Journal des Economistes et des

Etudes Humaines
Volume 12, Number 2 2002 Article 5
NUMÉRO 2/3

The Role of Entrepreneurship in Shaping

Legal Evolution

Elisabeth Krecké, Université d’Aix-Marseille III

Recommended Citation:
Krecké, Elisabeth (2002) "The Role of Entrepreneurship in Shaping Legal Evolution," Journal
des Economistes et des Etudes Humaines: Vol. 12: No. 2, Article 5.

DOI: 10.2202/1145-6396.1060
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 The Role of Entrepreneurship in Shaping
Legal Evolution
Elisabeth Krecké

Abstract
This paper adopts an economic interpretation of the legal process, explaining legal change as
the outcome of the complex interplay of entrepreneurial forces operating inside (through the
actions of legislators, judges, lawyers), as well as outside the legal system (in the marketplace).
The question of concern is whether the concept of entrepreneur as elaborated by Kirzner in a
theory of the market process can be extended to understand the legal process as well. The focus on
the alertness of legal decision-makers, their capacity to learn from experience and the multitude of
legal and nonlegal (in particular economic) sources they are referring to, seems to provide a
possible methodology for an economic approach to law that avoids the exaggerated belief in the
objectivity, determinacy and cogency of legal reasoning typical for mainstream law-and-
economics, and at the same time the opposite exaggeration of law’s radical subjectivity and
indeterminacy characterizing most of contemporary critical legal literature.

Cet article adopte une interprétation économique du processus juridique en expliquant

l’évolution du droit comme le résultat de l’interaction complexe de forces entrepreneuriales
opérant à l’ intérieur (par le biais des législateurs, juges, avocats) et à l’extérieur du système
juridique (à travers le marché). Il s’agit de montrer que le concept d’entrepreneur élaboré par
Kirzner pour expliquer le fonctionnement du processus de marché peut offrir une méthodologie
également pour comprendre les processus de production du droit. En mettant l’accent sur la
vigilance des décideurs, leur capacité d’apprendre par l’expérience, ainsi que la multitude des
sources juridiques et extrajuridiques (notamment économiques) auxquelles ils se réfèrent, une
approche économique du droit qui renvoie à cette théorie de l’entrepreneur, peut éviter d’un côté
l’hypothèse irréaliste d’omniscience de l’autorité juridique qui sous-tend l’analyse économique
traditionnelle du droit et de l’autre côté, l’hypothèse opposée non moins exagérée de la
subjectivité et de l’indétermination radicales de l’évolution juridique qui caractérise une partie
dominante de la littérature juridique critique contemporaine.

KEYWORDS: Legal process, Alertness, Economic approach to law

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 Krecké: The Role of Entrepreneurship in Shaping Legal Evolution

THE ROLE OF ENTREPRENEURSHIP

IN SHAPING LEGAL EVOLUTION

Elisabeth Krecké°

1. Introduction

At a given time, the fundamental concepts on which the legal system is

based – such as contract, tort, property, liberty and justice – appear as relatively
stable. In the long run, however, the entire content of the law, including the basic
legal concepts themselves, seem to undergo silent revolutions, as underlined by
the actually emerging postmodern legal literature,1 which asserts that legal change
does not only concern partial, superficial or piecemeal adaptations of legal rules
and institutions to social change, but that even central legal concepts – which
classical jurisprudence considers as first principles, grounds or foundations of the
law – see their meanings evolve over time, while adapting to the preoccupations,
terminology and historical contexts of different epochs.

These arguments bring to the fore fundamental issues, which traditionally

have preoccupied legal rather than economic theory, such as the ever-present
tension between the stability and the flexibility of the legal system. This paper
relies on an economic perspective in order to invoke some aspects of the question
of legal change. Which factors and forces, likely to promote both continuity and
change over time, can be identified in the legal process? Which elements in law are
subject to change and which remain constant over time? By which forces is the law
shaped and adjusted to social, economic, political and technological change? And
to which extent do market forces affect the legal process?

It is often argued in economic theory (in particular evolutionary and

institutional economics) that continuity and change are essentially promoted by the
policy-making process (legislative, bureaucratic or judicial), within which arise and

° Faculté d’Economie Appliquée, Université d’Aix-Marseille III (France).

1 See for instance Litowitz-1997.

Volume 12, numéro 2/3, Juin/Septembre 2002, pp 241-256.

