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Economics

1998

Values and Consequences: An Introduction to

Economic Analysis of Law
Richard A. Posner

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 CHICAGO
JOHN M. OLIN LAW & ECONOMICS WORKING PAPER NO. 53
(2D SERIES)

VALUES AND CONSEQUENCES:

AS
AN INTRODUCTION TO ECONOMIC ANALYSIS OF LAW

Richard A. Posner

THE LAW SCHOOL

THE UNIVERSITY OF CHICAGO

This paper can be downloaded without charge at:

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 Values and Consequences:
An Introduction to Economic Analysis of Law

Richard A. Posner1*

I am going to give a very brief, thumbnail sketch of economic analysis of law, and
then focus on just two uses of the analysis, and in doing so try to give you a bit of its
flavor. The first use is to make law simpler to understand and evaluate; and the second is
to press you to defend your values.
That there is a relation between economics and law has been known for an awfully
long time, at least since Hobbes’s discussion of property in the seventeenth century. But
until very recently, the relation received focused attention only in relation to a handful of
legal fields, mainly antitrust and public utility regulation, that dealt explicitly with
competition and monopoly, which as early as the 1930s were receiving the sustained and
sophisticated attention of leading English and American economists. (Competition and
monopoly had received the attention of economists since Adam Smith; hence the
qualification “sustained and sophisticated.”)
In retrospect, an economic literature dealing with other fields of law, notably Robert
Hale’s work on contract law, which also dates from the 1930s, can be identified. But even
after the Journal of Law and Economics commenced publication—at this law school,
naturally—in 1958, the “law and economics” movement, if discernible at all, would have
been associated primarily with problems of competition and monopoly, although
occasional forays had been made into taxation (Henry Simons) and corporations (Henry
Manne), even patents (Arnold Plant), and if one went back to the eighteenth century there
was Bentham’s largely forgotten utilitarian—essentially, economic—analysis of crime
and punishment. It was not until 1961, when Ronald Coase’s article “The Problem of
Social Cost” was published,2 and at about the same time Guido Calabresi’s first article on
torts,3 that an economic theory of the common law could be glimpsed. When Gary
Becker published his article “Crime and Punishment: An Economic Approach,”4 reviving
and refining Bentham, it began to seem that perhaps no field of law could not be placed
under the lens of economics with illuminating results. And within a few years, sure
enough, papers on the economics of contract law, civil and criminal procedure, property,

1* Chief Judge, United States Court of Appeals for the Seventh Circuit; Senior Lecturer, University of
Chicago Law School. This is the text of a Coase Lecture given at the University of Chicago Law School on
January 6, 1998.
2 3 Journal of Law and Economics 1 (1960 [but actually published in 1961]).
3 Guido Calabresi, “Some Thoughts on Risk Distribution and the Law of Torts,” 70 Yale Law Journal 499
(1961).
4 76 Journal of Political Economy 169 (1968).

