Coase-Sandor Working Paper Series in Law and Economics

Economic Perspectives on Free Speech

Daniel Hemel


The metaphor of a ‘marketplace of ideas’ has long pervaded discussions of free speech in and beyond the United States. For early scholars of law and economics (L&E), the similarities and differences between the metaphorical marketplace for ideas and literal markets for goods and services were subjects of much attention. Aaron Director—the University of Chicago law professor who helped to found the L&E movement but rarely reduced his own ideas to writing— devoted one of his few published papers to the contrast between the laissez-faire approach to speech and command-and-control regulation of other markets in mid-twentieth century America. Ronald Coase, Director’s colleague at Chicago and ultimately a Nobel laureate, took up the topic of free speech several times over the course of his long career and—like Director— questioned the justifications for differential regulatory treatment of the ‘market for goods’ and the ‘market for ideas’. Richard Posner, the intellectual successor to Coase and Director, grappled with the subject in the first edition of his field-defining 1973 book Economic Analysis of Law and in subsequent editions, as well as in later lectures, articles, and monographs

More recently, however, while the law and economics movement has flourished, economic analysis of free speech has lagged. Although L&E has branched out from its traditional emphasis on private law to topics such as criminal law, judicial behavior, and agency structure, free speech has faded from its focus. Free speech-related papers are a rare sight at the largest L&E conferences and in the pages of the most prestigious L&E journals, and the empirical turn in L&E scholarship has largely overlooked free speech as a subject.

The leanness of the L&E literature on free speech should not be understood to imply that economics has little to say on the topic. Perhaps most significantly, the ‘new information economics’ for which George Akerlof, Michael Spence, and Joseph Stiglitz won the Nobel prize in 2001 carries profound implications for free speech—implications noted by a handful of legal scholars but not exhaustively explored. The new information economics challenges the faith in free markets reflected in the writings and thinking of early law and economics scholars, and— though less directly—the faith in a free marketplace of ideas reflected in much of US First Amendment jurisprudence. It suggests that under certain circumstances, the regulation of speech not only can protect individuals and societies from speech-related harms but also can promote speech itself.

This chapter provides an introduction to the economic analysis of free speech, with special attention to the new information economics perspective. Section 1 critically summarizes the small L&E literature on free speech. Section 2 offers an overview of the new information economics. Section 3 applies insights from the new information economics to free speech subjects.