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 Journal des Economistes et des Etudes Humaines, Vol. 12 [2002], No. 2, Art. 5

operate forces that display a certain inertia to change, thus serving to maintain the
status quo structure of legal institutions, while other forces promote change by
seeking to affect legal-economic institutions or relations.2 These conflicting forces
singly or in combination are supposed to shape the progress of law. The evolution
of the institutional structure will indeed depend on which of these forces will
predominate over time. Most certainly, pressure groups figure among those forces
within the legal-economic arena that are generally described as the prime
promoters of legal change. In this respect, market forces can appear as largely
disequilibrating elements within the mutually interdependent legal-economic
connection, in as far as they may alter the existing legal framework.

This paper attempts to examine this assumption of the systematically

disturbing effect of market forces on the legal system, by prospecting the possibility
of a coordinative link between the market and the legal process. It therefore
invokes the Austrian concept of entrepreneurship 3 which will serve to explore the
nature of the endogenous (market as well as legal) forces that, through a process
of discovery, learning and experimentation (Section 2), set the moves of the legal
system and push the law into new directions, without necessarily creating disorder
and indeterminacy (Section 3). The fundamental problem indeed is that of order,
which, according to the Austrian economics tradition, 4 can be defined as an
ongoing process of coordination in which continuity and change tend to be
reconciled within the legal-economic relations.

2. Economic sources of legal learning

A central issue in an economic approach of legal evolution appears to be

the question of the supply of legal innovations. Even though, as underlined in the
introduction, the legal system can be supposed to generally aim at stabilizing the
legal process against the problem of indeterminacy, it can, however, also be
assumed to encourage reforms when major changes occurring in society render
obsolete or inadequate present legal institutions or rules, or simply, when legal
authorities give in to the pressure of powerful economic groups. Public choice
theory, applying the standard tools of economics to the study of political
phenomena, has treated this issue in depth with respect to the evolution of
legislation and government regulation, exploring the question of whether and to
which extent the law reflects the demand for legal change emanating from
economically and politically powerful individuals or groups, who lobby for causes
of actions that enhance their personal interests. Lobbying is invoked as a major
factor influencing legal evolution, because of the frequently observable frailty of

2 Mercuro-1998, p.42. See Samuels-1989.

3 In particular the kirznerian interpretation of this concept. See Kirzner-1973.
4 Hayek-1973.

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 Krecké: The Role of Entrepreneurship in Shaping Legal Evolution

legislators and regulators who take into account the demand of interest groups. In
other words, this perspective privileges the active role of the demand for legal
change emanating from pressure groups, which is assumed to push the supply side
(the legal officials, in particular legislators or regulatory agencies) to shape the law
in accordance with their particular needs and interests.

Nevertheless, it is not through lobbying, rent-seeking and pressure alone

that market participants may affect the legal process. Market forces may be
supposed to shape legal change in several other ways. My concern is to focus on
the circumstances which allow demanders to become suppliers of legal
innovations as well. It can be argued that privately initiated rule systems in the
market process can be considered as one of the forces which help engendering
legal change in at least two ways. First, individual market participants, trusts and
industries, discovering and experimenting alternative ways to solve legal problems
– in particular when private solutions turn out to be more appropriate than the
solutions provided by the traditional legal system – can be considered as genuine
producers of legal rules and services.5 Second, these private forms of lawmaking
play an essential role in legal evolution in as far as they constitute an important
source of information and learning upon which official legal actors can draw for
policy guidance.

2.1. Private supply of legal innovations

Most markets are governed essentially by public law, which potentially

reduces their propensity to bring about self-generated legal innovations. However,
in fields where public law either presents major shortcomings or is largely absent –
as is the case in new fields like for instance the world-wide economy engendered
by the Internet6 – there are strong incentives for concerned industries to experiment
and develop their own solutions to cope with new, emerging problems. In such
contexts, complex forms of contracting become an important and efficient form of
governance. Contracts not only contribute to prevent conflicts by specifying in
advance which laws regulate transactions, but above all, they allow parties to create
new rules, or at least to modify the legal rules that apply to their transactions, in
order to adjust them to their needs. So, new arrangements, adapted to the
specificity of industries, can constantly be developed in a decentralized process of
discovery and experimentation – allowing for the formation of what economists
have called “private orderings”.7

When specific norms and rules, which started out as simple conventions
or contractual promises for some groups of individuals, progressively spread
through other communities and become widely recognized, accepted and finally

