Enrique A. Bour
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Lecturas de Derecho Privado y Economía
Edited by Enrique A. Bour, 2010.

This collection of readings is the final product of a similar collection edited together with Prof. Claudio Lutzky in 2008. It aims at providing lectures to be used at a seminar on Law and Economics of the School of Law at the University of Buenos Aires. Its organization reflects the growing influence of Friedrich Hayek’s thought on law and economics at the beginning of the 21st century. Part I, Spontaneous Order, Knowledge, and Information begins with one of the main books published by Hayek: Law, Legislation and Liberty (1973). It is followed by an article of Francis Fukuyama, The Great Disruption, and the little book of Leonard Read, I, Pencil. Thereafter, this part of the readings is followed by articles by Prof. Robert C. Ellickson, Mauro Zamboni and a critique of Iredell Jenkins’s well-known book Social Order and the Limits of Law: A Theoretical Essay. Part II reviews the Neo-Institutional approach through articles by Nobel prize Douglass North, Boyd and Richerson and Pranab Bardhan. It also reviews recent approaches to the state as institution, by presenting the book by Anthony de Jasay (1985). Following this lead is the Public Choice School, reviewed by Dennis Mueller. The first chapter of Mueller’s Public Choice III (2003) follows. As game theory is needed to analyze several institutions (as in de Jasay’s book), Part II includes a brief article from Prof. Ejan MacKaay, a translation of Le droit saisi par le jeu (1991), pointing to the closeness between law and game theory. A recent article by Prof. Masahiko Aoki, Endogenizing Institutions and Institutional Changes (2007), introduces an endogenous theory of institutional changes, based on the notion of common knowledge regarding self-sustaining features of social interactions “with a hope to integrate various disciplinary approaches to institutions and their changes”.

Part III is concerned with Norms, and begins with Jon Elster’s Social Norms and Economic Theory (1989), published in the Journal of Economic Perspectives. The point of view of Law and Economics is analyzed by Richard McAdams and Eric Bennett Rasmusen, and this part concludes with an article by Dr. Remo Entelman, who unravels the evolution of conflict in society and draws the main features of a Theory of Disputes, interesting for a lawyer used to intervene in several instances to prevent, manage and solve disputes. Part IV is concerned with the role of Markets in an economy. A paper by Leijonhufvud on Capitalism (1986) opens this section, followed by Marcin T. Kacperczyk and Harrison G. Hong thesis that the effects of social norms on markets are best captured studying "sin" stocks - publicly-traded companies involved in producing alcohol, tobacco, and gaming. Papers by Andreas Engert, Ofer H. Azar, and Anastassios Karayiannis and Aristides N. Hatzis provide additional evidence on the relationship between social norms and law, with Francesco Parisi and Georg Von Wangenheim presenting a model of countervailing norms that complements the existing literature on expressive law, by showing conditions under which the equilibrium behavior may move in the opposite direction from that intended by the law. A thoughtful paper by Daniel L. Rubinstein and Robert Cooter, Economic Analysis of Legal Disputes and their Resolution follows. Part IV closes with a paper by Rafael La Porta, Florencio López-de-Silanes, Andrei Shleifer and Robert W. Vishny on Law and Finance, and some reflections on the economics of information and institutions.

Part V is concerned with Contract Law. Two papers by Nobel prize Oliver Williamson introduce the main themes, and the paper by Eric A. Posner, Economic Analysis of Contract Law after Three Decades: Success or Failure?, holds that Law and economics has failed to produce plausible descriptive theories of contract doctrines. His paper documents these failures and suggests that they are due to a methodological problem involving the concept of transaction costs. The article in Econometrica by Jean Tirole, Incomplete Contracts: Where do We Stand? (1999), reviews the theory on this important subject. Three articles written in 2006 by Steven Shavell analyze contractual problems: On the Writing and the Interpretation of Contracts, Specific Performances versus Damages for Breach of Contract: An Economic Analysis, and Is Breach of Contract Immoral? Prof. Richard Epstein, in Contracts Small and Contract Large: Contract Law Through the Lens of Laissez-Faire, discusses the principle of “freedom of contracts” by pointing that the principle has been said to be insensitive to differences in wealth, status, position and power that make the exercise of contractual choice a myth for the weak and dispossessed, and it has been attacked as ignoring the large concentrations of wealth that distort market processes and that trample down the rights of consumers and workers. He summarizes the key philosophical assumptions about the exchange relationship under a system of laissez-faire, and then looks at some specific areas of doctrine which have often identified as integral parts of the edifice of laissez-faire, and advances what might be called the "separation thesis." Contract doctrine, dealing largely with security of exchange, and freedom of contract evolve along parallel but independent paths. Epstein concludes that “Contracts big and contracts little have some overlap, but greater divergence. The true political struggles are the large questions of freedom of contract, not with the smaller task of fine-tuning the mechanism of voluntary exchange.” We present then a discussion on incentives and theory of the firm, in a paper mostly related to the practical problems of managerial behavior, agency costs, and ownership structures. The end of Part V includes an article of economist David D. Friedman, a classic article by Steven N. S. Cheung, The Contractual Nature of the Firm (1983), and a paper by Eugene Fama and Michael Jensen, Agency Problems and Residual Claims (1983).