1 Values and Consequences

consumer protection, and other areas new to economists had appeared and the rough
shape of the mature field was discernible. Later, books and articles would extend the
economic analysis of law into such fields as employment, admiralty, intellectual property,
family law, legislation, environmental law, administrative law, conflict of laws, and
judicial behavior; and this is only a partial list. The field has developed to the point where
the dean of the Yale Law School, a critic of the field, said recently: “The law and
economics movement was and continues to be an enormous enlivening force in American
legal thought and, I would say, today continues and remains the single most influential
jurisprudential school in this country.”5
The economic analysis of law, as it now exists not only in the United States but also
in Europe, which has its own flourishing law and economics association, has both
positive (that is, descriptive) and normative aspects. It tries to explain and predict the
behavior of participants in and persons regulated by the law. It also tries to improve law
by pointing out respects in which existing or proposed laws have unintended or
undesirable consequences, whether on economic efficiency, or the distribution of income
and wealth, or other values. It is not merely an ivory-towered enterprise, at least in the
United States, where the law and economics movement is understood to have influenced
legal reform in a number of important areas. These areas include antitrust, the regulation
of public utilities and common carriers, environmental regulation, the computation of
damages in personal injury suits, the regulation of the securities markets, the federal
sentencing guidelines, the division of property and the calculation of alimony in divorce
cases, and the law governing investment by pension funds and other trustees, and to have
been a significant factor in the deregulation movement and in free-market ideology
generally. Most major and many minor law schools have one or two full-time economists
on their faculty; a number of law professors have Ph.D.’s in economics; there are six
scholarly journals devoted to economic analysis of law, with a seventh on the way; the
use of economists as expert witnesses has become conventional in a range of important
fields; judicial opinions refer to economic concepts and cite economic books and articles;
and a number of federal judges, including a Justice of the Supreme Court (Stephen
Breyer), are alumni of the law and economics movement. Economic analysis of law is
generally considered the most significant development in legal thought in the United
States since legal realism petered out a half century ago.
Noneconomists often associate economics with money, capitalism, selfishness—with
a reductive, unrealistic conception of human motivation and behavior, a formidable
mathematical apparatus, and a penchant for cynical, pessimistic, and conservative
conclusions. It earned the sobriquet of “the dismal science” because of Thomas Malthus’s
thesis that famine, war, and sexual abstinence were the only ways in which population
and food supply could be equilibrated. The essence of economics is none of these things,

5 Remarks of Anthony T. Kronman, The Second Driker Forum for Excellence in the Law, 42 Wayne Law
Review 115, 160 (1995).

University of Chicago Law School, Program in Law and Economics Working Paper 53 2
however. The essence is extremely simple, although the simplicity is deceptive; the
simple can be subtle, can be counterintuitive; its antithesis is “complicated,” not
“difficult.”
Most economic analysis consists of tracing out the consequences of assuming that
people are more or less rational in their social interactions. In the case of the activities
that interest the law, these people may be criminals or prosecutors or parties to accidents
or taxpayers or tax collectors or striking workers—or even law students. Students treat
grades as prices, so that unless the university administration intervenes, unpopular
professors, in order to keep up their enrollments, will sometimes compensate students for
the low perceived value of the course by giving them higher grades, that is, by raising the
price that the professor pays for the student.
I said that the tracing out of consequences is subtle as well as simple, and here is an
example. Have you heard of the spendthrift trust? That is a trust, very common, indeed
standard, in which the trustee is forbidden to pay out any of the money or other property
in the trust to the creditors of the trust’s beneficiaries. The law will enforce such a
restriction, yet it has seemed to many students of the law a fraud on creditors; for the trust
beneficiary, assuming that his whole wealth is in the spendthrift trust, can borrow all he
wants, spend what he borrows, and not be forced to repay the lenders. But if you think
about this for a moment, you’ll be driven to the opposite conclusion—that, provided the
provision preventing creditors from reaching into the trust is not concealed, a spendthrift
trust limits borrowing by the trust beneficiary, because he can’t offer security to the
lender. And the next step in the analysis is to see how increasing the rights of debtors in
bankruptcy, far from causing an avalanche of reckless borrowing, could reduce the
amount of borrowing, and so the incidence of bankruptcy, by causing lenders to make
smaller loans to risky borrowers. So lenders may oppose easy bankruptcy not because
they fear there will be more defaults, but because they fear a reduction in the volume of
loans. To see this, imagine how many, or rather how few, loans there would be if
borrowers had no obligation to repay. Notice also how creditors are as hurt by
excessively stringent as by excessively lenient bankruptcy rules: if creditors had the legal
right, as under ancient Roman law, to carve up a defaulting borrower into as many pieces
as there were creditors, most people would be afraid to borrow. Can you see now why
loan sharks in Chicago break the legs of defaulting borrowers, but do not kill them?
Rationality implies decision making, and people often have to make decisions under
conditions of profound uncertainty; fortunately, economists have devoted a good deal of
attention to decision under uncertainty. A simple but important example of a law-related
decision under uncertainty is the decision as to how much care to take to avoid an
accident. The accident will occur with probability P, and let us assume that if it does
occur it will impose a cost that I’ll call L, for loss; and assume further that eliminating the
possibility of such an accident would impose on the potential injurer a cost, which I’ll
call B (for burden). Then it is easily seen that the cost of avoiding the accident will be

