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Tuesday, July 24, 2007

On to Berlin

I am sitting in the gate area in Schipol Airport in Amsterdam, waiting for my connection to Berlin for the Law & Society Association Annual Meeting.  If one can acquire intellectual gravitas by association with fellow panel members, I am going to have a big day on Saturday, when I sit on a roundtable on "The New Formalism" with Larry Solum, Randy Barnett, Dennis Patterson, and Ekow Yankah.

On the topic of formalism in my little corner of the world, I am re-reading "Contract Theory and the Limits of Contract Law" (113 Yale L.J. 541) by Alan Schwartz and Robert Scott, in which they make the argument, at least for business contracts, that business parties would choose Willistonian formalism over UCC-style contextualism as the mode of contract interpretation.  I have written before about the implications of trying to step out of the first person mode of entering into a contract to adjudge its meaning from a third party objective perspective.  I know I will have more to say about this, particularly as to law and economics, in terms of the move from explanation of causal relationships in physical science to the far muddier task of social science to the ascription of motives in individual cases. 

But for the time being I am pondering what seems to me an unwarranted (and key) assumption in the middle of the article that, it seems to me, falls victim to this first-person versus third-person problem.  As is often the case, Schwartz and Scott assume that the parties' interest is in maximizing total surplus from the transaction which they will then divide by setting the price.  Setting the price is just "strategic behavior" and, as far as I can tell merits no discussion in the article.  I have negotiated lots of deals, and I can't remember ever thinking about total surplus first.  If I have a choice between a smaller total surplus (assuming I ever thought about it in those terms) and grabbing more (in absolute terms) of a smaller surplus, I know where I would go.  Think of it this way.  I have an asset I would be willing to sell for at least $500.  Buyer A values it for as much as $900 (a $400 surplus) and Buyer B values it for as much as $1200 (a $700 surplus).  But because of other opportunities that are more valuable, B is only willing to offer me $800, and A is willing to offer me $900.    In an economists' world of perfect information, B ought to bid up and take the deal, and I ought to know that, but it seems to me the world works from the first-person not the third-person perspective.   Only economists and lawyers think they can step out of themselves and see the world objectively, and folk wisdom ("the lawyer who represents herself has a fool for a client") suggests that it is a mistake even for lawyers.

The irony here, and it is appropriate on the eve of Law and Society, is that I agree generally with the Schwartz and Scott outcome, but not for the reasons they articulate.   I think the contract is a shadow of the deal (nod to Austin Sarat and Thomas Kearns) with only a tenuous link to any mutual intention of the parties.  Given that the outcome is likely to be random and not necessarily rational, less is more.

Well, so much for that.  On to Berlin!

Posted by Jeff Lipshaw on July 24, 2007 at 01:39 AM in Legal Theory, Lipshaw | Permalink

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Comments

That roundtable sounds great!

Could the panelists please officially adopt a joint resolution urging Tom Grey (Stanford) to publish his superb unpublished essay "The New Formalism," which has been suspended in samizdat on SSRN for going on eight years now. The cat's out of the bag; Westlaw discloses about two dozen cites to the paper in published law review articles.

I think that this piece has heavily influenced Larry Solum's formalist views, for example, and it certainly made a big impact on me. It's doubly impressive when you consider that Grey wrote this subtle, fair, and highly illuminating treatment of the new formalism without himself being a member of the contemporary legal Right, which tends to embrace its ideas with the most sympathy.

Posted by: Mike O'Shea | Jul 24, 2007 3:37:42 PM

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