Posner on judicial knowledge

Fundamental assumption about the ability of judges to compile and analyze the knowledge necessary to understand the implications of their decisions and to render those that will have both the goal and effect of improving the economic efficiency of the law.  Posner judges “might as well concentrate on increasing” efficiency because they are not well disposed, qua common-law judges, to enforce alternative values, such as wealth redistribution.

Thus, Posner views judges as future-looking rule makers who decide which rules to impose on the parties before them based upon the most efficient outcome that will follow from those rules. This includes assessing what would be the most efficient outcome in circumstances where, because of transaction costs, a transaction would not occur without judicial intervention.

Posner admits as much when he states that “the economic theory of law presupposes machinery for ascertaining the existence of the facts necessary to the correct application of a law. Posner states that in crafting new rules of law, “judges, and legal professionals in general, may be so bereft of good sources of information that their most efficient method of deciding cases and resolving issues of institutional design is to follow, or at least to be strongly constrained by, precedent.”7

Posner limits this handicap,however, to situations where social change has created conditions so removed from the judges’ knowledge that precedent is the only reference point. This is not meant to imply that Posner does not believe judges should generally adhere to precedent—he does—but rather that judges should also seek outside information in crafting legal rules.


Hayek holds a far less optimistic view of the ability of judges to collect and synthesize the degree of knowledge necessary to engage in the farreaching economic balancing encouraged by Posner.

Hayek states the puzzle: This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals. . . .

Competition . . . means decentralized planning by many separate persons. Hayek’s challenge, however, is more fundamental—assuming that a judge possesses the technical ability to execute the economic analysis necessary to choose the economically efficient rule and assuming further that the same judge faithfully seeks to implement his scheme, can such a judge actually predict that any decision he makes will in fact effectuate an improvement in the law? The implications of the Hayekian system suggest that Hayek would say no. It is necessary to understand the nature of knowledge in the Hayekian system. Hayek distinguishes between two types of knowledge—scientific knowledge and “knowledge of the particular circumstances of time and place.

The latter form of knowledge, Hayek emphasizes, is the essence of economic knowledge. It consists of such acts as knowing of and putting to use a machine not fully employed, reallocating a particular individual to a position where his skills can be better used, or being aware of a surplus stock of goods that can be drawn upon during an interruption of supplies.

This type of knowledge is simply not the type of knowledge that can be easily transmitted to a centralized decision maker, and in some cases it cannot be transmitted at all. It includes tacit knowledge and other similar types of knowledge but not express costs-and benefits data. For decision makers seeking to make maximum use of this knowledge of time and place, it is necessary that they have “additional knowledge”.