Rules v. outcomes

P.G. Monateri

Professor of Law, Univ. of Torino, Italy


1. The Parable of the Talents

Those discussing Law and Economics quite often invoke economics more than they do the law; or worse, they invoke "values" and "justice." These are topics of little interest to the lawyer, and never less so than when employed in debates over the implicit value assumptions informing the use of more or less neo-classical patterns to shape or evaluate social outcomes.

One recognises easily enough that these debates over underlying values are essentially political in nature. This, perhaps, explains why such debates are of little interest to the legal scholar. Arguments over the assumptions used in economic models ("rational choice", "utility maximization", "welfare maximization", "efficiency" and so forth) may have their roots deep in the core of economics, but they of no particular relevance to the law. Those participating in such arguments end up debating the nature of justice: whether justice is best understood as distributive, allocative, commutative, or what have you. These problems are, frankly, quite boring to the legal mind.

Anyone can see that if we value privacy (for example), then we must guard the public against the pryings of the press; and that if we value the free distribution of information, then we must allow the prying press to collect and sell such news as the public will buy and read. All this is a truism, and not at all exciting. The point is, I think, that there is a very basic conflict between Law and Economics and the law as it has grown in our tradition. At any rate, I must say that there is a serious conflict between Law and Economics in its Posnerian wealth-maximization variant and Western law.

We Western lawyers claim to derive our rules from precedent or statute, and to justify these rules independently of their consequences. This claim is so deeply rooted in our tradition that there must be something to it. But this concept of legal rules is irreconcilable with the goal of wealth maximization, and that, I think, is the reason this sort of EAL is unpalatable to many lawyers. From this point of view, I should say, the Western legal tradition stands on one side, and Posnerian Law and Economics and Critical Legal Studies stand on the other. What is the essential difference, for a mere lawyer, between deciding a case in the way that will maximize wealth, and deciding it in the light of a radical choice in favor of the working class? None, really; in both cases the outcome is what it matters, rather than the application of precedents and norms. One's acceptance of the decision depends on one's commitment to the outcome. In both cases the conflict behind the solution is made apparent; the traditional wisdom of the law is to hide the conflict.

But what I want to stress is that both the "Crits" and the Posnerites appraise their subject matter by the light of the desired result; they do not reason in terms of rules and doctrines derived by precedents, norms and rights.

I do not mantain that our tradition is untouchable, but simply that the Posnerian and the legal-critical approaches, oriented as they are overmuch towards outcomes, are dangerous adversaries of this tradition.

A typical example is Roe v. Wade. Here it was all too clear that a fundamental conflict existed between two opposing views. This conflict could not be resolved politically: every politician could expect to lose something, whatever position he assumed. This conflict had to be resolved by the Law, and resolved as though the outcome were already determined by the premises. This hypocritical "as if" logic was essential to controlling the underlying social conflicts. So the Supreme Court could say that the Constitution safeguards a right to privacy (even if that right is not to be found in the words of any constitutional provision); that the right to privacy means the right to be left alone (which is open to question); and that giving a woman the choice whether or not to carry a fetus to term --or, if you prefer, whether or not to kill her unborn child-- is part of what it means to leave her alone (which many people would find absurd). But Roe v. Wade left no room for political conflict. The decision was dictated by the Constitution -- as construed by several politically unaccountable justices. This was the Western legal tradition at its best. Perhaps, then, fighting against this tradition *would* be socially praiseworthy.

I am not, however, interested here in fighting against or defending anything, merely in observing the clash between two opposing visions. It is plain to me that the logic behind Roe v. Wade prevails also in thousands of cases pitting tenant against landlord, manufacturer against customer, and contracting parties against each other. These thousands of cases, which we manage in a "legal", and if you will, a "hypocritical" way (i.e., on the basis of doctrine and precedent), would give rise to enormous conflicts if we left them to judges who declared, "Well, I prefer such-and-such an outcome, because I'm commited to wealth maximization, or to radical choices in favor of the working class; and so I find for the plaintiff." What can the defendant do? He cannot do much more than say, "Well, your honor, I would prefer otherwise."

So let's start our discussion with an elementary example: Fontainbleu Hotel Corp. v. Forty-Five Twenty-Five Inc [2]. The case involved two luxury hotels facing the Atlantic Ocean. The Fontainbleu proposed to add a 14-story tower. The shadow of the addition extended over the cabana and the swimming pool of the Eden Roc. Wisely, the court resolved the issue without considering which use was the more valuable. But a court determined to allocate resources to their most valuable uses would have to weigh the fact that sunlight is valuable, especially to Miami Beach hotels[3]. The court refused to grant equitable relief to the Eden Roc. If we viewed the case in a Posnerian light, we would have to conclude that, if the addition increased the Fontainbleu's profits by $1,000,000 annually while reducing the Eden Roc's annual profits by only $500,000, then building the addition increased the value of beachfront property in Miami Beach. If these figures are correct, then the court reached an efficient result. But what if the damage to the Eden Roc (say, $750,000 in lost profits annually) exceeded the benefit to the Fontainbleu ($500,000 additional annual profits)?

It is apparent that if we reason in terms of outcomes we have no rules, except the Gospel rule that "unto every one that hath shall be given, and he shall have abundance; but from him that hath not shall be taken away even that which he hath."[3] In him who reaps where he sows not and gathers where he has not strawed shall be recognised a property right; that right shall be denied him who hid his talent in the earth, and he may have to pay damages to boot. But I seriously doubt that this was the original intended meaning of the parable.

I think that the example shows how Law and Economics, at least in its Posnerian variant, is inconsistent with a strong theory of rights. A judicial decision determined by the desirability of the outcome is, in its tendency, not of our tradition. Perhaps it might belong to the socialist tradition, but not to our own. There are many different rights-based theories, but the notion that I have a right only as long as my gain is greater then the loss of my neighbor is compatible with none of them.

But let us go further.