Guidance rules and enforcement rules: A better view of the cathedral

Contemporary economic analysis of law is a product of the confluence of standard microeconomic analysis with a legal tradition heavily influenced by American Legal Realism. The effect of this merger has often been an analysis of legal institutions from the perspective of the Holmesian ''bad man,'' who sees predicted legal actions as merely costs or benefits to be taken into account. This approach might be illuminating for the purposes of an ''outsider,'' such as a behavioral sociologist or perhaps even a legal advisor alerting her ''bad man'' client to the risks of adverse legal consequences. But it produces bizarre results when used to understand basic legal concepts, such as the notion of property, that in fact reflect the perspective of ''insiders,'' that is, persons who try to shape the law to achieve various purposes and those citizens who willingly conform their conduct to the law's requirements. The resulting distortion is demonstrated by an analysis of one of the most important articles in the literature of law and economics. Reexamination of that article forms the basis of an improved understanding of the relationship between economic analysis and such legal concepts.