Institutional Law and Economics: The Legal-Economic Nexus

Eric and I recently had the pleasure of chatting with Dr. Pierre Schlag.   Schlag is Distinguished Professor at the University of Colorado and Byron R. White Professor at the Law School.  We had been referencing some of his work on Hohfeldian Legal Analysis for some of our model on legal-institutional interdependence, and he was kind enough to offer to Zoom with us as we worked through our many questions.  We had our conversation about Hohfeld, but Schlag also highlighted one of his past works on the importance of incorporating law into the study of economics.  This 2013 paper, titled " Coase Minus the Coase Theorem-- Some Problems with Chicago Transaction Cost Analysis " is incredibly relevant to all those interested in the intersection of law and economics-- not just those familiar with Coase's larger body of work or those especially familiar with the Coase Theorem.  Schlag provides a comprehensive overview of Coase's broader critique of neoclassical economic metho

  Back in March of 2006 (Vol. 28, No. 1) in the Journal of the History of Economic Thought, Mary S. Morgan gave the presidential address for the History of Economic Thought Association entitled “Economic Man as Model Man”. This is an excellent review of how economists have thought about and modeled the behavioral models that have been used going back to Adam Smith.  In brief, economists have moved over time from “thick” descriptions of human economic behavior in the 18th and 19th century to increasingly narrow descriptions until we reach neoclassical human economic agent in the 20th century.  Thick descriptions may be more realistic but don't provide a clear cut casual tool for understanding the link between behavior and economic outcomes such as prices and quantities.  In the 20th century, we ultimately ended up with the rational choice economic agent who acted under a specific set of assumptions and allowed economists to derive very specific predictions about price and quantity i

In several columns from 2019 through to today, Roger Valdez has written in Forbes about markets, defending markets and price as a social construct amongst other items*. In particular he has focused on the issue as it relates to housing and the affordability of housing prices.   In a piece in 2019, he wrote about the idea of commodification that he took from Marx*. In essence, he boiled it down to the idea that a commodity is best represented as in Marx as derived from exploited labor and that price is a construct and does not represent scarcity. This, he then goes on to argue, is the point that leads to housing being a right and therefore should not be subject to market forces because an increase in housing prices is not based on scarcity but exploited labor  In a more recent piece, he writes about the fact that “price as a construct is poppycock”** and that this left idea has led to bad housing policy.  He also accusesse the left of being driven by ideology rather than empirics and fa

  Despite many differences and even outright hostility at times, there are a few points of commonality between new and original institutional economics as represented by Ronald Coase and John R Commons.  One point of commonality is that both agree that markets and capitalism involve the trading of legal rights and duties and not the physical goods themselves (which is present but incidental to the process).  In contrast, neoclassical economics views the law as a background variable and that markets involve the transfer of physical goods and services between consumers and producers. Ronal Coase wrote in 1992 in his Nobel speech, "If we move from a regime of zero transaction costs to one of positive transaction costs, what becomes imme- diately clear is the crucial importance of the legal system in this new world. I explained in "The Problem of Social Cost" that what are traded on the market are not, as is often supposed by economists, physical enti- ties but the rights to