Wednesday, November 29, 2006

Courts, Contracts, Entrepreneurship, and Cognition

Posted by Jeff Lipshaw

Over at Conglomerate, Gordon Smith (Wisconsin), provides an update on his law and entrepreneurshipMueda piece, co-authored with Masako Ueda (Wisconsin - Business, right).

More to come somewhere somehow someday from me on this, but the subtitle of the piece "do courts matter?" evokes a fascinating (to me, at least) dialogue I had with a law and economics scholar in the last few days about the purpose of a written agreement.  When sophisticated business people think about agreements, and send their lawyers off to scriven, are they writing the agreements for courts or for each other?  Whether or not contracts are interpreted textually or contextually, it's probably fair to say that the lawyers, if you asked them, were doing their best to make the entire agreement textual, and not contextual.  And the reason for textuality is that the writing will be read and interpreted by others.  Or will it?  Have you ever set aside a draft and re-read it a year later?  Or re-read an old article that you wrote five or six years ago?  Who wrote it?

So I think there is something far more nuanced going on than the rational model that we write contracts because we are addressing the hypothetical judge who will resolve our disputes, and in doing so, apply ex ante the rules that have been laid down legally or linguistically, as a way now of controlling the future.  Hence, I've asked the question whether there is any real linkage between what the court ends up saying in a close case of interpretation and what the parties may have intended. 

I am very interested in, yet remain to be convinced of, the Smith-Ueda working thesis that courts as common law developers of a more flexible, adaptable law, as compared with the civil law, have a material effect on the facilitation or hindrance of entrepreneurial activity.  Here I return to my nascent meanderings about lawyerly styles of cognition from a few days ago as well as the post from November 20 on Schumpeter and entrepreneurship.  I would suggest that the way common law judges process data and apply rules in adjudication bears little resemblance to the way a Schumpeterian entrepreneur would process data and apply rules, including the rules, where he or she aware of them, laid down by the common law judges.  And if the response is, yes, but they have lawyers to make them aware of the rules, I ask, "Really?  How do you know?  And if they do have lawyers, do they listen to them?"  (Without giving it nearly the due it deserves, let's just play with the title of Frederick Schauer's Playing by the Rules.  What does playing by the rules mean to a court?  What does playing by the rules mean to an entrepreneur?  And what does playing by the rules mean toAyres_ian the entrepreneur's lawyer?  This is a little bit of a tease, but one of the management books boxed up in my self-storage unit is entitled First, Break All the Rules.  Here's more of a tease.  One of the few books authored by a law professor about entrepreneurial problem-solving itself has a rule-contrarian title: Why Not? How to Use Everyday Ingenuity to Solve Problems Big and Small by Barry Nalebuff and Ian Ayres (Yale, left).)

My intuition is that the rule of law, or more precisely, a society that values the rule of law, is an element of a social environment that fosters entrepreneurship.  No, it's more precise than that:  a society that builds the rule of law from Lockeian assumptions about the primacy of property, and the freedom to own it and trade it, fosters entrepreneurship.  There is a strong libertarian theme here - entrepreneurial communities are the wild west, wherein the notions of personal autonomy and freedom run deep, not just politically, but epistemologically and morally as well.  Is there a relationship between that underlying libertarianism and the presence of a common, rather than civil, law?  I'm not enough of a political theorist to know.  Judges could put a crimp in the economic incentives to creative destruction, but so could legislatures and executives.  But to me, that's like holding the tiller of a small boat on the crest of a tsunami, and thinking that because you can impede or enhance the progress of the boat, you control the tsunami.  Do tiller-people matter?  Yes, but not nearly as much as the tiller-people think.  In this analogy, the entrepreneurs are the seismic causes of the tsunami.

So I await this work eagerly!

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