3 Values and Consequences

less than the expected accident cost (or benefit of avoiding the accident) if B is smaller
than L discounted (multiplied) by P, or B<PL, and if this condition is satisfied then the
potential injurer can be said to be negligent if he fails to take the precaution. This is the
negligence formula of Judge Learned Hand, announced in a judicial opinion in 19476 but
not recognized as an economic formula for negligence until many years later. It is a
simple formula but its elaboration and application to specific doctrines in the law of torts
have generated an immense and illuminating literature.
By glancing at the Hand Formula you can see how an injurer could be deemed
negligent even if the probability of an accident were very low (because B might be low or
L very high), or even if the cost of avoiding the injury were very high (because P and/or
L might be very high). You can put a minus sign before B, and thus model the case in
which the injurer would incur a cost saving by not injuring: the case, in short, of
deliberate injury; and you would see how in that case the injury is never cost-justified. Or
you can think of B not as the cost of taking a precaution, but as the cost of reducing the
output or other activity of the potential injurer, since that’s another way of avoiding
injuring people. And that will give you a clue to the role, or a role, of strict liability in the
law. Suppose you kept a tiger in your backyard for self-defense, and the tiger got out and
bit a neighbor’s head off. It would be a case of high P and high L, and maybe high B in
the sense that you couldn’t have been more careful than you were to keep the tiger in
your yard; but B might have been low if viewed as the cost of not having a tiger at all, but
substituting another method of self-protection; and in fact this is a case where strict
liability is imposed.
Well, I could go on and on with these examples, moving from one tort doctrine to
another through the whole field of torts and then to contracts and property and so on
throughout the legal system. But time does not permit that and if you want a fuller sketch
of the field today, I suggest you take a look at my book Economic Analysis of Law, a new
edition of which has just appeared.7 I want to move on to the two specific uses of
economic analysis that I said I’d concentrate on—making law simpler and challenging
you to defend your values. I shall begin with a case that the Supreme Court decided in
1911, an antitrust case called Dr. Miles.8 The issue was the legality under the Sherman
Act of a contract that a supplier of patent medicines entered into with his dealers
forbidding them to charge a price for his medicines lower than the retail price that he
fixed; this is the practice known as resale price maintenance. The Supreme Court, holding
the practice illegal, noted that it had the same effect as would an agreement among the
dealers to fix the price at which they would sell Dr. Miles’s medicines: a dealers’ cartel.
But the Court overlooked another effect. If dealers cannot compete in price, yet would

6 United States v. Carroll Towing Co., 159 F.2d 169 (2d Cir. 1947).
7 Richard A. Posner, Economic Analysis of Law (5th ed. 1998).
8 Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911).

University of Chicago Law School, Program in Law and Economics Working Paper 53 4
make money if they could sell more, they will compete in nonprice dimensions of
competition, such as stocking more inventory or having better-informed salespeople. If
these services are important to the manufacturer’s marketing strategy, he can use resale
price maintenance to evoke them. For by setting the minimum resale price above the
dealer’s barebones cost of sale, dealers will vie to get additional sales by offering
customers more service, until eventually they bid away the profit built into the minimum
resale price, which is just what the manufacturer wants.
A dealers’ cartel would have this effect too; members of the cartel, each of whom
would like to increase his sales at the cartel price because it’s above cost, will try to
attract customers away from other dealers by offering better service. The difference is
that the dealer may be providing more service than the customer wants, in the sense that
the customer might prefer a lower price with less service. If that is what the customer
prefers,9 the supplier, if he is doing the price-fixing, will give it to him; for otherwise the
supplier will lose business and profits to a competitor. But if the customers want a lower
price and less service, competition will force the supplier to give them that, provided the
dealers aren’t allowed to collude.
I now skip to what may seem an unrelated topic. Critics of the deregulation of the
airline industry have pointed out that airline service is in some respects inferior to what it
was in the days when it was a regulated industry. Planes are more crowded, there is less
legroom, and the food is poorer. Gone are the piano bars from American Airlines’ 747s.
This is what economics predicted. The regulated airline industry was a government
enforced cartel. Prices were kept high and as a result the industry was deflected into
nonprice competition. When the airlines had finally competed away all their cartel profits
in the form of service competition, the industry was ripe for deregulation. And when it
was finally deregulated, price fell and with it the level of service, because this was what
the consuming public wanted, as we can infer from the enormous growth in air travel
since deregulation.
So we see, and this is the point of the discussion, that resale price maintenance of
patent medicines and the deregulation of airline transportation raise the same economic
issue, that of the relation between price and nonprice competition, even though one
involves goods and the other services, one is old and one is recent, and one involves the
judicial interpretation of the antitrust laws and the other legislative reform of common
carrier regulation. And this is the sort of thing we encounter all the time in the economic
analysis of law. Practices, institutions, bodies of law that seem wholly disparate from the
standpoint of orthodox legal analysis are seen to involve the identical economic issue.
Whole fields of law are interchangeable when viewed through the lens of economics.
When I was a law student, the law seemed an assemblage of completely unrelated rules,