5 Krecké-2001.
6 Ibid.
7 Ellickson-1991.

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 Journal des Economistes et des Etudes Humaines, Vol. 12 [2002], No. 2, Art. 5

customized, contracting undeniably becomes a source of new rules which emerge

and develop in the shadow of the established legal system. Norms, which evolve
spontaneously in a given social context as an efficient response to recurrent legal
problems, are in some cases more likely to be accepted by the relevant communities
than rules that are imposed by legal authority, as underlined by private ordering
approaches.8 In many situations, self-generated norms and rules acquire a binding
force, even without an explicit statement declaring that they are relevant.9

Giving rise to new, privately initiated solutions for securing networks and
protecting intellectual property rights, the Internet offers a good example also of
the ways in which property rights may be extended to new objects – not by legal
authority, but by contractual and technological devices developed by those who
commercialize these new objects. Assuring innovators the control over new, digital
objects (new software for instance), encryption technologies function as what
Mackaay calls virtual “fences”.10 In the absence of an efficient traditional copyright
protection in the field of digital property, property owners indeed had no
alternative but elaborating themselves new, workable ways to protect their on-line
activities. Software producers for instance could not afford relying on their
respective governments to identify and sanction the numerous users without
licenses. They have for a long time been exploring their own technical solutions
allowing for a relatively efficient protection of their property interests. Another
significant reason which may explain property owners’ alertness to new
opportunities of protecting on-line activities is that they may not only use these
techniques to protect their own property interests, but they may become full-scale
suppliers of protection devices or virtual fences for other property owners.

Cyber-markets not only generate private, ex ante means to foresee and

prevent contractual or property disputes, but also devices regulating disputes ex
post, once they have occurred. Technical problems, such as the difficulties to
localize unlawful conduct in this borderless and rapidly changing context,
considerably enhance uncertainty with regard to the question which jurisdiction
holds sovereignty over which cases, hence reducing the efficiency of traditional
dispute resolution through administrative agencies and judicial procedures. In
response to the growing demand for private, self-regulatory dispute mechanisms,
services for settling disputes on-line have been multiplied over the past few
years,11 and have become flourishing businesses for those who provide them.
Some of these recent experiences of on-line arbitration and mediation have
encountered notable success within cyber-communities. Not only do they provide
a less costly way to settle disputes, but they allow for an enhanced flexibility in

8 Benson-2000.
9 Ibid., p. 11.
10 Mackaay-2000.
11 Examples are private and semi-private initiatives such as ‘e-resolution’, ‘Online Ombuds Office’,
‘Virtual Magistrate’, ‘Better Bureau Business Online’, ‘World Intellectual Property Organization’,
‘CyberSettle’ or ‘ClickNSettle’.

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 Krecké: The Role of Entrepreneurship in Shaping Legal Evolution

coping with the changes permanently occurring in cyberspace. In addition, they

seem to avoid the problem of designing the competent jurisdiction. Using these
virtual courts indeed manifests consent of the concerned parties.

Above all, private dispute resolution is a way to overcome some of the

informational deficiencies inherently characterizing public forms of governance.12
Rather than remote judges, contracting parties opposed in a conflict indeed have in
many cases a more adequate perception of the specificity of the problems they
have to deal with in their respective industries. This is particularly true for
industries in which technological change constantly undermines existing legal
arrangements, such as the emerging cyber-economy, where private mechanisms to
solve legal disputes clearly reflect a more appropriate knowledge of concerned
individuals to efficiently handle the complexities of highly specific transactions.
Because of this specific knowledge, they seem to be better suited to develop
appropriate responses to their individual problems. Not adequately equipped to
obtain such subjective knowledge, traditional legal institutions are often lacking
expertise in coping with the speed of the technological developments that
characterize many industries, and, as a consequence, the rule making process they
engender risks to systematically lag behind technological change. Private
responses to legal problems have the advantage that they reflect more directly and
accurately the needs of concerned parties than does traditional lawmaking.
Because of their comparative efficiency in terms of their functioning toward
resolving interpersonal conflicts, they can be assumed to have an important impact
on the process of public law production. More importantly, if we define law as a
mechanism that contributes to produce a form of order in society, we may consider
as lawful rules and practices that are not produced by legal authority. In other
words, the self-regulatory forces emerging in the market process can be viewed as
a genuine form of law-production, even if they have not been enforced or
institutionalized by the established legal system.13

2.2. Interaction between private and public supply of legal services

With the increasingly dramatic growth of technology and the complex

legal problems this growth engenders, the pressure from the market confronts
legal authories with the difficult decision whether and how to deal with the
decentralized, entrepreneurially initiated processes of rule creation, whether to go
against, or on the contrary tolerate, or even encourage this competition coming
from outside the currently accepted practice of law. Legal actors have to decide
whether in difficult and novel cases, they should first let the market experiment
new, alternative techniques for solving legal problems, and finally – once these
techniques have stood the test of time and proved their capacity to efficiently solve
recurrent problems of coordination – eventually integrate, institutionalize and
enforce them.

