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Brown, J G --- "Insights from Economics" [2005] LegEdDig 10; (2005) 13(3) Legal Education Digest 14

Insights from Economics

J G Brown

[2005] LegEdDig 10; (2005) 13(3) Legal Education Digest 14

54 J Legal Educ 1, 2004, pp 30–33

In this paper the author wants to drive home three important points: first, to explain from a conceptual perspective how economic analysis fits most effectively into a course on dispute resolution; second, to make some fairly tentative suggestions about how one could teach the economic analysis of dispute resolution; and, third, to raise some cautionary points about the limitations of an economic analysis of dispute resolution, particularly in the light of all that cognitive and social psychologists are teaching us.

Economic analysis enters a course most helpfully to explain and address strategic barriers to the resolution of disputes. Strategic barriers to negotiated resolution arise from asymmetric information and the adverse selection that can result from asymmetric information. The parties have different information about their valuations, their reservation prices, the other side’s valuations and reservation price, and so on. All this strategic misrepresentation of value can also cause parties to waste time bargaining when no deal is possible. Economics, particularly game theory, gives us some tools for addressing these informational issues.

Most of us who teach ADR probably bring in economic analysis in the context of negotiation, and mostly in two-party contexts. Most of us teach the prisoner’s dilemma or, as Lax and Sibenius have reformulated it, the negotiator’s dilemma. This model can help us to explain and to demonstrate to students why adverse selection can be such an intractable problem in negotiation. Generally we treat informational asymmetry and adverse selection as negotiation problems. If the author has one central suggestion, something to be promoted from the law and economics literature, it is that teachers of dispute resolution should continue to acknowledge the presence of strategic barriers as they move within a course from negotiation to mediation, arbitration, and hybrid processes.

At this point the author states that she should make a bit of a confession. When it comes to the teaching of economic analysis of dispute resolution, she is guilty of the pedagogical sin Menkel-Meadow described in her opening remarks (see above in this issue). She teaches articles and tries to generate discussion of them. Creating opportunities for experiential learning of these concepts is difficult. One problem with game theory is that it can be reductive. It can be divorced from reality, ignoring the passions and errors of flesh and blood.

She also discloses that although she has relied on economics occasionally in her scholarship, she does not stress economic analysis very much in dispute resolution courses that she teaches. Even more important, some of the game theoretic solutions to adverse selection could actually exacerbate the other barriers to negotiated agreement. The challenge is to work almost surgically to identify the strategic element without doing harm to the other things that are going on. In class, that calls for us — occasionally — to bring the strategic element into the foreground, but against a very complex background of psychological, communication, and institutional challenges.

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