9 More precisely, the marginal customer, but I will not pursue that refinement. See Posner, note 3 above, at
321.

5 Values and Consequences

procedures, and institutions. Economics reveals a “deep structure” of law that exhibits
considerable coherence.
Consider the famous tort case of Eckert v. Long Island R.R.10 A man saw a child on
the railroad tracks. A train that was being operated negligently (that’s crucial, as you’ll
see in a moment) was bearing down. The man dashed forward, scooped up the child,
tossed the child to safety, but was himself killed. Should the railroad be held liable to the
rescuer for its negligence? Or should he be held to have assumed the risk? The issue is
one of tort law but a helpful way to approach it is in terms of contract. Ask the question
this way: if transaction costs, that is, the costs of negotiating a contract between the
railroad and potential rescuers, had been low, rather than prohibitive because the potential
rescuers were not identified, would the railroad have negotiated a contract whereby a
rescuer of a person endangered by the railroad’s negligence would be compensated if the
rescuer was killed or injured in the rescue attempt, provided he was acting reasonably?
The answer is probably yes, the railroad would make such a contract. Here’s why. The
railroad would be liable under tort law to the person saved if he weren’t saved. And so
the rescuer would be conferring an expected benefit on the railroad for which the railroad
would be happy to pay provided the expected cost of the rescue to the railroad was less.
In Eckert the rescue was successful. Suppose the child’s life was worth as much as the
rescuer’s, say $X; and suppose further that the rescuer had only a 10 percent chance of
being killed in the course of the rescue (and a zero chance if the rescue was
unsuccessful). Then, ex ante, which is to say before the outcome of the rescue attempt
was known, the railroad would have been eager to make the contract I have described.
For the expected benefit to it would have been $.9X, since in nine cases out of ten it
would save the full $X damages judgment.
While you ponder that example, let me move on to the second use of economics in
law, what I have called challenging your values. I’ll use as my opening text a short article
by the well-known Harvard political theorist Michael Sandel in a recent issue of the New
Republic.11 The article surprisingly conjoins approval of baby selling with condemnation
of contracts of surrogate motherhood. A doctor named Hicks, practicing medicine in the
rural South during the 1950s and 1960s, “had a secret business selling babies on the
side.” He was also an abortionist, and “sometimes he persuaded young women seeking
abortions to carry their babies to term, thus creating the supply that met the demand of his
childless customers.” Sandel believes that the doctor’s “black market in babies” had
morally redeeming features, thus unconsciously echoing a position that an economist and
I took in an article published twenty years ago,12 but he thinks that surrogate motherhood
has no morally redeeming features.

10 43 N.Y. 502 (1871).

11 Michael Sandel, “The Baby Bazaar,” New Republic, Oct. 20, 1997, p. 25.
12 Elisabeth M. Landes and Richard A. Posner, “The Economics of the Baby Shortage,” 7 Journal of Legal
Studies 323 (1978).

