Empirical Research Strategies

Econometrics and Law

Compounding this idiosyncratic bias in favor of theory, the expense of computing resources and a dearth of useful datasets limited the widespread use of econometric methods to examine the effects of law on the behavior of individuals. However, as personal computers allow scholars to collect and examine larger datasets at relatively low expense, and as econometric theory itself provides methods more amenable to analyzing topics in microeconomics, law and economics in particular has become an increasingly empirical field.

Econometrics is the application of statistical methods to test the implications of economic theory or to measure the effects of changes in a host of independent variables on a given variable of interest. In law and economics, scholars often use econometric methods to evaluate the welfare effects of changes in law or public policy by examining how changes in legal incentives and constraints affect the behavior of an individual. Because the use of randomized controlled trials is generally not possible in evaluating the effects of legal changes, econometric studies use statistical methods to attempt to identify causal relationships using nonexperimental (that is, real world) data. To mitigate the problems created by this lack of a randomly chosen control group, researchers attempt to exploit controls that exist in the data themselves.

Time-Series Studies of Law

Time-series studies generally examine the experience of one “subject” over the course of many periods. In legal applications, the subject may be an individual, a firm, or some political aggregate such as a state or a nation. In these studies, researchers examine revealed changes in the behavior of the subject as the external environment changes over time. Often, the applications of time-series methods in legal scholarship focus on “event studies.” That is, researchers examine the window around a legal change and quantify how the behavior of the subject changes after the legal change relative to the subject's prechange behavior. In essence, the prechange baseline is used as the control group in the study, and any change in behavior is attributed to the legal change. To mitigate the effect of confounding factors, researchers attempt to control for any observable environmental changes that also occur during the period studied. The primary shortcoming of these event [Page 479]studies, however, is their inability to control for unobservable or unquantifiable changes occurring in the environment, limiting a researcher's confidence in drawing causal conclusions.

Cross-Sectional Studies of Law

Cross-sectional studies examine numerous subjects exhibiting different characteristics and facing disparate environments during the same period to discern the effect of a given characteristic of the subject or the environment on the subject's behavior. In legal applications, this will often involve studying the effects of differing legal regimes or public policies on behavior. Effectively, the subjects who are not governed by a particular law or policy are used as the control group against which the effects of the law or policy are judged.

...