12 Underlined in particular by Austrian economics. See Hayek-1945.

13 Krecké-2001.

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 Journal des Economistes et des Etudes Humaines, Vol. 12 [2002], No. 2, Art. 5

When the complexity and speed of technological evolution systematically

confront legislators, regulators and judges with problems never before encountered,
long and difficult processes of discovery, learning, and adaptation are generally
required on their behalf. In these fields, there is undeniably a lot of extralegal, and
more specifically economic learning, upon which legal actors have to draw. In this
sense, the private ordering processes, in which individual, entrepreneurial attempts
to discover alternative ways for solving disputes and to arrange new, adapted sets
of rules, can become an important source of information and learning, not only for
the market participants themselves, but also for the official legal decision-makers.

In situations where the market develops responses to legal problems that

are obviously more appropriate than the ones provided by the official legal system,
we might indeed expect the competition between diversified rule systems co-
existing in markets, through which particularly workable regimes can be selected,
to have an impact on the established legal framework. This would imply that the
traditional suppliers of law (legal officials) become demanders of legal innovations
provided by the market. For instance, the regulation of specific issues related to
cyberspace, in many cases, reflects an at least implicit reference by legal decision-
makers to the competing sources of learning and experimentation initiated by the
market process – as illustrated for instance by the actual movement of liberalization
of cryptographic policies, observable since a few years in most industrial countries.
These policies have allowed the emergence of a new, private market for
encryption products in cyberspace, which in turn renders obsolete most of the
strict legislation that prevailed so far in this field.14 There seems to be a growing
awareness among legal authorities of the fact that encryption techniques developed
in the Internet, as well as copyright management systems, specific marketing
techniques (regular updates, tying arrangements like on-line assistance…) and
even private services for settling disputes on-line, have to be accepted as
indispensable factors for the future development of the new economy. In this
sense, a sort of collaboration between the industry and the legal order, based on
discovery and learning processes at both private and public levels, is likely to
emerge.

In various fields, solving difficult or novel issues hence requires legal

decision-makers to rely on a variety of sources of learning, and to change their
activities in the light of the knowledge provided by legal as well as non-legal
materials. In many cases, judges for instance currently use experts and scientists
to help them orient their decisions. Legal actors undeniably are affected by
such things as the development of new ways to understand phenomena like
industrial concentration,15 or new ways to use technologies of information and
communication. They often cannot avoid dealing with the advancement of science,
and do not always have a choice but breaking with the inertia of tradition.

14 Traditionally, in most countries, encryption technologies have been considered as a military arm, and
have, for reasons of national security, been monopolized by public authorities.
15 As is the case in fields like antitrust law, for instance.

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 Krecké: The Role of Entrepreneurship in Shaping Legal Evolution

Underlining the complexity and endogenous character of the supply of

legal innovation casts new light on the questions of whether there is progress in
legal evolution, and what progress means in respect to legal change.

3. Legal learning and coordination

3.1. The concept of legal entrepreneur

Arguing that non-legal factors such as alternative market practices for

solving or preventing interpersonal disputes, the demands of politics, as well as
science or legal and even economic scholarship, contribute in an important
manner to shape the ways of thinking of legal actors, opens up new perspectives
for understanding the process of legal reasoning. The question of interest is to
know what kind of knowledge the knowledge of law is.

