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Todd J. Zywicki and Shruti Rajagopalan

In this chapter we provide an explanation for why the Chapter 11 reorganization process cannot accurately value and reorganize an insolvent firm. Due to the information and incentive vacuum of the reorganization process, Chapter 11 places the bankruptcy judge in the same institutional setting as a central planner. Therefore, the bankruptcy judge is given the impossible task of economic calculation without the relevant market data to calculate the same. Given the inability to make market allocations, Chapter 11 allocations are prone to rent-seeking and interest group capture.

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Peter J. Boettke and Todd J. Zywicki

The Austrian contribution to the development of law and economics is the study of endogenous rule formation, or the spontaneous evolution of social institutions, which can be traced to the founder of the Austrian School, Carl Menger. While Menger’s emphasis on spontaneous institutional analysis was born out of the Methodenstreit, a methodological battle engaged against the German Historical School, this chapter argues that the Austrian contribution to law and economics emerged directly from the socialist calculation debate against market socialism. This debate, we will argue, played an essential role in the re-discovery of the institutional framework in economics during the post-WWII era, particularly in the development of law and economics. In the aftermath of the socialist calculation debate, Menger’s earlier emphasis on institutional analysis was reemphasized by F.A. Hayek, who in turn influenced the early pioneers of law and economics, particularly Aaron Director, Ronald Coase, and Bruno Leoni.

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Peter J. Boettke and Todd J. Zywicki

The future of “Austrian” law and economics is informed and draws its inspirations from past methodological battles faced by the Austrian School in its development. From this past methodological battles arose Austrian-inspired developments, including transaction cost economics, property rights economics, public choice economics, and market process economics. Central to this interpretive slant in the narrative on the history of modern economic thought is law and economics. The research program in law and economics related to endogenous rule formation takes on, as we argued, a new urgency in a world where, analytically and empirically, we are effectively reasoning “out of anarchy.” Methodologically and analytically, this is best tackled by pursuing “invisible hand” theorizing. One of the real intellectual conundrums of the modern world is that if we recognize the role of spontaneously grown institutions, we must admit that actors within the society do not necessarily have to understand the function and purpose of those institutions to benefit from their operation. But, citizens may indeed have to understand and appreciate these spontaneously grown institutions in order for these institutions to be sustained and respected in our modern democratic societies.

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Edited by Todd J. Zywicki and Peter J. Boettke

The original contributions to the Research Handbook provide an introduction to the application of Austrian economics to law. The book begins with chapters on the methodology of law and economics. Further chapters discuss key concepts in Austrian economics – dynamic competitive processes, spontaneous order, subjective value, entrepreneurship, and the limited nature of individual knowledge – as they relate to topics in evolutionary law (social rules, self-governance, dispute resolution) and basic law (torts, antitrust, civil procedure, business and family law).
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Todd J. Zywicki and Edward P. Stringham

Is the common law efficient? Neoclassical economists debate whether our inherited systems of judge-made law maximize wealth whereas Austrian economists typically adopt much different standards. The chapter reviews neoclassical and Austrian arguments about efficiency in the common law. After presenting Hayek’s views on the common law as a spontaneous order it concludes that the common law can indeed be viewed as a spontaneous order only when judges provide their services in a free and competitive system.

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Todd J. Zywicki and Edward Peter Stringham