September 4, 2017

Dispute Resolution When Rationalities Conflict

Cost and Choice in a Mixed Economy
  • Richard Wagner

    Distinguished Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics
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Read the paper at SSRN.com.

In bringing economic analysis to bear on the settlement of legal disputes, it is commonly presumed that the parties to the dispute are governed by the principles of private property and so are residual claimants to their legal expenses. This institutional framework promotes a substantive rationality that is often conducive to the settlement of disputes without trial. In contemporary mixed economies, however, a political agency is often party to a dispute. These agencies operate under a different substantive rationality because the framework of collective property under which they operate means they do not have residual claims on their legal expenses. They can, however, convert those expenses into investments in politically preferred activity. What results is a conflict between rationalities that generates societal tectonics that often are misidentified as market failures when they are really systemic properties of the conflicting rationalities.