arena is what we conventionally label “the economy.” Just as rivers flow through and affect the culture, structure, and—perhaps most centrally—the economy of the communities around them, so too law flows, not only through culture and social structure, but also through the economy. As law and society scholars, we need to be attentive to this flow. In recent years, the relationship between law and the economy has been front and center in policymaking around the world, in courts, and in law schools, largely as a result of the law and economics (L&E) movement. L&E has been extremely influential in the policy realm, so much so that concepts of law and justice are increasingly defined in economic terms and understood through the lens of market efficiency. L&S scholarship has important, if largely unexplored, implications for the nexus of market rationality and justice. Much of what we have learned about social justice and injustice in the legal realm is applicable to the economic realm, and we need to assert the relevance of our understandings. An important step in introducing an L&S perspective into the study of law and the economy is to build a bridge between L&E and L&S, as we often talk past one another rather than engaging in dialogue. Certainly, there are strong epistemological differences that likely will always separate these intellectual domains, and important political visions often follow from these epistemological differences. But as John Donahue (1988) has argued, and as considerable L&E work has shown, L&E does not inevitably predetermine the ideological bent of scholarship, any more than does L&S. The principal differences between L&E scholarship and L&S scholarship are not in their politics but rather in their subject matter, assumptions, and methods (Dau-Schmidt 1997; Donahue 1988). At the broadest level of abstraction—and with the recognition that I am glossing over important distinctions within each perspective—L&E scholarship tends to focus on market processes, to emphasize efficiency, to assume rational behavior by individuals, and to use formal mathematical methods, whereas L&S scholarship tends to focus more on nonmarket processes, to emphasize norms, to make few simplifying assumptions, and to adopt an empirical approach to understanding social behavior.2 In recent years, however, more L&S scholars have turned to the study of market institutions and the nature of rationality (e.g., Carruthers, Babb, & Halliday 2001; Delaney 1989; Donahue & Heckman 1991; Nelson & Bridges 1999; Suchman & Cahill 1996; Rostain 2000) while many L&E scholars have broadened their purview to include more social institutions and the study of norms (e.g., Ellickson 1998; Cooter 1989, 1995, 2000a, 2000b; McAdams 1998; Dau-Schmidt 1990, 1997).3 The time is ripe for L&S and L&E to engage in a dialogue that will ultimately enrich our understanding of law and the economy. Ideally, this dialogue will help us move beyond the impasse of the norms-vs.-efficiency debate that too often impedes further discussion. I view this talk as a point of departure for that dialogue. My goal is to articulate a framework for understanding law and the economy that draws upon the major tenets of L&S scholarship yet ventures into territory normally occupied by those in L&E. In offering this account, I draw on the new field of economic sociology, which emphasizes the social embeddedness and politics of markets. Many of the insights that economic sociology offers to the study of law and the economy are either implicit in or consistent with extant L&S scholarship. They are also consistent with the ideas about the nexus of law and economy found in the classical social theories of Marx and Weber (Marx 1967; Weber 1978) and with what is sometimes called the first law and economics movement, which included the institutional economics of Robert Hale, John R. Commons, Thorstein Veblen, and others (see Hovenkamp 1990). A few caveats are necessary. First, I focus less on what topics we ought to address than on how an understanding of the social and political underpinnings of economic rationality might inform sociolegal scholarship, L&E scholarship, and social justice generally. The approach I outline should be valuable in studying a variety of processes, ranging from ones that are more centrally economic (such as markets, antitrust, bankruptcy, and employment) to others that seem further from the economic sphere (such as jury behavior, compliance, and legal consciousness). Second, the perspective I offer is necessarily colored by my background in sociology, and particularly in new institutional theory, and it is likely to differ from accounts offered by those scholars within the L&S field who are more influenced by neoclassical economics or by rational choice theory in political science and in sociology. I invite their input into the discussion (and I am delighted that the commentators on this speech—Lee Epstein and Jack Knight, Terry Halliday, Ken Dau-Schmidt, and Richard McAdams—are helping to initiate such a dialogue). The combination of limited time and my limited knowledge of economics means that I will