Interest Groups, Contracts and Interest Analysis

Abstract

Interest analysis does not stand up well under economic analysis. Richard Posner has noted that the territorial approach to choice-of-law rules reflected in the First Restatement enabled states at least roughly to exercise their comparative regulatory advantages.' Moreover, a system of rules enables parties to better predict the outcomes of disputes. This better facilitates settlement than a standard as difficult to apply as interest analysis. Most fundamentally, trying to determine the interest of a state separate from the generally conflicting private interests of politicians, voters, and other elements of the political process is utterly foreign to contemporary public choice economics. In fact, the seemingly outmoded First Restatement approach generally makes better economic sense, among other reasons because, as discussed below in Part II, it enables states to limit the effectiveness of rent-seeking through interest group bargains. Though the First Restatement rules are imperfect and rest on a questionable theoretic foundation, they are not as arbitrary as advocates of interest analysis think.