Part VI considers several subjects to appreciate the function of law in a capitalist system. It is also a collection a readings whose name is “The Legacy of Hayek”. Beginning with the short article on Socialism for the New Palgrave Dictionary of Economics by John E. Roemer, it is followed by a mix of viewpoints from several high-standing economists who have studied Capitalism and its alternative systems, as János Kornai, What does ‘Change of System' mean?, Chapter 6 of his book From Socialism to Capitalism (2008). One paper holding that the message coming from Hayek is a dead-end is one written by Nobel prize Paul A. Samuelson, where he argues for a “Good by to capitalism of Hayek and Friedman” (2008), because of the libertarianism rooted at the origin of the current financial crisis. On the other hand, Hernando de Soto, in The Mystery of Capital (Chapter 3 of the book, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere, 2000) asks “Why has the genesis of capital become such a mystery? And why have the rich nations of the world not explained to other nations how indispensable a formal property system is to capital formation?” Michio Morishima (1986), an eminent Japanese economist, surmises that there are historical conditions implying different kinds of capitalist systems, in a paper where he “aims to confirm this conjecture by comparing aspects of the history of Japan with that of England”. One of Schumpeter’s enduring contributions to the overlapping fields of economics, sociology, political science, and history was Capitalism, Socialism, and Democracy (first edition published in 1942), a seminal study of the social, economic, and political forces shaping the evolution of advanced industrial societies. Schumpeter, like Marx before him, argued that capitalism is a passing phase in human history; unlike Marx, he traced capitalism’s coming demise not to the system’s assorted defects but to its very success as an engine of economic growth. Economic success, Schumpeter held, is bound eventually to erode and destroy institutions, values, and attitudes indispensable to the maintenance of the capitalist order. His analysis is a long-term one: indeed, in regard to fertility of the family, the trend he discerned to be at work slowly “deep down below” appears to have reasserted itself, conferring on the Schumpeterian analysis renewed interest and respectability. Recent developments in the economics of information have brought about a major re-formulation of the general equilibrium model with opportunistic individuals. To be specific the main outgrowth of these developments has been that under asymmetric information the usual efficiency properties no longer hold. In order to identify these developments the denomination of post-Walrasian economics have been used. Hayek's work on knowledge and the impossibility of efficient planning is usually considered as the starting point of the analysis. Carlo Zappia, in The economics of information, market socialism and Hayek's legacy (1999), discusses two main questions. Firstly, Hayek's thought is re-assessed in order to point out the differences between Hayek's critiques of the general equilibrium model and the approach followed by the supporters of post-Walrasian economics. Secondly, there is an examination of the rationale of market socialism models from an Hayekian perspective. Peter J. Boettke, in Information and Knowledge: Austrian Economics in Search of its Uniqueness, keeps that “it is the epistemic-cognitive turn that the Austrian school took in the wake of the socialist calculation debate that separates the school from other branches of neo-classicism within economic science that constitutes its best case for analytical uniqueness.” In this post-mortem return to the Hayek’s message, the book is closed with an academic article by economist Peter Hammond, The Role of Information in Economics (1990), where the author claims that “The role of information in the economy is a difficult topic which we are only just beginning to explore properly. Indeed, I fear that we are still at the stage of unlearning the old ideas which seemed to make sense when it was common to assume that everybody in the economy had access to the same information.” For example, “efficient allocation of resources without gross distributive injustice often requires interference in markets beyond the simple lump-sum redistribution which was assumed by the old theory but which is now understood to be incentive incompatible. Market forces may constrain economic policy, and make things worse than they would be if markets could be suppressed or controlled. The risk of default by borrowers, however, may prevent some important markets from functioning at all. Interactions between different incentive constraints become complicated.”

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