The observation of lawyers and judges in action seems to provide

confirmation of the fact that legal reasoning is more than routinely imitating the
decisions of previous cases in new cases or of strictly applying legislation.
Legislators, lawyers and judges’ knowledge of law appears to be more than just
handling specific analytical tools as taught in law schools, and referring to
objective and distinctively legal materials (cases, rules of procedure and evidence,
regulations, statutes, constitutional provisions, etc.). This is clearly Posner’s recent
point of view: “Sagacity and judgment owe little to legal training and experience
(and much to age), being qualities that are brought to bear on legal methods,
materials and experiences rather than created by them”.16 As a consequence, little
is known about efficient technique in law, because knowledge and skill in legal
reasoning are not always articulate and objective. On the contrary, they are to a
large extent tacit,17 based on forces outside of logic, such as personal conviction
(including the prejudices which legal authorities share with their fellow men18),
policy considerations and political orientations, or derived from personal routines
and experience (practical wisdom) acquired over the years. Depending on the
nature of the cases to decide, legal reasoning requires to an important part
adaptation to new – legal as well as non-legal – materials, a task which beyond
knowledge and familiarity of law, seems to call for a mixture of insight, premonition
or intuition, as well as “caution, detachment, imagination and commonsense”.19
Legal decisions, in this pragmatic understanding, appear above all to be a matter of
judgment, vision and openness to new perspectives and ways to solve given
problems.20

16 Posner-1993, p. 109. This statement seems to reflect a rather important change of perspective in
comparison to Posner’s earlier work which describes judges as rational optimizers. See Posner-1977.
17 Posner-1993, pp. 109 and 125.
18 Holmes-1881.
19 Posner-1993, p. 109.
20 See Holmes-1881.

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 Journal des Economistes et des Etudes Humaines, Vol. 12 [2002], No. 2, Art. 5

An important part of legal theory of the past has described legal actors
who have a “good judgment” as men of law who basically rely upon “intuitive
judgment based on intelligent selection and estimation”, 21 or who display an
“erudite experienced alertness”,22 rather than logic or calculus. At the end of the
19th century, Justice O.W. Holmes, criticizing the tradition of legal formalism
according to which law has to be considered as a consistent set of first principles
guiding legal actors in their decisions, insisted on the importance of experience
over formal logic: “the life of law has not been logic: it has been experience”.23

These same concepts – alertness, intuition – serve Kirzner to define the

entrepreneurial element in decision-making of market participants. The
entrepreneur is broadly described as someone whose alertness allows him to
discover and exploit previously unnoticed profit opportunities (generated by price
divergences for instance), hence correcting an existing discoordination in the market
where he operates.24 As underlined by Kirzner, anyone, in any context, is a potential
entrepreneur.25 As a consequence, the Austrian concept of entrepreneurship is in
principle transposable to legal decision-making. For instance, legal decisions which
course to follow in a given case, and on which sources to rely, can be supposed to
involve entrepreneurial judgments.

So far, the concept of entrepreneurship has not yet found its way into legal
scholarship – with the exception of Schwartzstein’s work, which maintains that in
particular lawyers might be thought of as entrepreneurs who seek for possibilities
to increase their clients’ interests by discovering new winning strategies and new
interpretations of the law.26 We might indeed expect lawyers to constantly look for
flaws, gaps and ambiguities in the law or for ignored arguments that they could
exploit, in order to enhance their clients’ chances to get out of trial victoriously.
This is how they can contribute to innovate and change the law. Underlining the
entrepreneurial nature of lawyers’ activities, Schwartzstein believes, however, that
this element is less present in judges’ decision-making, because judges, concerned
about their reputation which is highest when they manifest prudence and respect
for prior rules, are in general reluctant to encourage changes in the law.27

Nevertheless, it may be counter-argued that in many cases, judges appear

to be the first to introduce a new value into the law, or simply a new way of
understanding a particular problem. It is true that many cases are resolved quite
easily through the application of settled precedents, but occasionally there are

21 Posner-1993, p. 111, referring to John Dewey, How we think: a restatement of the relation of reflective
thinking to the educative process, 1933.
22 Hexter-1980, p. 485.
23 Holmes-1881, p. 233. See also Cardozo-1921, pp. 112-113.
24 Kirzner-1973.
25 Ibid., p. 16.
26 Schwartzstein-1994, p. 1071.
27 Ibid., p. 1071.