University of Chicago Law School, Program in Law and Economics Working Paper 53 6
 Sandel’s attempt to distinguish the practices reveals an ignorance of basic economic
principles. To begin with, he points out that compared to Dr. Hicks’s “homespun
enterprise, commercial surrogacy, a $40 million industry, is big business.” But Sandel is
comparing one seller in a market to an entire market, and moreover one seller in an
illegal market, where sellers conceal themselves, to an entire legal market. With more
than a million abortions a year, the potential for “baby selling,” if legalized, to eclipse
commercial surrogacy is manifest.
Sandel’s principal ground of distinction between baby selling and surrogate
motherhood is different; it is that commercial surrogacy, unlike what Dr. Hicks did,
encourages what Sandel, using a Marxist term, calls commodification, but which just
means commercialization. “Dr. Hicks’s black market in babies responded to a problem
that arose independent of market considerations. He did not encourage the unwed
mothers whose babies he sold to become pregnant in the first place.” He did not have to.
Demand evokes supply. Women who knew there was a market for their baby if they did
not want to keep it would tend to use less care to avoid becoming pregnant. No doubt
fewer women knew there was a market than would if it were a legal market rather than a
black market. But Sandel does not suggest that Dr. Hicks’s practice is redeemed by
having been illegal!
I do not suggest that on the basis of my economic analysis those of you who are
opposed to surrogate motherhood should give up your opposition. I don’t believe that
economics (or any other body of thought, for that matter) can compel a moral judgment.
But those of you who are opposed to surrogate motherhood may feel pressed by my
analysis to reconsider your opposition. Maybe you agree with Sandel that what Dr. Hicks
did was not immoral even though it was illegal, and maybe you agree with me that
Sandel has committed an economic error in thinking that what Hicks did was different
from what the commercial surrogacy industry is doing and that it makes a difference that
he was just one person and the commercial surrogacy industry consists of a number of
persons.
Here is a different and (though I promised you simplicity) somewhat more complex
example.13 The federal pension law, ERISA, provides that if an employer establishes a
defined-benefits pension plan—he doesn’t have to establish any pension plan, let alone a
defined-benefits plan, but if he does—it has to provide for the vesting of the employee’s
rights under the plan after five years. The purpose is to correct an abuse consisting of
establishing a nonvesting pension plan and then firing an employee on the eve of his
retirement.
The economist asked to evaluate this provision in ERISA would want to consider
first how common this nonvesting scam would be in the absence of the law and whether
forbidding it might have bad effects, in particular on the intended beneficiaries, the

13 The discussion that follows is based on Posner, note 6 above, at 371–374.

7 Values and Consequences

employees. Before the law was passed (in 1974), depending on the rules of vesting and of
crediting years of service adopted by the particular plan a worker who left before
retirement age might find himself with a pension benefit worth much less than his
contributions and perhaps worth nothing at all. So he had a strong incentive to remain
with the same company until he reached retirement age. And the employer had the power
to expropriate employees’ firm-specific human capital—which is to say the earning
power an employee has that is tied to his working for this particular firm, so that he
would earn less working for any other firm—by threatening to fire them before their
pension rights vested if they insisted on a salary commensurate with their value to the
company. One could imagine an employer reducing the employee’s wage to a point at
which the wage and the pension benefit together would just exceed the employee’s wage
in his next best job. So the year before the employee retired and became eligible for the
pension the wage might be zero or even negative; the employee would pay to be allowed
to work long enough to become entitled to his pension.
I may seem to have just made a strong economic case for ERISA’s vesting provision.
Yet empirical study has shown that pension practices were rarely exploitative before
ERISA, and that the law was mainly motivated by abuses associated with multiemployer
pension plans administered by the teamsters and other unions. The reason the companies’
pension practices were not exploitative was first of all that the terms of retirement,
including pension rights, are a matter of contractual negotiation between employer and
prospective employee, not a unilateral imposition. Even if a particular employer refused
to negotiate separately with each employee but offered terms of employment on a take-it-
or-leave-it basis, competition among employers would give prospective employees a
choice between different wage-benefit packages. The packages offered by some
employers would emphasize good retirement or other benefits at the cost of lower wages,
while those offered by other employers would emphasize high wages at the cost of less
generous or secure retirement or other benefits. Employees would tend to be sorted to
employers according to the individual employee’s preferences regarding risk and the
allocation of consumption over the life cycle.
As for incomplete vesting, by making pension benefits contingent on the employee’s
remaining with the firm and performing satisfactorily it facilitated the recovery by
employers of their investment in their employees’ firm-specific human capital. This
would be expected to lead to more investment and higher wages. Incomplete vesting also
solved the problem of the employee who being about to retire no longer has an incentive
to work hard. It solved this problem, what economists call the “last-period problem,” not
only with the stick (the threat of discharge before pension rights vested) but also with the
carrot, since pension benefits are usually heavily weighted in favor of the employee’s
wage in his last years of employment.
The employer’s incentive to abuse the power that incomplete vesting conferred on
him by reneging on his unwritten contract to deal fairly with his employees was held in

