Institutional Law and Economics: The Legal-Economic Nexus

Robert Lee Hale was an important lawyer and economist who worked at Columbia University from the 1920's through the 1960's. He is an important figure for thinking about institutional law and economics and we will explore more of him in this blog over time. One of Hale's most important articles is:   Hale, Robert L. "Coercion and distribution in a supposedly non-coercive state."  Political Science Quarterly  38.3 (1923): 470-494. https://www.jstor.org/stable/pdf/2142367.pdf Warren Samuels wrote a very long and well thought out article on Hale in the Miami Law Review entitled “The Economy as a system of power and its legal base” by Warren Samuels which can be found here:   https://repository.law.miami.edu/cgi/viewcontent.cgi?article=2750&context=umlr   This may be more useful for economic scholars rather than legal scholars, but economics is based on the idea of voluntary exchange and economists have gone out of their way to avoid questions of power, coercion ...

There are both similarities and differences in the view of James Buchanan and Warren Samuels/Al Schmid on the issue of how economists should act in the policy and public choice arena. James Buchanan Buchanan defines the science of political economy as, "its purpose is to evaluate the structure of the constraints, the law, with some ultimate objective of redesign or reform aimed at sec using enhanced efficiency in the exploration of potentially mutuality of advantage". In 1964, James Buchanan wrote "What Should economists do" in the Southern Economic Journal.  He wrote that, "man's behavior in the market relationship, these are the proper subject for the economists study" (pg. 214, 1964, SEJ).  He was very clear that economists should study the market relationship and not resource allocation.  The reason for this distinction is Buchanan does not want to privilege the idea of "society" over the "individual".  He goes on to cri...

From Samuels and Schmid-see number 9 through 11:

Opportunity Cost It is easy to argue that the idea of opportunity cost is fundamental to any understanding of economic thinking.  It can easily stated as "the cost incurred by not enjoying the benefits associated with another alternative". It is what we gave up to enjoy the decision we do make.  The traditional model makes opportunity cost an objective concept meaning that an outside observer can measure and identify it separate from the decision maker. This is known as the objective opportunity cost theory. James Buchanan and Subjective Opportunity Cost James Buchanan wrote a thin volume about opportunity cost in economics in 1969 called "Cost and Choice".  In the book, Buchanan makes the case that cost is a concept that is in the mind of the decision maker only and cannot be truly understood by an outside observer.  Cost cannot be measured or grasped by an outside observer.  He also makes the case that the concept of choice and cost is forward looking an...

In writing about A. Allan Schmid and his ideas, I've run into a few common themes. One of them is the key idea of human interdependence (as written about in this blog post ), but another is the economists' handling and discussion of transaction costs (also other econ buzz words like free market, externality, etc., but those are topics for other posts). Throughout my reading and writing, I've compiled several notable authors' definitions of transaction costs. A few key differences stand out. The definition, in economics literature, of a transaction is often separate from the definition of transaction cost. This seems important to note, since it is clear to me that economists can mean very different things when they refer to a transaction (not that we always agree on what is considered a cost either). In the 1937 paper, The Nature of the Firm, by Ronald Coase, he does not use the term "transaction cost" but refers to "the cost of using the price mechanism...

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...