necessarily oversimplify the vast and diverse themes of L&E. In particular, while my comments critique some assumptions that inform mainstream law and economics, I'd like to make clear that I hope that economists, including law and economics scholars, will join in the intellectual endeavor I propose. Indeed, a number of L&E scholars are already leading the way—bringing together the insights of L&S and L&E scholarship. Work by economists Ken Dau-Schmidt (1990, 1997, 1999), John Donahue (1986, 1987, 1988), Rick Brooks (2000, 2002), and Richard McAdams (1995, 1998, 2000) goes quite a way toward building a bridge between L&S and L&E research. My perspective may begin on the other side of the river, but my goal is to help complete the bridge (without falling into the water, I hope). A number of L&S scholars have already explored these waters from the L&S side: my comments today, and indeed my interest in the subject, owe much to work by Tanina Rostain (2000), Richard Swedberg (2003), Bruce Carruthers and Terence Halliday (2001, forthcoming), Mark Gould (1992), Bob Nelson and Bill Bridges (1999), Mark Suchman and Mia Cahill (1996), and Robin Stryker (1994, 2003; see also Edelman & Stryker 2004). L&S scholars would call attention to the social, political, and legal construction of rational economic behavior and to the economic construction of law. There are many ways in which this broad argument deviates from the basic tenets of L&E, but the most central difference arises from how my proposed L&S approach conceptualizes the nature of rational action or rationality. L&E scholars treat rationality as a basic assumption both in explaining why certain regulations are (or would be, if adopted) efficient. Although important variants of L&E exist, theory coheres around a fairly stable set of assumptions. The central analytic unit in L&E is the individual: individuals are generally assumed to have stable sets of preferences and to choose from among available options based on their preferences. In other words, individuals are assumed to be maximizing a utility function (in light of constraints) where the function is usually their own preferences (Posner 1992).4 Increasingly, preferences are defined not just with respect to tangible goods and services but broadly to include social factors, such as preferences for harmonious relationships or for conformity with norms.5 As the conception of preferences is broadened, social actions that involve emotion or altruism or norms can more easily be explained as rational. Rationality in L&E is closely related to efficiency. The interaction of rational individuals will (at least under perfect conditions) produce an efficient equilibrium or steady state.6 Markets, under perfect conditions, constitute efficient equilibrium among rational actors. Many of the efficiency-related insights of L&E are based on the work of Ronald Coase (1960, 1988). The famous “Coase theorem” states that “when parties are free to bargain costlessly they will succeed in reaching efficient outcomes regardless of the initial allocations of legal rights” (Donahue 1988:906). But L&E scholars recognize (as did Coase) that bargaining almost always involves “transaction costs”; parties to a dispute, for example, incur costs when they hire lawyers or consultants, when they travel to negotiation sites or miss work, when there are costs to discovering information, and so on. Transaction costs are but one type of “market imperfection” that can produce “market failure” or inefficient markets.7 L&E scholarship offers a theoretically informed set of principles for identifying legal rules that can restore efficiency to the market by influencing the behavior of market actors (individuals or corporations). In addition to its normative role in specifying where and how law might be used to improve market efficiency, L&E offers a theoretical paradigm for explaining legal developments, particularly in the common law. Again invoking the Coase theorem, L&E suggests that many common law developments can be explained by their ability to reduce transaction costs and to improve efficiency.8 So how could L&S contribute to the discussion of law, markets, and rationality? Generally, it could offer a more socially grounded account of how these institutions are interrelated. This account would involve a lot of messy details and complex interactions, and fewer simplifying assumptions, so it would be far less elegant than the L&E account. Nevertheless, a more socially grounded account promises a richer understanding of the interplay between law and the economy, and an account that is more likely to recognize and perhaps to ameliorate social injustices that follow from efficiency-based reasoning. Let me highlight some of the main differences between L&E and L&S approaches to law and the economy. First, whereas L&E assumes rational action by individual actors, L&S would regard rationality as a phenomenon that varies across actors and social arenas and, therefore, as a phenomenon to be studied and explained. Second, whereas L&E (like economics generally) treats individual actors as the basic social unit, L&S (like