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Publication Date

3-1997

Document Type

Response

Abstract

Interest analysis does not stand up well under economic analysis. Richard Posner has noted that the territorial approach to choice-of-law rules reflected in the First Restatement enabled states at least roughly to exercise their comparative regulatory advantages. Moreover, a system of rules enables parties to better predict the outcomes of disputes. This better facilitates settlement than a standard as difficult to apply as interest analysis. Most fundamentally, trying to determine the interest of a state separate from the generally conflicting private interests of politicians, voters, and other elements of the political process is utterly foreign to contemporary public choice economics. In fact, the seemingly outmoded First Restatement approach generally makes better economic sense, among other reasons because, as discussed below in Part II, it enables states to limit the effectiveness of rent-seeking through interest group bargains. Though the First Restatement rules are imperfect and rest on a questionable theoretic foundation, they are not as arbitrary as advocates of interest analysis think.

Part I argues, in light of public choice theory, that interest analysis increases the inefficiency of laws by enhancing interest groups' ability to extract benefits from less powerful out of state groups. Part II proposes to respond to this problem with a version of the First Restatement rule-based approach, modified so as to better foster interstate competition by enabling parties to choose their governing law to a greater extent than any existing choice-of-law approach permits. Part III applies our analysis to some of the cases discussed in this Symposium.

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