The Volokh Conspiracy - State law schools as transaction cost minimizers:

I thought that the most interesting theory proposed in response to my question about the rationale for state ownership of law schools was that it minimized transactions costs to bundle the set of goods produced by law schools rather than buying them ala carte. (There was also an interesting "promote local legal culture" theory proposed, but this one appeals to my economist's heart more.)

While this is an appealing idea in many respects and very much in the spirit of Coase, there are some offsetting costs to consider. Buying a law school (which some states literally did in the transition from the era of proprietary education to the modern era of university affiliated law schools - I believe both Cleveland State's Cleveland Marshall College of Law and IU Indianapolis were originally proprietary schools, among others) rather than buying various services introduces a principal-agent problem between the law school and the state.

The bundle of goods state law schools produce ought to include scholarship on state legal issues. Sometimes that can be framed within larger issues (i.e. a paper on whether a cap on punitive damages is a good thing is useful in deciding if Ohio should have a cap on punitive damages) but other times it is likely fairly state-specific. For example, Ohio has a particularly complex limitation on property tax revenues that slows the rise of property taxes but also makes for some very confusing tax elections, frequent tax elections, and undoubtedly biases the tax structure in some odd ways. An article on the punitive damage cap issue could wind up in any law review; an article on Ohio property tax law would be lucky to make it in one of the Ohio schools (and we have 9) law reviews. So, faculty are more likely to write the former than the latter, even at state law schools. Faculty are more likely to be rewarded for writing an article that places well, which pushes against the property tax article.

Perhaps the state would do such a bad job selecting topics for commissioned research that it wouldn't matter. And, of course, states can still commission research even if they also own law schools.

I'd be interested in readers' thoughts on how state-ownership might reduce some transactions costs and increase others.

	[Andrew Morriss (guest-blogging), August 22, 2005 at 4:40pm] Trackbacks State law schools as transaction cost minimizers: I thought that the most interesting theory proposed in response to my question about the rationale for state ownership of law schools was that it minimized transactions costs to bundle the set of goods produced by law schools rather than buying them ala carte. (There was also an interesting "promote local legal culture" theory proposed, but this one appeals to my economist's heart more.) While this is an appealing idea in many respects and very much in the spirit of Coase, there are some offsetting costs to consider. Buying a law school (which some states literally did in the transition from the era of proprietary education to the modern era of university affiliated law schools - I believe both Cleveland State's Cleveland Marshall College of Law and IU Indianapolis were originally proprietary schools, among others) rather than buying various services introduces a principal-agent problem between the law school and the state. The bundle of goods state law schools produce ought to include scholarship on state legal issues. Sometimes that can be framed within larger issues (i.e. a paper on whether a cap on punitive damages is a good thing is useful in deciding if Ohio should have a cap on punitive damages) but other times it is likely fairly state-specific. For example, Ohio has a particularly complex limitation on property tax revenues that slows the rise of property taxes but also makes for some very confusing tax elections, frequent tax elections, and undoubtedly biases the tax structure in some odd ways. An article on the punitive damage cap issue could wind up in any law review; an article on Ohio property tax law would be lucky to make it in one of the Ohio schools (and we have 9) law reviews. So, faculty are more likely to write the former than the latter, even at state law schools. Faculty are more likely to be rewarded for writing an article that places well, which pushes against the property tax article. Perhaps the state would do such a bad job selecting topics for commissioned research that it wouldn't matter. And, of course, states can still commission research even if they also own law schools. I'd be interested in readers' thoughts on how state-ownership might reduce some transactions costs and increase others.