sociology generally) would understand social behavior to be formed through and by social interaction (Durkheim 1979; Meade 1934; Meyer & Rowan 1977; Bourdieu 1977; DiMaggio & Powell 1991). Ideas, norms, and rituals evolve at the group or societal level and help to constitute individual identities, needs, preferences, and behavior. Individual action cannot be understood apart from the social environment that gives meaning to that action. Both “preferences” and market behavior are governed by taken-for-granted notions of what is natural, right, and rational. Recent work in L&E on the endogeneity of preferences begins to consider the social nature of rationality. Whereas most L&E work considers the source of preferences to be “outside the box,” the inchoate work on endogenous preferences suggests that law and social norms may shape the individual preferences that form the basis for rational action. For example, Dau-Schmidt (1990) suggests that criminal law influences norms, which in turn shape preferences (see also Cooter 1998; Sunstein 1993). But I would go beyond specifying the sources of preferences to argue that rationality is itself a social phenomenon. Rational action is not simply responsive to social norms and institutions; rather, it is constituted through social interaction, culture and meaning-making, norms, and rituals. Institutionalized ideas about what is rational develop at the societal level in concert with institutionalized ideas about what is fair, what is legal, what is legitimate, and even about what is scientifically or technically possible. These institutionalized ideas vary, of course, across social and geographical realms and over time. Whereas L&E tends to understand rational action as dependent on the relationship between preferences on the one hand and prices and quantities of goods and services on the other (along with other constraints such as sanctions on illegal behavior), L&S scholars would understand rational action as produced through social interaction and maintained through institutionalized assumptions, norms, and rituals. In the L&E view, law is relevant as a potential influence on individual choice; in the L&S view, law plays a more powerful role in shaping the meaning of rationality. L&S has much to offer in explaining how law interacts with social structure, social norms, and culture to produce the meaning of rationality. Consider, for example, Stewart Macaulay's classic (1963) study, which showed that businessmen generally preferred a “gentleman's handshake” to a contract and rarely invoked contractual sanctions. Philip Selznick's seminal book, Law, Society and Industrial Justice (1969), explains how legality—which embodies ideas of both justice and rationality—is worked out in the context of everyday workplace problems. Neo-institutional approaches to the study of organizations and law, including work by Carol Heimer (1999), Mark Suchman (1995), Erin Kelly and Frank Dobbin (1999), Robin Stryker (1994, 2000, 2002, 2003), as well as my own work (Edelman 1990, 1992, 2002; Edelman, Abraham, & Erlanger 1992; Edelman, Fuller, & Mara-Drita 2001; Edelman, Erlanger, & Lande 1993; Edelman, Uggen, & Erlanger 1999) show how organizations respond to their institutional environments, incorporating institutionalized visions of law into their daily activities. In contrast to the fixed and stable preferences that determine social behavior in L&E, L&S sees social action as responsive to institutions, norms, and historical context. All of these works show how law and norms help to produce ideas about rationality at the societal level, but L&S work on legal consciousness explores how ideas about legality and justice enter into individual thinking. Although studies of legal consciousness tend not to be explicitly concerned with markets or rationality, together they show both how law shapes individuals' conscious preferences and needs and the ways in which people understand rights, morality, and justice (see, for example, Sarat 1990; Ewick & Silbey 1998; Albiston 2001; Nielsen 2000; Engel & Munger 2003; Kostiner 2003; Marshall 2003; Marshall & Barclay 2003). Similar approaches could be used to study conceptions of rationality and their relationship to law and norms. Beyond conceptualizing rationality as socially determined, L&S scholars would give a more central place to the role of power. L&E treats economic action as, at least principally, an exchange among equals. To the extent that power is considered, it is generally in the context of models of imperfect competition, in which one party has greater influence over prices or outputs. Power imbalance is an imperfection in the market, an abnormal state. L&S would make power much more central to the analysis. Law is integrally related to power—and hence to economic action. For example, L&S scholarship shows how socioeconomic status influences access to justice (Galanter 1974; Felstiner, Abel, & Sarat 1981; Bumiller 1988; Albiston 1999), the ability to bargain in the shadow of law (Mnookin & Kornhauser 1979), and the ability to win litigation and the likelihood of realizing substantive gains through