Imperfect Alternatives: Choosing Institutions in Law, Economics, and Public Policy.

• Author: Luigs, David A.

According to a standard history of American legal thought, in the 1930s and 40s a generation of thinkers broke down the reigning analytical structure of the law -- legal formalism -- that conceived of law as a science that decided cases by deducing conclusions from authoritative premises.(1) The legal process school emerged as formalism's chief contender and soon took its place as the dominant school of legal thought. The advocates of this new thinking rallied around a few central ideas, including law as social policy, and the importance of institutional competence. As two commentators recently noted,(2) the school produced legal classics, such as Hart and Wechsler's The Federal Courts and the Federal System,(3) Lon Fuller's "Forms and Limits of Adjudication,"(4) and, most importantly, Hart and Sacks's unfinished and long-unpublished teaching materials entitled The Legal Process: Basic Problems in the Making and Application of Law.(5) In the 1960s and 70s, however, social divisions such as the civil rights and women's movements and sudden economic insecurity undermined this legal consensus, and "the socio-political conditions for the legal process synthesis ended."(6)

Legal process is back. Last year, in "one of the most unusual decisions in the history of legal publishing,"(7) Foundation Press published the 1958 "tentative edition" of Hart and Sacks's canonical work.(8) In an article discussing its publication after a thirty-five year delay, the new editors of The Legal Process, Professors William Eskridge and Philip Frickey, argue that "the legal process philosophy is, in some respects, even more productive today than it was in the 1950s.... [N]ew positive theories of political institutions...suggest more sophisticated ways of thinking about the different competencies of institutions and about the dynamics of their relationships -- in other words, a more sophisticated Hart-and-Sacks analysis...."(9) The editors observe that former students of the legal process school, such as Justice Stephen Breyer and Judge Richard Posner, have applied their learning to new legal issues in administrative law, constitutional law, and statutory interpretation.(10) Moreover, a new generation of legal-process theorists -- including Judge Guido Calabresi, and Eskridge and Frickey themselves -- have been inspired to revive the study of statutory interpretation.(11) Eskridge and Frickey end their article with a challenge:

If institutions are central to law's unfolding, is it not our responsibility to develop theories of comparative institutional legitimacy and efficacy? Hart and Sacks posed good questions. Their would-be heirs in the 1990s face the challenge of answering those questions as well as the new ones posed by the critics of the legal process.(12)

Professor Neal K. Komesar(13) has taken up the challenge. His book, Imperfect Alternatives: Choosing Institutions in Law, Economics, and Public Policy, offers an elegant and encyclopedic argument for the necessity of comparing institutions when making law and public policy.(14) He drills home his message with messianic zeal: any decision about law or public policy depends not only on a set of values or goals that we want to achieve, but also on an evaluation as to which institution -- the market, the courts, or the political system -- can best achieve such values or goals. To this end, Komesar's book presents and applies a theory of how to compare institutions.

The breadth of Komesar's project is striking. In making his argument and presenting his theory, he reprimands countless prominent legal thinkers for their failure to compare institutions. The list of Komesar's targets reads like a "Who's Who" of constitutional and law and economics scholarship. His book finds failures of institutional analysis in John Rawls's Theory of Justice,(15) Richard Posner's Economic Analysis of Law,(16) John Hart Ely's Democracy and Distrust,(17) Richard Epsein's Takings,(18) Cass Sunstein's analysis of constitutional protection against rent seeking,(19) and Bruce Ackerman's criticism(20) of the famous Carolene Products footnote four.(21) He also takes minor jabs at Guido Calabresi and Douglas Melamed's analysis of the choice between property and liability rules,(22) Calabresi's A Common Law for the Age of Statutes,(23) and Laurence Tribe's antiprocess view of constitutional law.(24) On the law and economics front, Komesar criticizes Patricia Danzon's proposed schedule of pain-and-suffering damages in tort,(25) Alan Schwartz's recommendation for administrative fines in place of reduced damages to obtain accident deterrence,(26) and W. Kip Viscusi's preference for administrative over tort regulation of product design defects.(27) Moreover, Komesar indicts whole schools of thought -- originalist (pp. 262-65) and fundamental-rights approaches (pp. 256-61) to constitutional judicial review and interest-group political theory (pp. 216-21) -- as wrongheaded or incomplete.

What is all the fuss about? According to Komesar, these thinkers have fundamentally missed the boat by failing to analyze the institutions that make and apply law.(28) First, the worst sinners simply ignore the all-important question of "Who Decides?" The big target in this group is Rawls. According to Komesar, Rawls's Theory of Justice(29) merely articulates and ranks principles of liberty and equality, and "focuses virtually no attention on real world institutions and institutional choice" (p. 37). Komesar argues that such an "etherial and arid" worldview (p. 39) proves useless for lawmaking because justice requires not only the ordering of values, but also "the presence of institutions capable of translating high-sounding principles into substance" (p. 41). When a theory like Rawls's contains "such loosely defined elements and complicated standards ... the character of the institutions that will define and apply these goals becomes an essential -- perhaps the essential -- component in the realization of the just society."(30)

Second, Komesar assails well-known legal scholars as suffering from the defect he calls "single institutionalism" (p. 6). According to Komesar, these scholars rightly evaluate the competence of a particular institution like the market, the courts, or the political system, but they myopically ignore the alternatives. For example, Komesar argues that Richard Posner's analysis of the common law, with its exclusive focus on how well markets work, is "single institutional" rather than "comparative institutional" (p. 20). He points out that Posner's choice between markets, via a property rule, and courts, via a liability rule, as the institution that can most efficiently resolve the problem of local pollution turns solely on the market's varying ability to accommodate transactions (pp. 20-22). For Posner, "where the...