I was honored to attend "The New Realism for Business Law and Economics" last week at the University of Minnesota Law School. This conference was the vision of Claire Hill, who saw an emerging trend in the law & econ literature that valued legal institutions in studying business phenomena.
As I mentioned in my introductory remarks, Ronald Coase inaugurated the modern theory of the firm by looking beyond the firm as a black box or a production function. Instead, he asked why there were firms, looking inside the black box for the answer. The New Realism aims (as I see it) to take the legal institutions seriously as well, not treating the lawyer's role as a black box where legal needs go in one end and a deal pops out the other. Instead, this literature looks at how business deals are actually put together, taking the institutions of legal practice seriously in the process. Thus, there is a fitting parallel between the evolution of the theory of the firm and the emergence of the New Realism.
In my own work, the most salient example is the role of precedent in the drafting process for business transactions. The choice of a precedent document has a strong effect on the final product, influencing the specifics of the "terms" that document a business transaction. As a result, the process of how those documents are copied and recopied over time, how they change and how they stay the same, is an important element of studying deals.
These dynamics are an important part of the work that has inspired me to work on the text of transactional documents. The series of articles by Steve Choi, Mitu Gulati and Bob Scott, and the book, The Three and a Half Minute Transaction, was an important contribution in the New Realism, and we were honored to have Steve Choi and Mitu Gulati at the conference.
The New Realism goes far beyond looking at deal terms and precedents, of course, but the deal terms are an increasing area of focus for scholars working in the field. I am writing a review essay for the Wisconsin Law Review as a part of the conference where I hope to weave together this emerging area of scholarship.