University of Chicago Law School, Program in Law and Economics Working Paper 53 8
check by his concern with preserving a reputation for fair dealing (if he lost that, he
would have to pay new employees higher wages) and by the bargaining power that the
possession of firm-specific human capital confers on a worker. (If he quit in anger or
disgust, or was fired to eliminate his pension benefits, the firm would have to invest in
training a green employee to replace him.) In fact, as I have said, before ERISA
opportunistic discharges of workers covered by a pension plan were rare; and the statute
has had no detectable impact on discharges of covered workers.
But by limiting incomplete vesting, the Act has tended to reduce the control of
employers over their older employees. Such a loss of control would be expected to have
two bad effects on the employees themselves. The first would be to lead employers to
invest less in the employees’ firm-specific human capital, and so the employee’s
productivity and hence wage will be lower. Second, because employers would have a
smaller investment in the employees to protect and the employees would have less
incentive to perform well (not being faced with a substantial loss of pension benefits if
they were fired), employers would be expected to resort more frequently to an explicit or
implicit threat of discharge in order to maintain discipline. And third, anything, legal or
otherwise, that adds to the cost of employing a worker will cause employers to employ
fewer workers or to pay them lower wages or both.
Even if you agree with my economic analysis, you may feel that on balance it is
more important for workers to have secure pension rights or greater autonomy from their
employers. But, once again, you will be forced to ask yourself whether your feeling is
strong enough to offset the consequences brought out by economic analysis, including
adverse consequences on the workers themselves, in the form of lower wages—or even,
ironically, less secure employment.
I’ve given two examples of what might be called the “conservative” bias of
economics. But actually economics is pretty value-neutral, or at least aspires to be value
neutral, and there are many liberal practitioners of economic analysis of law, such as
Guido Calabresi of Yale and now of the Second Circuit and John Donohue of Stanford.
And so I’ll close with an example of how economics can throw some cold water on a
policy that conservatives favor.14 Consider statutes that empower the government to
designate a building’s façade as a landmark; upon designation, the owner cannot alter the
façade. An alternative to designation would be the purchase (possibly backed up by the
threat of condemnation, subject to payment of just compensation) by the government of
an easement in the façade. This is favored by most conservatives. They believe that the
government should not be permitted to get things for nothing and in the process impose
heavy costs on the owners of property. And so they urge that the principle of just
compensation be given maximum play. They would be inclined to argue, these
conservatives, that landmark-preservation statutes lead the government to designate too

14 The discussion that follows is based on id. at 66–67; Daniel A. Farber, “Economic Analysis and Just
Compensation,” 12 International Review of Law and Economics 125, 131–132 (1992).

