Introduction
Richard Posner, a leading figure in the economic analysis of law, defines economics not as the study of money, but as a method of rational choice. In this view, law ceases to be a collection of abstract norms and becomes a tool for civilizing reality through the discipline of reasoning. This article analyzes how a pragmatic approach to costs, incentives, and risk allows for the management of uncertainty in a world of value pluralism, replacing metaphysics with institutional common sense.
The Economic Method and Wealth Maximization
Posner’s model of rational choice assumes that individuals respond to incentives purposefully, albeit under conditions of limited information. Emotions, such as anger or pride, are not irrational here—they represent evolutionary cognitive shortcuts and reputational strategies that simplify decision-making. The key tool for adjudication becomes wealth maximization, understood as the willingness to pay. Unlike vague utilitarianism, this criterion offers measurability and transparency regarding opportunity costs.
When high transaction costs prevent voluntary exchange, the law should employ a market mimicking mechanism. This means replicating the outcome that parties would have reached through costless negotiations. The judge, acting as a social engineer, seeks the most efficient solution, which helps reduce the arbitrariness of decisions often cloaked in the pathos of justice.
Property and Litigation as Information Markets
In the economic analysis of law, possession is a technology for reducing transaction costs and conflicts. An institution such as adverse possession is not a reward for a usurper, but a pragmatic correction of registry system errors. It transfers ownership to where actual use reveals a higher valuation of the resource, preventing waste. A similar logic is applied in torts, identifying the cheapest cost avoider—the entity that can prevent a loss at the lowest marginal cost.
Conversely, the adversarial system is treated as a market for information production. Competition between the parties to a dispute is more effective at uncovering facts than the monopoly of a judge-bureaucrat. Although this method is sensitive to resource inequality, Posner defends it as a legitimizing technique that compels transparency and competitiveness in evidentiary efforts.
The Marketplace of Ideas in the Digital Age and Critiques of the Theory
The classic metaphor of the marketplace of ideas assumes that truth will emerge through competition. However, in the age of digital disinformation, this mechanism fails—the cost of falsehood is marginal, while the harm is immediate. Global business recognizes this risk, necessitating new standards for information management (e.g., the Digital Services Act). In the academic world, Posner proposes citation analysis as a market valuation of an idea's impact where traditional prices are absent.
This approach meets with criticism from Ronald Dworkin, who posits principles and individual rights as inviolable "trumps" that must not be sacrificed for efficiency. While modern institutional empiricism carries the risk of technocratic rule, Posner responds that cost-benefit analysis is the only alternative to decision-making fog and political pressure.
Summary
Law, stripped of moral self-sufficiency, becomes an arena of tension between pragmatism and idealism. Institutional common sense replaces metaphysics, offering an infrastructure for managing systemic risk. We are left to balance on the edge of efficiency and justice, remembering that every decision carries hidden costs and inevitable losses. In this constant weighing, will we manage to save the humanity of the law?
📄 Full analysis available in PDF