Academic

Ribstein Response to Professors Stephan and Trachtman (The Law Market)

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

Here is Larry Ribstein's response to reviews by Paul Stephan and Joel Trachtman:

First, many thanks to Fred for organizing and contributing to this discussion of our work, and to Paul and Joel for their thoughtful and thought-provoking essays.   The following is a response in which Erin and I concur.

Paul and Joel have written very persuasive criticisms.  Perhaps it will surprise the reader that I agree with just about everything both have said, particularly the critical parts.  The only problem I have with their essays is that they are reviewing a book that Erin and I not only did not write, but that we took pains to avoid writing.  Indeed, the criticisms are so persuasive that I?m quite happy we did not write that book, though I?m a bit sad that we did not make it clearer we were not writing that book. 

This odd state of affairs suggests that I should begin by summarizing the book we did write.  The key and central point of this book is that we do, in fact, have a law market.  We try to make that point clear from the very first page of the book.  This is the central theme of the course I teach on jurisdictional competition.  The book is almost entirely a positive analysis of the market that we in fact have ? not a normative argument in favor of having such a market.  As discussed in Chapter 1 and elaborated in Chapters 4 and 5, the existence of this market results from parties? ability to move around our multi-jurisdictional globe, choose the judicial forum in which to litigate, and even to have disputes resolved outside of a judicial forum via arbitration or other private dispute resolution procedure.

Chapter 2 describes an advantage of a multi-jurisdictional world over one in which there is only one jurisdiction:  exit is a way around a political process that can produce ?bad? laws in the sense of imposing social costs in excess of social benefits.  Although this has more of a normative flavor than the one made in the previous paragraph, it is ultimately positive because it is simply making the obvious observation about the world that we actually live in rather than stating a conclusion about which laws are ?bad.? 

The companion observation, beginning on p. 33, is that the law market also can reach perverse results.  Note, however, that we do not try to choose between jurisdictional choice and regulation.  Again, the point of the book is that as long as one accepts the assumption that the world has many jurisdictions that people move between, choice happens.  The problem is how to mesh the laws of multiple jurisdictions that necessarily interact because people exercise these choices. 

The central question in the book therefore is not whether parties should be able to choose the applicable law, but whether and to what extent they should be able to make that choice by ex ante contract.  The book?s sole normative conclusion is not that choice is good, but that contract is a better analytical starting point in making this choice than any other alternative that has come along. Even there our normative framework is weak rather than strong.  We use contract only as a starting point, not as an end result.

Chapter 3 offers key support for our conclusion about the contractual starting point by showing the chaotic and unprincipled nature of the alternatives that have been offered to a contractual analysis.  Chapters 6 through 9 work out both the positive choice framework and the application of a contractual analysis for several different substantive legal areas.  This fleshes out the basis of the ?global? proposal of Chapter 10 for a federal choice of law statute. Now to Paul?s and Joel?s essays.

Paul chooses for his subject a book ? again, not the one we wrote ? which argues that ?a robust law market makes people better off.?  This book also argues, in particular, that ?individuals ought to be free to form the kinds of family unions they wish in jurisdictions that allow them to do so, and that other states should respect those choices when the members of those unions later move.?  This would be an interesting book, and I would very much like to see what arguments could be made in support of that strong conclusion.  Paul wonders how we could possibly persuade all of those states that refuse to allow the choice, particularly given the fact that no legislatures have endorsed it.  I wonder about that myself, and I?m sure that same sex marriage supporters share my curiosity. 

What Erin and I try to show, by contrast, is not that choice is good, but that choice exists, even if it is not as robust as the proponents of a particular choice such as same sex marriage would hope.  With respect to the marriage law market, we show (pp. 166-168) that there are at least signs of competition.  (The fact that same sex marriage has been recognized only by courts rather than legislatures is not obviously relevant to this analysis, though the court/legislature issue does become relevant to our law market statutory proposal in Chapter 10.)  The important point, as we make clear on p. 168, is that ?we argue for reforms that enable legal evolution rather than for imposing a particular legal rule? (emphasis added). 

One who wishes to criticize that conclusion would have to show, not that we haven?t made the case for choice, but that we haven?t made the case against a federal law. We do not, in fact, argue that states should have to ?respect? other state laws, including laws that enforce parties? choices of particular types of family unions.  We do argue that as long as there is some potential for diversity, there is also the potential for working out an equilibrium that would be preferable to imposing the same law on everybody in the country.  If, in the end, no state recognizes same sex marriage, we offer no reason whatsoever why that is an unsatisfactory result.  We do offer an argument (see particularly pp. 170-71) why that is a better result than imposing a no-same-sex-marriage law without the benefit of an evolutionary process.

In other words, we are not trying to persuade proponents of regulation that they are wrong and choice is better.  Choice is an undeniable reality in a world of multiple jurisdictions.  Instead, we argue that ex ante contractual choice of law is a better starting point in deciding which law to apply than other approaches. 

Interestingly, I should point out that when I presented this book at the American Enterprise Institute several there criticized the book?s refusal to more firmly endorse a full-fledged contractual approach. My defense was exactly the argument that Paul has used against the book he is criticizing ? that we were not prepared to offer the normative framework that would support that conclusion. 

Joel also criticizes the book for a conclusion it does not reach ? the ?belief? that regulatory competition results in ?superior? law.  Again, we don?t say that.  Our whole point is that the evolutionary process enabled by the law market is the best way to judge the outcome of any particular state?s political process. In other words, we can?t say that a regulation is bad, only that it might be bad, and that an appropriately structured law market is the way to find out.

Joel says we answer the question as to whether regulation is bad by concluding that third parties need protection only in certain cases.  This, he says, is circular, because, after all, the jurisdiction has judged that the regulation was appropriate.  However, we are not saying when the jurisdiction should regulate.  We are only discussing how the choice among regulators ? a choice that is, again, inevitable in a multijurisdictional world ? should be made.  Joel questions the distinction, but in fact it is quite clear: a jurisdiction can unilaterally choose to regulate, but it cannot foreclose the choice among jurisdictions.  Since the choice must be made, it is necessary to answer the question how it should be made.  That is what the book is about. 

The most important contribution of Joel?s essay is in discussing the application of our analysis to the international arena, a topic that we admittedly did not fully address. Joel suggests that party choice may not work here because some states have market power ? they?re hard to avoid.  But that is not a distinction from the US, where states like California and New York are also difficult to avoid.  The key difference between the two contexts is the existence in one of a strong federal government to serve as an umpire.  Joel proposes umpires for the international context ? reciprocal agreements, treaties, or comity.  But this leaves the critical question of whether and how this would work.  I suspect that ?comity? is, in fact, the answer ? but that it will emerge through (you guessed it) contract.  Indeed, to the extent that there are effective reciprocal arrangements today, they are conventions of various sorts for enforcing contracts. 

In short, this book is not a manifesto for contract.  It is instead an argument for regulatory humility.  We have no way of knowing whether regulatory advocates or opponents are correct in their normative arguments about the desirability of regulation.  What?s needed is a framework in which their disagreements can be resolved.  We think that starting with the idea of ex ante choice, then permitting local legislatures to modify it, is such a framework.

Full post as published by Conglomerate on March 18, 2009 (boomark / email).