litigation (Galanter 1974). Economic transactions such as entering into contracts and working out deals, entering into employment relations, accepting the terms of employment, and buying property and determining its use are simultaneously economic and legal actions, and they are bound up with social and political power. Social and political power affect bargaining strategies, who is even at the bargaining table, and most fundamentally, how actors assign value to actions (Lukes 1975). L&S, then, would replace L&E's rational actor with a social actor whose thinking incorporates institutionalized notions of rationality. And “efficient” markets, rather than being understood as the result of multiple economic actors simultaneously maximizing utility functions, would be understood as social arenas in which the dynamic interactions of law, norms, culture, power, and even science, technology, and religion all help to construct our of rational action. The L&S approach is far from but it has important implications for both and the of on law and the economy, the L&S approach suggests the need for further and of how conceptions of rationality vary, how law (as well as norms and related to influences what we understand to be rational and conceptions of rationality influence law. The for L&S is not simply to the social that affect preferences or the social that our is to the at the societal level between morality, and rationality. Let me an from the employment how the meaning of employment law is by and through ideas of rationality that evolve in the economic I to this as the endogeneity of law. To to as endogenous means that it is by a or I use the to the that the meaning of law is within the social (and realms that it to In particular, I am in how of law institutionalized ideas of rationality are themselves often to law that have been by an goes to a on law, or will be that it would be rational to an Although rational might to some extent or the to that are with and is also used in the economic or The would be that an could at least of First, are to help to in the first by to have their Second, in the of a are to constitute of The rationality of is for in the economic Whereas the movement, found in they are found in more than of (Edelman & Suchman The rationality of first socially and The rationality of socially produced as the that rational among and This rationality from the on one that the to that itself based on legal notions of and on the other that would organizations from by But the simply it not based on any In suggests that these not reduce the of they may is to the number of new Uggen, & Erlanger But the may be less relevant than the that these organizations from legal The rationality of produced in the as in the economic realm, to follow the that by then, for among At the time that about the rationality of first among and legal the and law did not recognize as a to of or But in the the that an might be relevant to an in a work environment this more to the and of course, lawyers more likely to assert that And in 1998, in the and the not only that relevant to an but also that an to use to the Although this in the context of there is some that the rationality of is to other realms of employment law. then, it is rational and in a for to But that rationality within the economic As ideas about rational that within the economic realm, the law increasingly To the extent that law is within economic legality and rationality may be understood as socially of that tend to the of powerful tend to that are understood as rational how these and power differences. also to consider the ability of powerful groups to institutionalized of rationality in ways that legal The of for example, tends to and far more than the to into their of law, to offer to by legal and by it more for to But the that rational for is more Certainly, may access to a than the courts, and not to a legal of action or to of there is to the ability of to legal For example, tend to in such as or Erlanger, & Lande 1993). the legal they are legal not in a legal context but rather in a context. are influenced by their by the to other actors, and by the that their on their to the rather than to law. are often quite to use these tend to from or to their own to themselves as 1987, 1988). also tend to ideas about the (as to nature of their 2003). have as a rational means of in of the that these may to the of law. are legal in not often into their In some involve of of and to of In these tend to be that of this tend to to through that give to organizations that have those that the use of those or that who to use those For the most to institutions of those legal legal to that over the of the economy to upon the law. of justice are informed and by the social of the economic In this law endogenous to the economic in the workplace tend to on a form in which ideas about often a focus on ideas of rationality are with political and institutionalized in ways that us to political and to the rationality of a for I have offered a framework for an understanding of law and the economy that is attentive to the social, and political construction