In 2003, the Supreme Court of the United States heard the case of Grutter v. Bollinger and upheld the right of the University of Michigan Law School to use race as a criterion for admissions. At the time, the majority speculated that in twenty-five years the consideration of race may no longer be necessary in admissions. This year, the Supreme Court will hear the case of Fisher v. University of Texas, which turns on the same issue. In other words, we may have a change in the law in less than ten years!
This, like many decisions of the Supreme Court, can have a major impact on our day-to-day lives. The decision in this case affects the set of schools to which we may be admitted in a world where access to the best schools is considered by many to be an important career stepping stone. The more puzzling aspect, particularly for non-Americans, is that this change does not result from any change in the law enacted by Congress. Both cases appeal to two laws. The first is constitutional law, namely the Fourteenth Amendment, which ensures that all citizens have equal protection under the law. The second is a statute passed by Congress, Title VI of the Civil Rights Act of 1964, which bans discrimination by agencies that receive federal funds. In Grutter v. Bollinger the judges created new law. They argued that the state had a compelling interest in allowing schools to use race as a factor in admissions. In essence, judges, rather than elected politicians, created a new law that allows universities to choose students on a basis that is arguably inconsistent with the Constitution of the United States.
The enormous power of the Supreme Court raises questions about what judges do, and how they reach such momentous decisions. In February, the economics workshop at the Institute for Advanced Study brought together three leading experts to discuss these issues. The subject is of interest to economists because the rule of law is considered to be an essential ingredient for successful economic growth. Courts are regularly called on to make decisions with large economic consequences, such as deciding on liability for the losses arising from the September 11 attacks, and whether or not Obamacare is constitutional. Our goal is to understand the process by which these decisions are made.
The session began with Charles Cameron of the Department of Politics at Princeton University and Lewis Kornhauser of the New York University School of Law who presented work for their book project, which builds on a seminal paper by Kornhauser, “Modeling Collegial Courts II: Legal Doctrine,” published in 1992 in the Journal of Law, Economics and Organization. The book is concerned with how courts make decisions. As a problem of collective decision-making, court systems are both sufficiently complicated to combine many problems such as hierarchy and collegiality that appear in many more complex environments and sufficiently simple that we have some hope of understanding them. The long-term goal is to provide a micro foundation of judicial decision-making that may shed light on the macro questions of the role of law in economic growth.
The discussion began with a brief review by Cameron and Kornhauser of what the courts do. The main goal of a court is to resolve a dispute. When a case is brought before a court, a decision must be made in favor of one party or the other. The significance of this is that courts must render judgment or make a decision, even when they are uncertain of the correct outcome or how to apply the law in a particular case. This results in courts having two roles.
The first role is like that of a bureaucrat. Judges apply legal rules to the evidence before them. The difficulty is that the law is not always clear. For economists, the fact that rules are not clear is analogous to the problem of incomplete markets that leads to, among other things, meltdowns in financial markets. Over time, the common-law system evolved a second role for judges. Namely, the judgments they render have the force of law that binds in future cases (so-called stare decisis).
Legislators cannot anticipate all actions by parties in the future, and hence there will be times when it is not clear how to apply a rule. In a civil-law jurisdiction, judges apply the law as best they can. However, the reasoning underlying a decision for a case is typically not recorded, and cannot be used in a future case. In contrast, in a common-law jurisdiction, the reasoning of appellate courts is recorded and can be cited by future cases. Cameron and Kornhauser advocate a “case-based” approach to judicial decision-making. The basic idea is that previous cases and the evidence before them constrain judges’ behavior in predictable ways. They explain that the Supreme Court is revisiting Grutter v. Bollinger because the environment has changed, and there may no longer be a compelling public interest in providing an exception to the Fourteenth Amendment.
Nolan McCarty, Cameron’s colleague and Chair of the Department of Political Science at Princeton, argued that an alternative “policy-space” approach “is a more useful and parsimonious model.” The idea is that judges have explicit preferences over outcomes, and then make choices that achieve these outcomes, with the law and future legislation providing a constraint on this behavior. As I write this, we do not know how the courts will decide the case of Fisher v. University of Texas; however, the policy-space approach would predict that if the decision changes, it will be due to the fact that the Court is now more conservative, rather than a change in the facts of the case.
There is some evidence to show that the political views of judges do have an effect on outcomes. Yet a well-functioning legal system requires predictability and that judges rule for the most part in ways that are consistent with the law. Thus, in practice, the effects of both case-based and policy-space approaches are present. The discussion concluded that an important open question is the extent to which the discretion of judges should be limited. Some systems, such as civil-law jurisdictions, explicitly try to limit the power of judges. In other systems, such as in soccer, the judge/referee has the ultimate authority to decide as he or she wishes, with effectively no system of appeals.
In contrast to a court case where a judge is required to reach a decision, we were not required to reach a consensus. Rather, the seminar ended with the case undecided and a call for future research, an activity for which the Institute for Advanced Study is well suited.