9 Values and Consequences

many landmarks compared to a regime in which the government must pay the owner of
the landmark for the reduction in his property values as a result of his not being allowed
to alter the façade.
Actually, it is unclear that there would be fewer landmarks designated under the
payment approach. The very fact that there is no compensation under the typical
landmark-preservation statute means that landmark owners will resist designation by
complaining to their congressmen, bringing other pressure to bear on the designating
authority, hiring lawyers to find loopholes in the statute, even organizing the defeat or
repeal of the legislation. The resistance of taxpayers to paying the taxes necessary to
finance a program of buying landmark easements might be less. Government tax and
spend programs (agricultural subsidies, for example) are often as socially costly as
regulatory programs, the costs being spread so thinly over the taxpaying public that few
taxpayers squawk.
Might the government, however, because it isn’t putting its money where its mouth
is, designate the “wrong” landmarks, that is, property that would be worth a lot more in
an altered state? Possibly not, since the greater the alternative value the stronger the
resistance to the designation. There is, to be sure, a danger of reducing the supply of
landmarks under the designation approach; building owners may rush to demolish
potential landmark façades in advance of designation. But that is not the nature of the
conservatives’ objection.
The basic problem with that objection is its implicit assumption that the government
is an ordinary purchaser and so responds to financial incentives just as a private purchaser
would. The government is not an ordinary purchaser, and in fact it is meaningless to
speak of making the government pay for the things it wants just like everybody else,
when the government must resort to coercion to obtain the money it uses to pay for the
things it wants. To pay just compensation for a taking, or even to make a voluntary arms’
length purchase without any implicit threat of resorting to condemnation if the seller
refuses to sell, the government must first take, without any compensation, the necessary
funds from the taxpayer. Just compensation entails an anterior act of expropriation.
So, once again, given the practical consequences illuminated by economics of
substituting a payment scheme for the present landmark designation statutes, those of you
who support the just compensation principle on moral or political grounds will have to
consider how much you’re willing to pay for the principle, for it may turn out that
government may take more resources out of the private sector and freeze more landmarks
if it is forced to the just compensation route rather than the landmark designation route.
As these examples illustrate, the role of economics in moral and political debate is to
draw attention to consequences or implications that people ignorant of economics
commonly overlooked. What you do with those consequences is your business. The basic
job of the economist is to remind us of the consequences, often though not always

University of Chicago Law School, Program in Law and Economics Working Paper 53 10
adverse or at least costly, of acts or practices that we might otherwise think clearly good
or clearly bad.

Readers with comments should address them to:

Richard A. Posner
Senior Lecturer
The Law School
The University of Chicago
1111 E. 60th Street
Chicago, IL 60637

11 Values and Consequences

 Chicago Working Papers in Law and Economics
(Second Series)

1. William M. Landes, Copyright Protection of Letters, Diaries and Other Unpublished

Works: An Economic Approach (July 1991).
2. Richard A. Epstein, The Path to The T. J. Hooper: The Theory and History of Custom in the Law
of Tort (August 1991).
3. Cass R. Sunstein, On Property and Constitutionalism (September 1991).
4. Richard A. Posner, Blackmail, Privacy, and Freedom of Contract (February 1992).
5. Randal C. Picker, Security Interests, Misbehavior, and Common Pools (February
1992).
6. Tomas J. Philipson & Richard A. Posner, Optimal Regulation of AIDS (April 1992).
7. Douglas G. Baird, Revisiting Auctions in Chapter 11 (April 1992).
8. William M. Landes, Sequential versus Unitary Trials: An Economic Analysis (July
1992).
9. William M. Landes & Richard A. Posner, The Influence of Economics on Law: A
Quantitative Study (August 1992).
10. Alan O. Sykes, The Welfare Economics of Immigration Law: A Theoretical Survey
With An Analysis of U.S. Policy (September 1992).
11. Douglas G. Baird, 1992 Katz Lecture: Reconstructing Contracts (November 1992).
12. Gary S. Becker, The Economic Way of Looking at Life (January 1993).
13. J. Mark Ramseyer, Credibly Committing to Efficiency Wages: Cotton Spinning
Cartels in Imperial Japan (March 1993).
14. Cass R. Sunstein, Endogenous Preferences, Environmental Law (April 1993).
15. Richard A. Posner, What Do Judges and Justices Maximize? (The Same Thing
Everyone Else Does) (April 1993).
16. Lucian Arye Bebchuk and Randal C. Picker, Bankruptcy Rules, Managerial
Entrenchment, and Firm-Specific Human Capital (August 1993).
17. J. Mark Ramseyer, Explicit Reasons for Implicit Contracts: The Legal Logic to the
Japanese Main Bank System (August 1993).
18. William M. Landes and Richard A. Posner, The Economics of Anticipatory
Adjudication (September 1993).
19. Kenneth W. Dam, The Economic Underpinnings of Patent Law (September 1993).
20. Alan O. Sykes, An Introduction to Regression Analysis (October 1993).
21. Richard A. Epstein, The Ubiquity of the Benefit Principle (March 1994).
22. Randal C. Picker, An Introduction to Game Theory and the Law (June 1994).
23. William M. Landes, Counterclaims: An Economic Analysis (June 1994).
24. J. Mark Ramseyer, The Market for Children: Evidence from Early Modern Japan
(August 1994).
25. Robert H. Gertner and Geoffrey P. Miller, Settlement Escrows (August 1994).
26. Kenneth W. Dam, Some Economic Considerations in the Intellectual Property
Protection of Software (August 1994).
27. Cass R. Sunstein, Rules and Rulelessness, (October 1994).
28. David Friedman, More Justice for Less Money: A Step Beyond Cimino (December
1994).

