Suresh Naidu and Elliott Ash —
Our previous post dealt with the outsize influence of well-funded conservatives at the interface between economics and law, and in particular over the judiciary. This influence is the product of many decades of institution-building, which includes the adoption of a particular (and in our opinion outdated) approach to economics in legal research and teaching. Addressing the analytical imbalance requires an articulation of and investment in an updated approach to economics. This post introduces some idea of how such a modern law and economics might look, and highlights the diverse normative implications of state-of-the-art economics. As we will see, taking economics seriously is consistent with many different policy positions.
The place in law where economics has made its biggest impact is probably antitrust, where doctrine was transformed over the course of the 1980s. The key doctrinal achievement of this movement was the consumer welfare standard, based on the canonical economic model of monopoly. Mergers among previously competing firms will increase market power but may also lower costs, with potentially ambiguous effects on price. The doctrine states that the legality of mergers should be judged based on net benefits to consumers, with no attention paid to the distribution of returns across producers or factors of production (e.g. capital and labor).