Institutional Law and Economics: The Legal-Economic Nexus

  A Hohfeldian jural relations approach forces us to think differently about interdependence than in the standard neoclassical model.  Law is absent for the standard neoclassical model.  Some authors may state that there is an assumption that property rights exist or the rule of law is enforced but it is not explicitly in the model.  Interdependence in the neoclassical model comes from buying or selling power (market power if it exists).  Otherwise, the economics agents are assumed to be autonomous agents whom have a fixed set of preferences and a fixed budget or a fixed cost and production function in the case of a firm.   A Hohfeldian approach forces us to look a the specific, typically legal but could also be related to cultural, rules that exist and create or construct interdependence.  In other words, the legal piece rather than being a background assumption comes to the forefront as a an explicit part of the economic analysis.  This hohfeldi...

Today I was talking to my landlord about the work of Friedman, Sowell, and John Stossel (all individuals whose work he greatly admires). He was talking about "I, Pencil" (or his notion of it) and the way everyone in the world acting in their own self-interest gets a product (a pencil) from point A to point B, without any deliberate notion of all the potential steps that may occur from the time the wood is harvested until it becomes a pencil.  There is no Prime Directive or government action forcing this collection of interactions. The lumberman sells his timber, the processor makes it into various lengths and intermediate products for their customers, those customers may use each individual product for their own purposes.  One of the buyers is the manufacturer of pencils, and he simple sells them to the highest bidder, and off they go to whoever that may be at the time. His point with this story was that there needn't be any unnecessary "government intervention"...