Beyond Individualism in Law and Economics

Abstract

Over the last twenty years, law and economics has effectively internalized behavioral critiques of its assumption of individual rationality. By contrast, it has failed to appreciate the implications of growing challenges to the other crucial pillar on which it is built: methodological individualism. Where social norms shape choices, network externalities are strong, coordination is the goal, or knowledge is a substantial determinant of value, a methodology heavily oriented to the analysis of individuals will overlook at least as much as it reveals. Indicia of consent may be given greater weight than they deserve, the evolution of norms may be underemphasized, and the regulation of information and knowledge may be flawed - among other potential distortions. As with the shift to a more careful approach to rationality, then, an appreciation of the limits of methodological individualism promises a richer account of law and economics.

Keywords: law and economics, individualism, methodological individualism, rationality, neoclassical economics, Austrian economics, social norms, network effects, network externalities, coordination, coordination games, information, knowledge, behaviorial economics, community

JEL Classification: B31, B41, D83, D84, K00