The Intrinsic Value of Obeying a Law: Economic Analysis of the Internal Viewpoint

Economic theory distinguishes sharply between what a person wants and what he can have. “Preferences” describe what a person wants, and “constraints” describe the limits of what he can have. The collision of preferences and constraints yields the choices that economists study. The meaning of both terms is broad and flexible. Preferences and constraints help to distinguish between the internal and external viewpoints that H. L. A. Hart made famous. The internal viewpoint concerns preferences to perform legal obligations. A person who prefers to obey a law is willing to give up something to perform his legal obligation. The preference is intrinsic, not an instrument for securing something else of value. Conversely, a person who is indifferent to a legal obligation takes a purely instrumental approach towards obedience—he obeys only when doing so secures something else of value. What explains the distribution of preferences among people to obey a law? I will sketch part of the answer that emerges from economic and psychological studies. Finding an answer is important because when laws are reasonably just and many citizens intrinsically prefer to obey them, government is easier, and life is better than when most citizens are indifferent towards obeying the law

Punitive Damages, Social Norms, and Economic Analysis

Cooter offers an economic analysis of punitive damages, keeping in mind the role of social norms. Liability for compensatory damages provides efficient incentives for self-monitoring

Anti-Sharing

Anti-Sharing may solve the sharing problem of teams: the team members promise a fixed payment to the Anti-Sharer. He collects the actual output and pays out its value to them. We prove that the internal Anti-Sharer is unproductive in equilibrium. -- Anti-Sharing kann das Teilungsproblem der Teamproduktion lösen: Die Teammitglieder versprechen dem Antisharer zunächst einen fixen Betrag. Der Anti-Sharer bekommt den tatsächlichen Teamoutput und zahlt dessen Wert an jedes Teammitglied aus (vermindert um die fixe Zahlung). Wir zeigen, daß der Anti-Sharer im Gleichgewicht unproduktiv ist.team production,sharing problem,bonding,theory of the firm

Anti-Sharing.

The paper proposes a mechanism that may implement first-best effort in simultaneous teams. Within the framework of this mechanism, each team members is obliged to make a fixed, non-contingent payment, and chooses his individual effort. After the output is produced, each team member receives a gross payment that equals the actual team output. We demonstrate that a Nash equilibrium exists in which each team member chooses first-best effort. We call this mechanism ?Anti-Sharing? since it solves the sharing problem that causes the inefficiency in teams. The Anti-Sharing mechanism requires one player to specialize on the role of an ?Anti-Sharer?. With an external Anti-Sharer who works on a non-profit base, the mechanism can implement first-best effort. If, however, the Anti-Sharer comes from within the team and desires a positive payoff, then the mechanism may implement not more than second-best effort. The latter version of the model could be interpreted as a new theory of firms and partnerships in the sense of the theory of Alchian and Demsetz (1972). --Efficient Effort in Teams,Second-Best Solution,Partnerships

Clearings and Thickets

Intellectual property law, which includes patents and copyright law, establishes the ownership of innovations by people. It conveys a bundle of rights to creators as determined by rules. Applied to intellectual property law, the normative question of growth economics is, “Which ownership rules maximize innovation?” In order to increase the pace of innovation, ownership rules should increase venture profits. So the question of this essay is, “Which ownership rules maximize venture profits?".Institutions; property rights; intellectual property rights; law and economics

Anti-Sharing.

Anti-Sharing may solve the sharing problem of teams: the team members promise a fixed payment to the Anti-Sharer. He collects the actual output and pays out its value to them. We prove that the internal Anti- Sharer is unproductive in equilibrium.

Truth-Revealing Mechanisms for Courts

In trials witnesses often slant their testimony in order to advance their own interests. To obtain truthful testimony, the law relies on cross-examination under threat of prosecution for perjury. We show that perjury law is an imperfect truth-revealing mechanism. More importantly, we develop a perfect truth-revealing mechanism. Under this mechanism the witness is sanctioned if a court eventually finds that the testimony was incorrect; the court need not determine that testimony was dishonest. We explain how truth-revealing mechanisms could combat distortions of observations by factual witnesses and exaggerations by experts, including "junk science."

Not the Power to Destroy: An Effects Theory of the Tax Power

The Supreme Court’s “new federalism” decisions impose modest limits on the regulatory authority of Congress under the Commerce Clause. According to those decisions, the Commerce Clause empowers Congress to use penalties to regulate interstate commerce, but not to regulate noncommercial conduct. What prevents Congress from penalizing non-commercial conduct by calling a penalty a tax and invoking the Taxing Clause? The only obstacle is the distinction between a penalty and a tax for purposes of Article I, Section 8. In National Federation of Independent Business v. Sebelius (NFIB), the Court considered whether the minimum coverage provision in the Patient Protection and Affordable Care Act (ACA) imposes a penalty or a tax by requiring most individuals to either buy health insurance or make a payment to the Internal Revenue Service. Writing for the Court, Chief Justice Roberts concluded that the minimum coverage payment is a tax for constitutional purposes, even though Congress called it a penalty. This Article develops an effects theory to distinguish between penalties and taxes. The authors believe that it provides the best theoretical justification of the tax-power holding in NFIB. The effect of a penalty is to prevent conduct, thereby raising little revenue, whereas the effect of a tax is to dampen conduct, thereby raising revenue. Three opposing characteristics of an exaction give incentives for preventing or dampening conduct, and thus provide criteria for distinguishing between penalties and taxes. A pure penalty condemns the actor for wrongdoing; she must pay more than the usual gain from the forbidden conduct; and she must pay at an increasing rate with intentional or repeated violations. Condemnation coerces expressively and relatively high rates with enhancements coerce materially. Alternatively, a pure tax permits a person to engage in the taxed conduct; she must pay an exaction that is less than the usual gain from the taxed conduct; and intentional or repeated conduct does not enhance the rate. Permission does not coerce expressively and relatively low rates without enhancements do not coerce materially. The ACA’s required payment for non-insurance has a penalty’s expression and a tax’s materiality. Its constitutional identity depends on the reasonable expectations of Congress concerning its effect. If Congress could have reasonably concluded that the exaction will dampen—but not prevent—the general class of conduct subject to it and thereby raise revenue, then courts should interpret it as a tax regardless of what the statute calls it. If Congress could have reasonably concluded only that the exaction will prevent the conduct of almost all people subject to it and thereby raise little or no revenue, then courts should interpret it as a penalty. In the case of the minimum coverage provision, the Congressional Budget Office predicts that the exaction for non-insurance will dampen uninsured behavior but not prevent it, thereby raising several billion dollars in revenue each year. Accordingly, the exaction is a tax for purposes of the tax power