Exploring the interaction between law and economics: the limits of formalism

Abstract

As lawyers concerned with the regulation of economic activity, we applaud the recognition in Professor Charles Goodhart's recent Chorley lecture that much of the ‘law and economics’ of the past quarter-century has involved ‘too much one-way traffic’. If the field of law and economics has indeed largely, as Professor Goodhart suggests, consisted of a process of intellectual imperialism, specifically of the colonisation of law by economics, we consider it important to reflect on the reasons for this, and to make some suggestions to improve the collaboration between the two disciplines. In brief, we suggest that this interaction has been bedevilled by its tendency to reproduce the worst aspects of formalism in each discipline.Professor Goodhart shows that the bulk of law and economics has consisted of a fairly unthinking application of standard neo-classical economic assumptions to legal phenomena which have themselves typically been conceived in conventional doctrinal terms.