University of Chicago Law School, Program in Law and Economics Working Paper 53 12
29. Daniel Shaviro, Budget Deficits and the Intergenerational Distribution of Lifetime
Consumption (January 1995).
30. Douglas G. Baird, The Law and Economics of Contract Damages (February 1995).
31. Daniel Kessler, Thomas Meites, and Geoffrey P. Miller, Explaining Deviations from
the Fifty Percent Rule: A Multimodal Approach to the Selection of Cases for
Litigation (March 1995).
32. Geoffrey P. Miller, Das Kapital: Solvency Regulation of the American Business
Enterprise (April 1995).
33. Richard Craswell, Freedom of Contract (August 1995).
34. J. Mark Ramseyer, Public Choice (November 1995).
35. Kenneth W. Dam, Intellectual Property in an Age of Software and Biotechnology
(November 1995).
36. Cass R. Sunstein, Social Norms and Social Roles (January 1996).
37. J. Mark Ramseyer and Eric B. Rasmusen, Judicial Independence in Civil Law
Regimes: Econometrics from Japan (January 1996).
38. Richard A. Epstein, Transaction Costs and Property Rights: Or Do Good Fences
Make Good Neighbors? (March 1996).
39. Cass R. Sunstein, The Cost-Benefit State (May 1996).
40. William M. Landes and Richard A. Posner, The Economics of Legal Disputes Over
the Ownership of Works of Art and Other Collectibles (July 1996).
41. John R. Lott, Jr. and David B. Mustard, Crime, Deterrence, and Right-to-Carry
Concealed Handguns (August 1996).
42. Cass R. Sunstein, Health-Health Tradeoffs (September 1996).
43. Douglas G. Baird, The Hidden Virtues of Chapter 11: An Overview of the la and
Economics of Financially Distressed Firms (March 1997).
44. Richard A. Posner, Community, Wealth, and Equality (March 1997).
45. William M. Landes, The Art of Law and Economics: An Autobiographical Essay
(March 1997).
46. Cass R. Sunstein, Behavioral Analysis of Law (April 1997).
47. John R. Lott, Jr. and Kermit Daniel, Term Limits and Electoral Competitiveness:
Evidence from California’s State Legislative Races (May 1997).
48. Randal C. Picker, Simple Games in a Complex World: A Generative Approach to
the Adoption of Norms (June 1997).
49. Richard A. Epstein, Contracts Small and Contracts Large: Contract Law through the
Lens of Laissez-Faire (August 1997).
50. Cass R. Sunstein, Daniel Kahneman, and David Schkade, Assessing Punitive
Damages (with Notes on Cognition and Valuation in Law) (December 1997)
51. William M. Landes, Lawrence Lessig, and Michael E. Solimine, Judicial Influence:
A Citation Analysis of Federal Courts of Appeals Judges (January 1998)
52. John R. Lott, Jr., A Simple Explanation for Why Campaign Expenditures are
Increasing: The Government is Getting Bigger (February 1998)
53. Richard A. Posner, Values and Consequences: An Introduction to Economic
Analysis of Law (March 1998)

13 Values and Consequences