Research Paper Number
Econometrics; Insolvency Law; Legal Certainty; legal reasoning; Purposive Law
Be it information asymmetry in banking regulation or game theory as applied to child custody in divorce, economic theory plays an increasingly prominent role in legal scholarship. Econometrics brings welcome empiricism to our efforts to understand the operation both of markets and of society in general. Its application to the law, however, carries with it the risks of failing to account for certain fundamental contradictions between econometric and legal method. This paper considers the problem of using econometric data to inform legal decision making, and in particular what may be an irreconcilable clash between effective purposive law and legal certainty. This creates problems for the judge asked to make choices based upon desired purposive outcomes, such as achieving the best returns of creditors or having the highest probability of recovery, in order to achieve a legally certain outcome, which is to say that the informed observer is reasonably able to predict the result. Although this paradox is described in the context of insolvency law, it is inherent to legal method in general rather than being specific to this discipline.The exact nature or desirability of either legal certainty or effective social engineering through the law is beyond the scope of this paper, as is the question of the extent to which legal reasoning is genuinely deductive. The purpose is to demonstrate that the objectives of certainty and effectiveness are pulling in opposite directions: an effective law is uncertain, and a certain law is ineffective. The lawmaker must choose between one and the other.
Crawford, Keith, "The Paradoxical Relationship between Econometric Effectiveness and Legal Certainty" (2011). Comparative Research in Law & Political Economy. Research Paper No. 5/2011.