Comparative Law & Economics: The Map is Not the Territory, by Ernesto Vargas Weil

Almost thirty years ago Ugo Mattei declared the ‘methodological wedding’ between two of the most important approaches to the law developed during the 20th century: Law & Economics and Comparative Law. However, this approach has not taken off and methodological problems have been identified as the main reason for this. In this post I argue that the difficulties faced by Comparative Law & Economics are not insurmountable and that its potential benefits are worth the effort of overcoming them. Inspired by the expression ‘the map is not the territory’, I put forward that developing sound methodological foundations for Comparative Law & Economics requires us to acknowledge the virtues and limitations of good simplification in successfully accounting for the complexity reality. In the same manner 1.4 billion Londoners travel each year across a complex network that connects 270 stations through more than 400 km of railway by relying on a single map that has no other geographical feature than an abstract representation of the river Thames and highly distorts all distances, the path followed by the lines and the location of the stations, Law & Economics can provide analytical frameworks that increase our ability to compare real-life legal institutions by reducing the complexity of the law in action. For example, as shown below, the economic theory of public goods can explain why jurisdictions from very different constitutional traditions have reached similar norms on expropriations, while the economic structure of path dependence can account for persistence of the  divide between civil-common law property law.

An ‘egg-laying wool-milk sow’?

The scarce success of Comparative Law & Economics has been attributed to the inherent risk of combining the methodological problems of the two disciplines in one. For Florian Wagner-von Papp, good comparative economic analysis of law seems to be an ‘egg-laying wool-milk sow’: an imaginary cross-breed creature that combines an impossible set of desirable attributes, but might end up giving poor outcomes.

The first pitfall derives from a problem of lack of technical knowledge. Even if these risks should not be underestimated, it is important to note that they could be solved either by training lawyers or economists in the other discipline or by collaborative efforts. More importantly, it should not be forgotten that lawyers with economic training played a key role in developing the Law & Economics movement. Richard Posner himself stated that ‘economic analysis of law need not be conducted at a high level of formality or mathematization. The heart of economics is insight, rather than technique’.

A second pitfall is the inherent tension between the approaches of both disciplines. As highlighted by Ralf Michael, while good legal comparison tries to develop rich descriptions of the law in action, economic analysis aims to reduce the complexity of the real world by bringing it into models. This tension can be solved, by noting that each approach should focus on different stages of the comparative inquiry. Comparative Law should lead in finding the functional equivalents, describing them in intelligible terms and uncovering their relationship with the wider context, while economic concepts should be used to frame the research problem in functional terms and provide a common language for the analytical comparison stage. Seen this way, the opposite approaches of both disciplines becomes an advantage: following the recent work of Guido Calabresi, economic models can help lawyers to identify legal practices that are overlooked because they do not reach courts; while a detail-oriented approach to the law can provide evidence that challenges existing economic models, forcing them to improve.

A third suggested pitfall is the risk of bringing into Comparative Law the sort of moral arguments made against Law & Economics, including that it has an egotistical utilitarian nature that fails to understand that wealth is not value. This criticism is not entirely fair. Posner himself acknowledged the ethical limitations of efficiency as social decision-making criteria. More important, this criticism is not properly methodological. As mentioned by Michaels, its basic core is little more than saying that Law & Economics is ‘too economic’. Nonetheless, considering that mistrust towards Law & Economics has probably been a key factor in hindering its wider applications in Comparative Law, tackling these concerns seems essential.

Overcoming the difficulties

The methodological difficulties faced by Comparative Law & Economics are not insurmountable and there are good reasons to overcome them: as argued by Michaels, if done well, it discloses its assumptions and reasoning, providing more transparent and rational arguments than simply arguing that a given legal institution ‘fairer’ or ‘just’.

The functional approach that underpins mainstream Comparative Law and its awareness of the importance of looking for the law in action makes this discipline especially well-equipped to go beyond black letter rules to find the real-life solutions that solve a certain problem in various societies. Therefore, Comparative Law has great advantages over Law & Economics in finding the functional equivalents that should form the basis of comparison. Second, the vocation of Comparative Law for rich description, also makes it especially suitable for accurately describing each institution and its relations with its environment. In one sentence, to use economic concepts to design a reliable map, it is essential that comparative law does an accurate ‘legal cartography’ first . Otherwise, there will not be enough identity or‘isomorphism’ between map and territory.

In turn economic analysis should be used in stages of comparative research that need to simplify the reality to explain it. One of these moments is the analytical comparison stage. According to Posner, Law & Economics offers to translate the diversity of legal cultures into the universal language of economics. This provides powerful conceptual structures that can serve as a substantial tertium comparationis. Of course, this will distort many features of legal reality, but this is a price that can be worth paying, as when countries in a map are painted in colours to show their political boundaries. The real world does not have those colours, political borders are disputed, and a single national state can hide deep ethnic fault lines, but who can deny the visual clarity provided by a political map? However, the drafter of the map needs to be explicit about its purpose and limitations so that it is not inadvertently applied to an unintended used. For example, in 1976, after the introduction of a new map of the New York Subway that depicted streets and parks, tourists using it to visit Central Park found that it took them much longer than expected to cross it, complaining that the map did not accurately represent the size of park

Another moment is when it comes to account for the findings. According to Florian Faust, the ability of the neoclassical economics to account for human behaviour can also be useful to explain many aspects as to why national legal institutions are similar or different. In some cases, economic analysis can show that convergence results from lawgivers striving to provide the most efficient rule for their society (as with expropriations) or avoiding the costs of having to develop legal rules from scratch (as whit the adoption of the Code Civil by many early Latin-American republics). Alternatively, Law & Economics can also help to account for differences between legal systems For example, efficient solutions can vary as a consequence of having developed in different cultural and institutional settings and can remain in existence for centuries. For example, the persistence of the stark divide between civil and common law property law has been explained as a case of path dependence resulting from the high initial cost of setting up a property systems and the network effects resulting from using it.

Finally, normative economic analysis offers a clear criterion for normative evaluation in the promotion of efficiency. The fierce criticism against its utilitarian nature cannot possibly be addressed here. It is sufficient to acknowledge that efficiency is not the only normative reason that can control a given decision, but that it still might be highly relevant as an ancillary criterion to almost any other normative reason. As argued by Ogus, in legislation and case law, economic goals (mainly allocative efficiency) compete with other goals that are sometimes broadly referred to as ‘distributional justice’. The intensity with which a legal system wishes to sacrifice efficiency for these other goals depends on political and ideological considerations. Thus, even if efficiency is discarded as a reason for such choices, its input is always valuable to make the costs of our distributive preferences apparent.

Map and territory

A successful map requires isomorphism with the environment, visual features that facilitate the process of uncovering its information and users are aware of its limitations.  A sound method for Comparative Law & Economics should have the same elements. First, the classic functional approach should ensure that the compared legal institutions relate to the same social problem. Second, economic thinking is called to provides frameworks that explain these functions in a stylized form. Finally, researchers should not fall into the trap of extending this approach for purposes for which it is not designed. In this manner, as long as researchers acknowledge that function and economic rationality are the map and not the territory, Law & Economics can play a central role in providing a more rational methodological foundation for much of the research undertaken in Comparative Law.

Posted by Ernesto Vargas Weil (Spencer-Fairest Teaching Fellow in Law, Selwyn College, University of Cambridge)

This post is a summary of Map and Territory in Comparative Law & Economics, 11 Global Journal of Comparative Law (2022), 11-35.