Precious little thought of law & economics is spent focusing on where the authority of law and legislation comes from. Most economists just assume it to be given: Coase with his “bargaining in the shadow of the law” and even Ostrom with her Commons problem-solving.* This post serves as a method to get some of my thoughts down. This is hardly complete or refined. Therefore, any questions, comments, helpful critiques (especially if sources are attached) are welcomed.
However, there are exceptions to my above criticism. Three of the best examples of economists exploring this problem are James Buchanan in Limits of Liberty, Adam Smith in Lectures on Jurisprudence, and Frederic Bastiat in The Law. All three tend to get at the root of the problem: the authority of law and legislation rests on its moral foundations. As Buchanan writes (page 97-98, emphasis added):
Under what conditions are individuals most likely to adhere to the inherited rules of order, most likely to respect and to honor the assignment of individual rights in being?
This question can only be answered through an evaluation of the existing structure, as if it were the outcome of a current contract, or one that is continuously negotiated. Individuals must ask themselves how their own positions compare with those that they might have expected to secure in a renegotiated contractual settlement. If they accept that their defined positions fall within the limits, they are more likely to comply with existing rules, even in the acknowledged absence of any historical participation.
Bastiat puts it more succinctly (page 111 of the Liberty Fund edition):
When law and morality contradict each other, the citizen has the cruel alternative of either losing his moral sense or losing his respect for the law. These two evils are of equal consequence, and it would be difficult for a person to choose between them.
In other words, people will respect the law and respect legislation to the extent they comply with morality. When the law and morality are in conflict, then one has to lose respect for either one or the other. This would suggest to me that the law’s authority comes from its alignment with morals.
We also tend to see the morality language in the way we discuss legislation. Unfavorable legislation is often described as “unjust.” The entire system of police (ie policy enforcement) is called the “justice system.” These words smack of morality. We expect legislation (ie policy) to comply with moral preconceptions. When they do not, we are faced with the Bastiatian conundrum.
Where, then, do morals come from? I contend, as does Adam Smith in Theory of Moral Sentiments, that morality comes from our interaction with one another (see, for example, Part III). This is implied in the word “moral,” with its origins coming from the Latin word “mos,” or “custom.” Morality deals with the rules of human interaction, either in a negative sense (mere justice) or a positive sense (ethics) (for a more in-depth discussion on this point, see Dan Klein’s paper on Smithian justice or Smith’s discussion in Part VII of TMS). Therefore our sense of morality must come from interacting with one another.
If morality develops from our interactions with one another, and law is the set of rules developed to facilitate dealings, this suggests a tight connection between law and morality. But how tight? Can morality and law deviate? I think the answer is “yes.” Traditions and superstitions develop in law as a way to enforce and perpetuate morals (Dr Peter Leeson does a lot of interesting research in this field, as does Adam Smith in his Essay on Astronomy). However, traditions and superstitions tend to be difficult to change when they have cultural inertia behind them (which is a good thing). Even if there may be some scientific reason to change the transition and superstition, ie the law, it may be difficult to do precisely that (I am reminded of the line by Rick Sanchez in Rick and Morty: “Scientifically, traditions are a stupid thing, Morty!”). The traditions/superstitions will change once the critical threshold of departure in morality from law occurs.
Turning to the question of incentive and punishment, if my above reasoning is correct, it’d explain why some legislation requires little enforcement/punishment but others require lots of punishment. For example, a traffic ticket. Many people complain about traffic tickets but still pay the fine. And while there is always some violation of the limit (people going 70 in a 65), there are few major offenders. Low fines are able to deter behavior because there is a strong moral presumption against speeding (ever been cut off in traffic? How does one react?). Conversely, something like drug prohibition requires heavy fines and penalties probably because there is a strong moral presumption against drug prohibition (especially in the case of marijuana). When heavy punishment is required to enforce legislation, it may be a sign of a moral presumption against the legislation.**
What does all this mean? I don’t know. It may explain why some legislation/regulation is effective and others are not. It may explain why development aid never accomplishes its goals. It may explain, or suppliment, why optimal tariffs, taxation, and the like are impossible to calculate. Lots of things to consider and feedback is appreciated.
*This comment is in no way a slight upon either economist. I love and respect both Coase and Ostrom very much. Their contributions to economic thought are extraordinarily valuable and their respective Nobel Prizes were well-deserved.
**Another possible reason is the natural desire for revenge/recompense from the violation. For example, punishment of a murderer may be strong because of a large natural desire for revenge for the violation of justice. However, this is a conversation for jurisprudence, which I will have to pick up at a different time.