The intrinsic value of obeying a law: Economic analysis of the internal viewpoint

Fordham Law Review

Volumn 75, Issue 3, 2006, Pages 1275-1285

  Cooter, Robert ^a  

^a UNIVERSITY OF CALIFORNIA   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 33846577294     PISSN: 0015704X     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (20)

1. See generally H.L.A. Hart, The Concept of Law (2d ed. 1994).
2. This recalls the economist's joke: Colleague to economist: "How's your husband?" Economist to colleague: "Compared to what?"
3. Willingness-to-pay is also called the "subjective price" or "subjective rate of substitution with the numeraire good."
4. The techniques of cost-benefit analysis often require measuring the value of nonmarket goods, such as waiting time for commuters, clean air for homeowners, or safety for miners. The techniques are sometimes described as "hedonic indexes."
5. John Milton, Paradise Lost, in 32 Great Books of the Western World 152, 154 (Robert Maynard Hutchins ed., 1952).
6. See generally Robert Cooter, Hand Rule Damages for Incompensable Losses, 40 San Diego L. Rev. 1097 (2003).
7. See generally Sentencing Reform Act of 1984, Pub. L. No. 98-473, tit. 2, ch. II, 98 Stat. 1837,1987 (codified as amended in scattered sections of 18 and 28 U.S.C.).
8. See Daniel Friedmann, The Efficient Breach Fallacy, 18 J. Legal Stud. 1 (1989);
9. see also Melvin Eisenberg, The Theory of Efficient Breach and the Theory of Efficient Termination (Berkeley Law & Econ. Workshop, Working Paper No. 14, 2004), available at http://repositories.cdlib.org/ berkeley_law_econ/spring2004/14/.
10. When nonperformance is inefficient, it can be achieved by breaching the contract or by renegotiating it to allow for nonperformance. The courts can channel the promisor to renegotiate by not allowing him to keep the surplus from breach. A numerical example explaining these facts is found in Robert Cooter & Thomas Ulen, Law & Economics 254-61 (4th ed. 2004).
11. See Robert Cooter, Self-control and Self-improvement for the "Bad Man" of Holmes, 78 B.U. L. Rev. 903 (1998).
12. Economists often estimate the deterrent effects of sanctions, but they do not try to separate "final demand" (intrinsic value) from "derived demand" (instrumental value).
13. Tax compliance is an example. In Switzerland and the United States, citizens mostly pay their income taxes, whereas people in Belgium and France comply much less frequently. This fact cannot be explained by a rational fear of sanctions. See Eric Posner, Law and Social Norms: The Case of Tax Compliance, 86 Va. L. Rev. 1781 (2000).
14. Press Release, Transparency Int'l, Transparency International Corruption Perceptions Index 2005 (Oct. 18, 2005), available at http://ww1. transparency.org/cpi/2005/dnld/media_pack_en.pdf.
15. Emerging-Market Indicators, Economist, Aug. 31, 2002, at 78, available at http://www.economist.com/displayStory.cfm?story_id=1302402.
16. For the psychology of hyperbolic discounting, see George Ainslie & John Monterosso, Will as Intertemporal Bargaining: Implications for Rationality, 151 U. Pa. L. Rev. 825 (2003).
17. For an economic theory of akrasia, see Jonathan Gruber & Botond Köszegi, A Theory of Government Regulation of Addictive Bads: Optimal Tax Levels and Tax Incidence for Cigarette Excise Taxation, 88 J. Pub. Econ. 1959 (2004).
18. For an analysis of how the expression of legal obligations can change behavior, see Robert D. Cooter, Three Effects of Social Norms on Law: Expression, Deterrence, and Internalization, 79 Or. L. Rev. 1 (2000).
19. For many acts, the advantage of wrongdoing decreases with the number of wrongdoers. Thus, the profitability of theft decreases with competition from more thieves. This is an application of the principle of decreasing marginal productivity. People who view the law instrumentally disobey it until the point is reached where the advantage of further wrongdoing equals the risk of being sanctioned. Starting from such equilibrium, assume that one wrongdoer "gets religion" and switches from disobedience to obedience. Because there is one fewer wrongdoer, the advantage from wrongdoing increases slightly, and now it exceeds the risk of sanction. This situation is disequilibrium. To restore equilibrium, someone who was obeying the law must switch to disobeying it. After this switch, the same number of rights and wrongs are committed as in the old equilibrium. Thus, the wrongdoer who "got religion" did not cause aggregate wrongdoing to decrease by changing his personal behavior and doing the right thing. If, however, the wrongdoer who "got religion" adds to the social sanctions against wrongdoing, then wrongdoing will become slightly less profitable for every wrongdoer. To restore equilibrium, the number of people committing wrongs must decrease. In the new equilibrium, the number of rights has increased, and the number of wrongs has decreased relative to the old equilibrium. Thus, the wrongdoer who "got religion" and sanctioned wrongdoers has caused aggregate wrongdoing to decrease.
20. W.H. Auden, The Fall of Rome, in 2 The Oxford Anthology of English Literature 2110, 2110 (Frank Kermode & John Hollander eds., 1973).