"James Buchanan has just published a paper that everyone should read -- 'Cost, Choice and Catallaxy: An Evaluation of Two Related But Divergent Virginia Traditions,' in Charles Rowley and Francesco Parisi, eds., The Origins of Law and Economics (Edward Elgar, 2005). Rowley organized a lecture series over several years which brought to GMU all the founding fathers of law and economics and the current leaders in the field. These lectures are now published in this wonderful volume.These days I'm with Buchanan, and I think it is important to consider the differences in perspectives. The idea is that while both Buchanan and Coase emphasize opportunity costs, the subjectivist stance of Buchanan is that opportunity costs are subjectively known by each individual decision maker, and not something that can be objectively observed and measured by an external perspective. Coase takes this objectivist stance that opportunity cost can be measured by an external observer.
In his essay Buchanan seeks to explain the similarities and differences between himself and Coase with respect to the economic analysis of the law. Coase is an opportunity cost thinker, as is Buchanan, but Coase according to Buchanan is an objectivist while Buchanan states that: 'I have been, I hope consistently, almost throughout my whole career, a subjectivist, a stance that will not allow me to lay down normative criteria for courts or for anyone else.' Buchanan's position cuts at the core of the cost/benefit analysis that is crucial to standard law and economics. As might be expected from Buchanan, he directs his subjectivist critique of cost/benefit and equilibrium analysis and argues instead for a subjectivist, process and constitutional perspective."
If law and economics is a field of study that relies on economic efficiency analysis, then it will have to be a field of study that accepts the objectivist position. Without the belief that we economists can measure the relevant benefits and costs that individual actually perceive when making decisions, we would be unable to pursue empirical efforts to identify public policies that are efficiency.
Of course, this is precisely Buchanan's position. Because he finds individual values and opportunity costs to be subjective and understand by individual decision makers but not objectively measurable by economist, Buchanan says he cannot "lay down normative criteria for courts or for anyone else." Instead he emphasizes process and decisions about government from a constitutional perspective, not from the perspective of the normative properties of allocative consequences.
My suggestion is that individual perceptions of well-being, economic value, and opportunity cost are indeed subjective. Perhaps we might think we are able to estimate such values at the margin in various ways, but the models that lead us to such conclusions are static, not dynamic and evolutionary. Our lives are not static and determinate. Individual lives are dynamic and adaptive, evolutionary and emergent. Combine subjective individual values of benefits and costs with a dynamic view of economic life and the conclusion seems to me to be to leave economic efficiency behind, and emphasize liberty and process.