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 Krecké: The Role of Entrepreneurship in Shaping Legal Evolution

cases which clearly present an opportunity for judges to imagine and experiment
new solutions, which sometimes engender major changes in the law. Some of the
most insightful legal decisions of the last century can be understood as the ones
which have involved major deviations from the standard legal perspective.28

If we adopt a kirznerian perspective, changes in a judge’s decisions can, in

many situations, be interpreted as the outcome of a learning process, generated by
an unfolding experience in which the judge’s alertness to new information
engenders new ways of solving cases. The allowance for an entrepreneurial
component in judicial decision-making differs in an important sense from for
instance Rorty’s pragmatic perspective,29 where judges’ visionary decisions seem
to systematically take place in a context of complete ignorance of whether the
decisions will turn out to be right or not. In Rorty’s description, judges’
experimental and innovative decisions are mere “leaps in the dark”. All judges can
do is hope that their experiments turn out well. It is true that the kirznerian
entrepreneur too, by definition, acts in a context of pure ignorance – it is precisely
the presence of ignorance in the market process which opens up the possibility of
unexploited opportunities and the possibility that the first to discover them can
capture the associated profits by innovating, changing and creating30 – but the
entrepreneur is precisely the one who overcomes and corrects this ignorance.31

Furthermore, in Kirzner’s interpretation, entrepreneurship does not

necessarily equate with innovation. Thus, even the activities of cautious judges
who are respectful of tradition and precedent may be considered as entrepreneurial
in the sense defined by Kirzner. The mere citation of a previous case requires
interpretation, translation, adaptation, and hence personal judgment. But even
preliminary decisions, such as to know which precedent to select, what is a
similar case, and finally the decision whether to stick closely to the precedent or to
read it broadly – choices which can be determinant for the outcome of a case –
create opportunities for judges to transform or adapt forgotten or ignored legal
arguments and materials to new cases, and hence, opportunities to push the law
into new directions.

Moreover, as underlined previously, precedents constitute an important,

yet not an exclusive source of information on which legal actors base their

28 As argued by Rorty-1990, referring for instance to cases where the Supreme Court refused to defer to
either preexisting case law or legislative solutions involving segregation. (For example, Brown v. Board
of Education, where the Court’s decision undeniably contributed to enlarge the scope of fundamental
rights). Rorty thinks that we occasionally need such “visionary paradigm shifts” to break up a chain of
bad (such as racist) precedents or legislation which have become embedded as binding law. See
Litowitz-1997, p. 146.
29 Rorty-1990.
30 See Kirzner-1973, p. 67.
31 This does not exclude the possibility of errors in the entrepreneur’s judgment or expectation. In
Kirzner’s view, however, the genuine (and systematic) ability to learn from experience enhances the
propensity of the entrepreneur to make profitable decisions.

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 Journal des Economistes et des Etudes Humaines, Vol. 12 [2002], No. 2, Art. 5

judgments. Other sources of guidance, among which unofficial and often tacit
sources of wisdom, create opportunities for legal officials to make entrepreneurial
choices, such as deciding how and when to break with the past, when to ignore
precedents and endorse a new social vision, which new rule system to adopt,
which privately initiated norms and rules to draw upon, etc. In this sense, we
might argue that judges and lawyers’ knowledge of law to a large extent requires
attention to relevant information, rather than the possession of it. This is precisely
how Kirzner defines the kind of knowledge required for entrepreneurship :
knowing where to look for knowledge.32
Entrepreneurial knowledge is by definition “superior” knowledge (in the
sense that it is generated by the imperfection of knowledge on the part of others –
it is knowledge about opportunities that can in principle be seized by anyone33),
yet at the same time it is a subjective, imperfect and unsure information. As a
consequence, legal decision-making cannot be other than pragmatic.

This conclusion raises the complex issue of the predictability and

determinacy of legal change, joining, at least ostensibly, some of the problematics
of contemporary critical legal literature34 which considers that since legal actors
are humans, they make errors and are not necessarily devoted to the public
interest, and that therefore, law is inevitably flawed and its evolution erratic and
unforeseeable. Can this rather pessimistic conclusion be avoided?

3.2. The question of legal indeterminacy

In postmodern critical legal literature, it is precisely the profit-oriented

character of the market for legal services that is under attack. This literature
pejoratively invokes two related ideas: first, the argument that the various
categories of legal actors, all at different levels, are working to promote essentially
their own personal benefits, and second, the conclusion that this phenomenon is
likely to have injurious impacts on the functioning of the legal system. The so
called “law is politics”35 school asserts that the production of law is fundamentally
pervaded by the pursuit of extralegal, personal (profit oriented) motives guiding
legal actors.36 The profit component of law production (in other words, a form of
entrepreneurship) is thus accused to render legal evolution indeterminate,
implying that any outcome, any time, is possible. According to this perspective,
legal justice will fall short of the ideal of the rule of law defended by liberal legal
theory for several reasons. As far as indeterminate law cannot constrain judicial

32 Kirzner-1973, p. 68.
33 Ibid., p. 65.
34 For an introduction to the leading ideas in critical legal studies, see for instance Unger-1986;
Fitzpatrick/Hunt-1987; Griffin/Moffat-1997. If the critical studies have largely broken up as a movement,
their methodology and ideas, however, live on in many of contemporary legal theory.
35 Solum-1997, p. 45.
36 In this respect, the basic conclusions drawn by public choice analysis in the context of the legislative
and regulatory process are adapted by critical legal literature to all fields of law, including private law.

