The following is an excerpt from Despoina Mantzari’s book, “Courts, Regulators, and the Scrutiny of Economic Evidence,” now out at Oxford University Press.
One of the principal motives when embarking on this book was to shed light on the challenges expert economic evidence and analysis presents for judicial review in a neighbour to competition law field, that of utility regulation, which has been largely underexplored by both competition law and administrative law scholars. It soon became clear that although there is a significant body of doctrinal analysis on judicial review of regulatory agencies’ decisions, there is very little research that has sought to systematically examine the interaction of both regulators and courts with economic evidence. This book aims to address this gap in the literature by engaging deeply with economics and exploring for the first time their impact on the exercise of regulatory discretion and judicial review in two common law jurisdictions: the USA and the UK. It represents a profoundly comparative and interdisciplinary endeavour. This is not out of methodological ambition. It is rather that the issue of adjudicating economic evidence in regulatory disputes is a complex one. It depends in part on normative arguments about which institutions in the regulatory state (courts or regulators) should have primary interpretive authority over defining economically informed concepts upon which our enjoyment of essential services depends. It also requires an understanding of how judicial and other institutions respond to the demands of judicial review of economic evidence, how they perceive their role in the regulatory enterprise and how their role evolves over time. It is essentially about regulatory and judicial discretion, its constraints, and limits at the intersection of two distinct ‘rationalities’: legal and economic. To answer these questions the book combines theoretical, doctrinal, comparative, and empirical analysis. It aspires to stimulate and encourage a productive dialogue between lawyers and economists, who have tended to talk past each other despite facing common interpretive challenges.
The pervasiveness of economic evidence in regulatory outputs gives rise to an uncomfortable question: how can appellate courts staffed with generalist judges feel confident in reviewing such decisions? This question becomes even more pressing if we think that judicial review serves, amongst others, as a key error-correction device, i.e., a mechanism for ensuring the soundness and accuracy of regulatory decisions. Assuming, therefore, that judicial review can minimise erroneous regulatory decisions, does the increased amount of economic evidence that is presented in regulatory disputes challenge the error-correction function of judicial review? To put it otherwise, what are the limits of judicial review of economic evidence in appeals from utility regulators in the US and the UK? And how should such limits be addressed from an institutional design perspective?
The central argument advanced in the book is embedded in the case law of the US and UK courts and has both descriptive and prescriptive components. The book shows that courts not only should, but for the most part do adopt a modest and deferential posture towards the agencies’ discretionary economic assessments. In fact, recourse to economic evidence and analysis has by and large transformed the scope, process, and intensity of review of regulatory decisions in both jurisdictions. In the US there has been an evolutionary transformation of the scope and nature of judicial review: from an intrusive ‘hard look review’ epitomised in the 1980s by the Supreme Court’s State Farm decision, to what is, really, an undemanding version of rationality, referred to as ‘thin rationality’ review. (Chapter 5). The UK has seen an institutional response to the challenges posed by economic evidence epitomised by the establishment of the specialist CAT (Chapter 6). At the same time, the introduction of statutory appeals has marginalised judicial review as a primary means to challenge the regulatory agencies’ decisions. The by-product of this transformation is the gradual rise of a complementary relationship between the judge and the regulatory agency. Rather than a state of institutional conflict between the two actors in the realms of law and policy, or a state of blanket deference, one can observe a measure of judicial restraint predicated upon considerations of relative institutional competence (Chapter 7).
But how should we understand the notion of ‘relative institutional competence’ and how does it inform the scope of review and the institutional design of regulatory appeals? At their most basic, relative institutional competence considerations are built on the assumption that one branch of government (e.g., regulatory agency) is better at performing a specified function than the other (e.g., court). The integration of Neil Komesar’s insights into the discussions on the appropriate scope of review of economic evidence invites the assessment of the relative attributes of both the regulatory agencies and the courts (or in some cases of other actors such the CMA) as well as the assessment of which of these institutions allows the broadest representation of interests, before deciding on the appropriate degree of dereference or the optimal adjudicative forum. Seen this way, deference emerges as the institutional choice between imperfect alternative decision-makers. It reflects a judgment about which of the candidate institutions (e.g., the court, the regulatory agency, the specialist tribunal) is best suited, when compared to the other candidates, to carrying out the assessment of economic evidence enshrined into the regulatory decisions. The weight given to comparative institutional competence considerations depends on several macro-level (e.g., constitutional factors) and micro-level (e.g., court’s rules of procedure and its access to epistemic competence) factors; The book shows that in reviewing the regulators’ economic assessments, courts do embrace and should embrace comparative institutional competencies considerations alongside constitutional, institutional, and historical considerations that have traditionally informed the scope and intensity of substantive review of the regulatory agency’s discretion.
The comparative imbalance in epistemic competency provides a basis for judicial deference to the regulatory agency’s economic assessments grounded on the latter’s ‘epistemic authority’. In such a case, the judge acknowledges her ‘epistemic deficit’ in evaluating the economic evidence enshrined in regulatory decisions and accords greater weight to the judgment of the agency, which is closer to the facts on the ground. Aileen Kavanagh refers to this kind of deference as ‘substantial’ deference, in the course of which the judge recognises her ‘institutional shortcomings’ in respect of an issue. It follows that failure on the part of the court to afford substantial deference to the regulator will lead to the court giving a wrong pronouncement on the issue at stake. We shall be able to observe in Chapter 5 that substantial deference is reflected in ‘thin rationality’ review that has been adopted by the US courts. Crucially, it differs from the ‘minimal’ deference that is owed to the agency because of constitutional reasons.
But comparative institutional analysis does not only throw light on the allocation of decision-making power across institutions when it comes to the assessment of economic evidence, but it also informs the institutional dilemma. An examination of the institutional alternatives to the incorporation of economic expertise in the courtroom (e.g., specialist court, expert witnesses, assessors, court-appointed experts), undertaken in Chapter 7, will reveal that a specialist court, enjoying both subject-matter specialisation and a combination of non-legal/economic and legal expertise, could present the optimal solution for addressing the epistemic asymmetry that exists between the judge and the expert agency in regulatory disputes and could minimise the likelihood of error. Taken together, the normative prescriptions advanced on institutional choice and institutional design are not mutually exclusive, but complementary in nature. The ‘recipe’ for adjudicating economic evidence requires a balance to be struck, in which deference is accorded to regulatory agencies on institutional competencies grounds and a degree of epistemic diversity is introduced in courts.
Reprinted with permission from “Courts, Regulators, and the Scrutiny of Economic Evidence” by Despoina Mantzari, published by Oxford University Press. © 2022 by Oxford University Press. All rights reserved.
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