of rational action. While I have on the social construction of rationality, L&S of law and the economy would enrich our understanding of other basic economic as For example, L&S would have much to about markets (Edelman & Stryker 2004). In contrast to the L&E of markets as the nexus of individuals maximizing utility functions, extant L&S scholarship, in combination with ideas from economic sociology, suggests that markets are with culture and and that these are themselves related to law. are in the that norms much market behavior. Consider, for example, why we bargain at the or the market but not at the or the why we to the for a when we it to a than when we it to our or our Stewart Macaulay's (1963) work on Mark work on contracts in and my work about Uggen, & Erlanger 1999) that market actions are governed by as well as, and sometimes are political in the that economic institutions are often the of political and power of and and work on the role of the for example, show how law a in economic the politics of markets is in the influence of in the construction of in shows how economic notions of efficiency are explicitly into law through a law that any policy that to to a a that incorporates notions of market rationality. The is by an of of the with and by a of Terry to interplay of law, markets, and economic in a economy (see also Halliday 1998; Carruthers & Halliday 2001; & 2000; & a social justice it is important that legality not be defined in terms of rationality or efficiency, at least an understanding of how these are produced through social and help to those L&E scholars have some in this regard by the legal and social of individual preferences and by incorporating empirical of market into their as Tanina Rostain out in critique of law and economics, these accounts generally to the social and political at in notions of rationality and efficiency. L&S on the politics of law and legal institutions could and political into the study of law and the just as social that affect preferences, but rather as social that are with markets, economic behavior, notions of efficiency and rationality, and law. preferences, rationality, and market behavior are within a set of political, and legal institutions that social to make markets more efficient may more than ideas of efficiency that already and these efficiency and rationality the of policy attention to how ideas of rationality may power or social the social and of law, then, L&S scholarship a means of understanding how both law and the economy are within a social environment in which power and in which institutionalized and rituals shape the nature of legality and rationality. law tends to to and to ideas of rationality that are in the of political and social legal grounded in efficiency are likely to and to extant power To the extent that markets are understood to be within political, and legal such as efficiency and rationality far more complex and and they as normative for In we should study how law economic behavior but also how law is in most economic institutions and in the of economic rationality. And we should study how law itself tends to institutionalized notions of efficiency and rationality in ways that may and the politics of economic A law and society approach to studying economic will and the ways in which law both and is produced by the economy, other endogenous to the economic Law, like a river, its way through economic for economic and constraints on the form of that But the economy is the through into the river of law and of
Cartography · Geography · Political science · Rationality · Sociology · Terrain · Law · Law, Economics, and Judicial Systems · Legal and Constitutional Studies · Property Rights and Legal Doctrine
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The Common Place of Law
Global Business Regulation
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Legalizing Gender Inequality
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Bargaining in the Shadow of the Law
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The rise of neoliberalism and institutional analysis
A political approach to organizations and institutions
The Hired Gun as Facilitator
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Rights of Inclusion
Outline of a Theory of Practice
Power
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Economy and Society
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The First Great Law & Economics Movement
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Mind the gap
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The Rule of Law and the Litigation Process
When the "Haves" Hold Court
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Cooperation and Conflict
Law, Society, and Industrial Justice
Victims in the Shadow of the Law
The Strength of a Weak Agency
Diversity Rhetoric and the Managerialization of Law
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| Unique citing works | 38 |
|---|---|
| Citations per year | 1,73 |
| Citation span | 2004 - 2024 (21) |
| Citation velocity | recent |
| Highly cited | No |
| Citation types | Neutral: 36 |