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 Krecké: The Role of Entrepreneurship in Shaping Legal Evolution

decision, judges’ decisions will to a large extent be arbitrary. As a consequence, the

very idea of legal regularity will fall short as well, and there is no more basis for
assuming that analogous cases will be treated alike. Since legislators are subject to
interest-groups, lawyers are motivated to elaborate winning strategies for their
clients in order to increase their businesses, and even judges are constrained by
policy considerations, as well as personal career motivations, the administration of
law, according to this perspective, is inevitably pervaded by class bias and
subordinated to politics.

Pointing out to the fact that lawmaking offers numerous, genuine profit
opportunities for legal officials to increase their personal welfare, these studies
implicitly underline and accuse the dismal side of the prevalence of an
entrepreneurial spirit in the legal profession. While they most certainly allow for a
form of entrepreneurship in the legal process, the coordinating link is, however,
completely occulted. As far as the supply of law is supposed to be thoroughly
shaped by mechanisms of lobbying by economically, politically or/and socially
powerful groups, the outcome of this biased market is likely to be contingent – and
probably far from reflecting any idea of coordination, justice or social efficiency,
however any of these terms may be defined. Anyway, it seems difficult, in these
circumstances, to conceive of a genuine progress of law.

However, as underlined in this paper, we do not necessarily have to

consider the profit logic in legal decision-making in this narrow and disreputable
sense implicit in the critical legal vision, even though the influence of pressure
groups on the evolution of the legal process cannot be denied. In many legal
fields, indeed, the public choice and critical legal arguments perfectly describe
the way the supply of law is to a large extent shaped by the demand side. But, if
we consider the dynamics of the previously underlined interaction between legal
and market processes (built on a process of mutual learning, discovery and
experimentation…), there is scope for a coordinating force shaping legal
evolution. In any entrepreneurial trial-error process, there is scope for innovations
and improvements. Learning indeed implies correcting errors, revising plans and
routines, adjusting decisions to newly perceived circumstances, changing
expectations, etc. It also involves the diffusion of knowledge throughout markets.
Profit-seeking legal actors – and market participants interacting with them
– thus need not to be conceived as merely discoordinating forces.37 The key
question of an entrepreneurial interpretation of legal decision-making most
certainly concerns the true motivations for profit-seeking behavior in this field. All
depends on whether we consider that the legal actor’s personal interest in a given
case or situation is consonant or in conflict with the social interests he or she is

37 It is true that the entrepreneur is a force that brings about changes in an existing market setting. But,
as shown by Kirzner, these changes are essentially equilibrating. They are brought about in response to
the existing pattern of mistaken decisions, a pattern characterized by missed opportunities. The
entrepreneur precisely “brings into mutual adjustment those discordant elements which resulted from
prior market ignorance”. Kirzner-1973, p. 3.

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 Journal des Economistes et des Etudes Humaines, Vol. 12 [2002], No. 2, Art. 5

involved with – in other words, on whether we believe that the legal process
succeeds in tempering the narrow self-interested profit-seeking attitudes of legal
actors. In this respect, the competitive pressure from the market can be supposed
to play a fundamental role in disciplining legal entrepreneurs.

The presence of an entrepreneurial spirit in legal professions can even be

viewed, at least to some extent, as the manifestation of a process of correcting
flaws in the legal system – and in this sense a prime force for enhancing over time
the efficiency38 of law. When profit-seeking lawyers discover and exploit gaps in
the current legal system by elaborating new interpretations and winning strategies
for their clients, they can be supposed to contribute at the same time to reduce the
flaws in the system by diffusing, through their innovative decisions, substantial
new knowledge within the legal system. Their profit-motivated actions could be
thought of as being part of those forces which generate a process of learning and
discovery in the legal profession which encourages the law to improve. Likewise, if
judges break with the past and innovate the law by transgressing the boundaries
previously laid before them, they might, by convincing other courts of the
relevance of their decision, animate the law to adapt to the changes occurring in
society. Furthermore, when concerned traders (non-legal actors) develop new,
efficient, technological or contractual devices to cope with complex and highly
specific legal problems characterizing their industries, they can, by providing an
important additional source of learning, help the legal system overcome some
significant deficiencies, in particular with respect to legal officials’ informational
problems.

