Institutional Law and Economics: The Legal-Economic Nexus

 Our book is out, and we are more than ready to share it!  After much patience, hard work, and delays on our part (and along the supply chain),  The Legal Foundations of Micro-Institutional Performance: A Heterodox Law & Economics Approach is in print and ready for use in advanced undergraduate law and econ classes, heterodox graduate level classes, and by practitioners conducting impact analysis. I encourage anyone interested to click through the hyperlinked text to view the introduction on Elgar's website-- simply click the cover of the book and the front matter will appear. We anticipate numerous reviews in institutional and law and econ journals in the coming months, and are grateful for any and all feedback directed our way. It's our hope that this framework doesn't stop developing here, but rather continues growing like Al Schmid's Situation-Structure-Performance model upon which the Legal-Economic Performance Framework is loosely based, or the application of ...

 Lately, we have been reading John R. Commons' Institutional Economics (Part I).  In it, Commons lays the foundations for a lot of what he sees as the basis of economic transactions, heavily rooted in human psychology, action, and interaction (or, as we like to say-- human interdependence). It is a dense book as explained briefly in Rodrigo's blog contribution last week . One notable component of the Commonsonian approach to economics is the fundamental importance of collective action, or the role collective action plays in shaping the legal rules and informal institutions of the world around us. It's interesting to think about how collective action in relation to housing rights has or may continue to impact existing property law. In Dr. Lisa Alexander's 2015 contribution to the Nebraska Law Review titled, Occupying the Constitutional Right toHousing , she walks through the various Occupy and other housing-strike movements of the recent past, detailing how each is a for...

This week, we are shamelessly promoting the upcoming Institutional Economics: Perspectives and Methods in Pursuit of a Better World ( Pub: October 28th, 2021).   It is edited by our colleague Charles Whalen, who previously reflected on his career as an institutionalist on this blog here , here , and here . The book covers several major institutionalist perspectives and methods in one place. Other authors include Mary Wrenn, and Bill Waller, who are both interviewed in our Legal-Economic Nexus podcast.  How Charles managed to pull this many-authored volume together throughout a global pandemic (with few setbacks) remains a mystery to me.  Eric and I (with Charles) contributed a chapter in the latter section titled: "Institutional impact analysis: the situation, structure, and performance framework." This chapter covers the evolution of Schmid's model, using old files and drafts we found here at MSU and at the University of Wisconsin to piece together the SSP model. Through...

In working through the idea of human interdependence as the building block for conducting institutional analysis, I frequently return to a couple common examples used in other related literature. I share some of these somewhat-baked thoughts here, as they relate to previous posts about interdependence and using Hohfeld in econ analysis ( here and here ).   One of these is the example of the doctor and the candy maker given by Coase (1960). He described two people operating in offices side-by-side: a doctor, looking for a stable, quiet environment in which to treat patients, and a candy maker, utilizing the space for his or her craft, accompanied by the noisy machinery necessary to do so.  Coase uses the case to demonstrate externalities in his larger discussion of transaction costs, or the cost of any kind of bargaining or solution-finding on the part of the doctor. Many writing about this example have been focused on the external effect of the machines, or the noise cre...

A key part of the work Eric Scorsone and I have been doing has centered around this idea of creating a general awareness in students and peers of the institutional, legal underpinnings of economic organization and action.  We borrow heavily from the work done by Al Schmid for the foundation of our institutional thought -- Al was incredibly well read and missed little-- but have noticed a need for more concrete vocabulary and structure for how to teach and talk about institutional structure and changes in it.  Consider this excerpt from Warren Samuels' "Some Fundamentals of the Economic Role of Government"(1989),  "People tend to define socioeconomic reality in terms of legal rights. Government selectively protects, as rights, certain interests and not others-and it is rights that form, structure, and operate through the market and the economy in toto. What people define as reality is thereby formed and reformed. In helping to define and create socioeconomic reali...

As we continue to learn about the evolution of ILE, a review of some of the older work by Prof. Al Schmid is a helpful guide.  In 1964, Schmid edited and wrote a book called "Agricultural Market Analysis" with his longtime colleague James Shaffer (my IE class was with both of them in 1993 at MSU). Schmid and Sahffer wrote chapter two this text and included some key definitions that are helpful in understanding the evolution of ILE.  these are all quotes from that text: "P osition is the name or social symbol identifying a particular set of role images identifying an individual in relation to the other. Each position carries right and obligations" "I nstitution is defined as an enduring organized set of related positions directing energies of individuals towards a common end". (This is quite different from the definition Al would later use). "Social system is the aggregation of institutions defining the relationships of any group of individu...

Academic Detective Work: Writing About the Origins of a Model Recently the anniversary of the start of our MSU/Great Lakes Institutional Econ project came and went, with little fanfare other than a brief review of the past year's accomplishments during my annual review. It has always been a little weird to me to see days or months of work summarized in a few bullet points or publications. This got me thinking about all the hours researchers and academics in general can put in to even the most straight-forward seeming pieces. We call it "research", but some of the time our searching takes us well beyond the usual academic channels and requires some TV-montage-worthy sleuthing. In sub-fields like economic history or institutional economics, this is more obvious. In these fields, the ability to do some academic detective work outside of scholarly journals is a large determinant of success in the job. When writing about the origins of a model or of some line of thought, th...

The concept of externality was first introduced to economics, in a formal sense, by Alfred Cecil Pigou in the book "Economics of Welfare" written in 1920 (Medema, 2017).  As Medema points out in his 2017 article, Henry Sidgwick and John Stuart Mill and even Thomas Malthus had identified the idea of externalities earlier but not the word.  From the time of Pigous's 1920 book until about the late 1950's, economists did not really use the idea of externalities.  Medema persuasively argues that it was only used tangentially by economists in developing the new welfare economics, including heavy weights such as all Paul Samuelson, Frank Knight and Abba Lerner. It was mostly used as a potential problem or foil for achieving equilibrium in competitive markets but not an important focus. It was Tibor Scitovistky (1954) who made the first important contribution to the idea that externalities were direct interdependence rather than interdependence due to the existence of mar...

Interdependence. It's a long word to type twenty times a day, but I end up getting close to that number more often than not. Why is that? Why, as an economist, do I write more about interdependence than I do about supply or demand or even markets? Some of this has to do with the kind of work I do. As an academic, I am privileged to get to spend much of my time asking and writing about thought provoking questions or issues of my choosing (within certain constraints, of course). This has led me to work on a project that involves reading a lot about the foundations of the field, which are rooted in many types of social theory including what we would think of as sociology and philosophy today. A bigger part of this, however, has to do with the way I think about economics in general. To me, economics is a social science first, inextricable from the realities of human interaction and organization. This interaction, or human interdependence, is the basic starting unit of any analys...