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The rational-choice model of economists as a framework for understanding legal departments

A charming and informative book, Peter Leeson, The Invisible Hook: The Hidden Economics of Pirates (Princeton Univ. 2009) at 5, takes as its bedrock model of individual decision making what economists call “rational choice.” The rational choice framework makes three key assumptions about people. First, they are self-interested, caring more about their personal benefits than anyone else’s. Second, they are rational, meaning that they “try to achieve their self-interested goals in the best ways they know how.” Third, they respond to incentives; costs discourage their behavior, benefits increase their behavior.

A tremendous amount of the 4,700 posts on this blog fall neatly into the framework assumptions of rational choice. Without burying this one with hundreds of back references, I will simply mention some of the connections.

Self-interest among in-house lawyers relates to career paths, competition, compensation, layoffs, responsibilities, and recognition

Rationality, or best efforts to be rational, is paramount among In-house lawyers. They try to figure out what to do and how to behave in order best to achieve their individual goals as well as their professional responsibilities.

And, third, rewards and punishment have an effect. To the degree that managers appeal to a lawyer’s self-interest, a rational person will change his or her behavior to meet the appeal. “Your bonus will depend in part on your involvement in committees.” If a manager threatens, a lawyer will likely change away from the threatened outcome. “If you don’t work closely with X, your evaluation will suffer.”

I choose to believe in the rational choice model (See my post of July 29, 2009: this blogger’s beliefs.).

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One response to “The rational-choice model of economists as a framework for understanding legal departments”

  1. Rob MacIver says:

    In other words, the same old story: management by fear and greed. Not a particularly evolved or enlightened outlook; do we really have to accept this appeal to the lowest common denominator as the only paradigm to which one can aspire? I like getting a regular paycheck as much as the next guy, and I certainly don’t want to antagonize my clients and superiors; nevertheless, I “choose to believe” that there are other rational choices and aspirations that do not require the passive acceptance of managerial bullying and institutional bribery, simply because “that’s the way the world works”. Sometimes all it takes is an “attaboy” (or girl) and a pat on the back – actions that often seem to be outside the skill set of many managers and business people!