As a consequence, legal innovations not necessarily alter the legal process,

they might, on the contrary, contribute to promote over time the efficiency of the
legal system, a tendency which is encouraged by the pressure of competition
between the different (both private and public) suppliers of rule systems.

4. Conclusion

This paper has adopted an economic interpretation of the legal process,

explaining legal change as the outcome of the complex interaction of entrepreneurial
forces operating outside (in the marketplace) as well as inside the legal system (the
legal officials). We have argued that the demanders for legal innovations (market
participants) can become suppliers of legal innovations in as far as the invention of
private mechanisms for preventing and solving legal disputes constitutes a source of

38 The discussion of the definition of the efficiency concept is beyond the scope of this paper. It is
obvious, however, that in this setting, it is not understood in the narrow sense of standard law-and-
economics, where efficiency equals with social wealth maximization, but rather in a broader and more
dynamic or institutional sense. See Krecké-1996.

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 Krecké: The Role of Entrepreneurship in Shaping Legal Evolution

genuine profit opportunities for the entrepreneurs who provide them. Furthermore,
to the extent that they find an important source of learning and information in
these privately initiated practices, norms or rules, the traditional producers or
suppliers of law (legislators, judges, lawyers,…) can be considered as demanders
for efficient legal innovations selected by the market. The decision whether and
how to integrate these innovations into the established legal system are described
as the outcome of entrepreneurial judgment.

Underlining the complexity and endogeneity of legal sources, the

methodology adopted in this paper differs both from the rather mechanical view of
the standard law-and-economics model of legal change and the pessimistic
description of the legal system provided by part of the postmodern critical
literature. In particular, the reliance on the kirznerian theory of entrepreneurship
seems to provide a possible methodology for an economic approach to law
that avoids the exaggerated belief in the objectivity, determinacy and cogency of
legal reasoning typical for mainstream law-and-economics, and at the same time
the opposite exaggeration of law’s radical subjectivity and indeterminacy
characterizing most of contemporary critical legal literature.

It appears that an economic analysis which explores the learning process

involved in legal experience can cope with the task of explaining the evolution of
law in a more realistic way than traditional law-and-economics which describes
legal decision-makers as purely passive wealth-maximizers who operate with
objectively known cost-benefit functions. Assigning to judges highly unrealistic
capacities for analysis and reflection, this restrictive vision of the lawmaking
process has virtually ignored a number of aspects that are of a crucial importance
to a full understanding of its functioning.39 In the neoclassical general equilibrium
framework, legal actors, indeed, do not learn anything by experience or discovery,
and genuine (unpredictable) changes in law cannot be other than exogenously
introduced.

If the legal process is described as a genuine market process – a market

where the supply is not reduced to economic computation, nor to passive reaction
to the pressure and bargaining of powerful parts of the demand side – but is seen
as the endogenous expression of creative and entrepreneurial forces shaping legal
institutions, the idea of legal progress can make sense.
This does not equate with the idea of legal determinism, which implies that
the outcome of the legal process is somehow preordained. On the contrary, as
underlined by Hayek,40 there is no purpose and no endpoint to the process of
legal evolution. It does not mean that law is totally indeterminate either, but that
legal entrepreneurs, if disciplined by competitive pressure, can be supposed to at
least narrow down the possible directions in which law is likely to evolve over

39 Krecké-1996.
40 Cf. Hayek-1973 who speaks of the “purposeless” common law process.

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 Journal des Economistes et des Etudes Humaines, Vol. 12 [2002], No. 2, Art. 5

time. Therefore, a well-functioning legal system can be defined as one in which

there is an effective interaction and mutually beneficial collaboration between legal
and market processes. More broadly, the issue at hand could be extended to
understanding whether rivalry between a variety of (public and private) suppliers
of rule systems can substantially affect the evolution of law, and finally, to which
extent the plurality of competitive rule systems could allow for a selection of
efficient regimes.

If, however, the legal process is totally politicized (i.e. disconnected with
the market order), the indeterminacy and low quality of the legal system
announced by critical studies appears plausible.

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 Krecké: The Role of Entrepreneurship in Shaping Legal Evolution

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