Economic Theory Of Market Enforcement example essay topic

4.8 Purely private enforcement: a model Richard Posner writes, "I hope to challenge the assumption, largely unquestioned since Hobbes, that a state (if only a minimal, 'nightwatchman's tate) is necessary to maintain the internal and external security of society. I am not advocating anarchy. My argument is that a state is not a precondition of social order in the circumstances depicted in the Homeric epics - and even there, it is just barely not. In our circumstances, we could not do without a state".

81 This section will consider precisely the workings of a legal system "in our circumstances" without a state, in which no organization has a monopoly on the right to use violence. Imagine this enforcement system: Throughout the society, there exist 10,000 private security and police companies (approximately the number we have today). Everyone in the society pays premiums to one such security company; in exchange, the client receives protection from criminals and arbitrary prosecution by other police firms. Most people assume that violence and inter-firm warfare would break out at once. But this assumption is inconsistent with history and elementary game theory.

An inter-firm war would be fantastically expensive; employee wages would skyrocket to pay the positive wage differential for danger; huge investments could be swiftly lost. The gains from one dispute are so small, and the losses from non-cooperation are so large, that it is difficult to imagine warfare breaking out over one dispute. And this point applies even to a one-turn game. But since firms exist for a long time and must resolve many disputes with each other, the game is actually repeated rather than one-shot.

So long as expected profits from non-cooperation are negative, firms would strive for peace. (In contrast, ideologically motivated movements wage wars even when the expected monetary gain is negative.) So long as firms are profit-maximizer's the high cost of violence in a single turn for both combatants, plus the firms' indefinite time horizon, suggests the cooperative solution. To make this more concrete, imagine that Gary, a customer of Becker Police Services, says that George, a customer of Stigler Security, mugged him. Most people imagine that Stigler Security would defend George to the death regardless of his guilt, and that Becker Police Services would have to start a war with Stigler Security to induce George to pay up. But is that really a profit-maximizing strategy Stigler Security could either (a) Fight a horrible war, or (b) Agree to arbitrate the dispute.

Even in a one-turn game, the choice could hardly be clearer. But of course Becker Police and Stigler Security know that they will interact many times in the future; their relationship is a repeated game. This multiplies the gains from cooperation many times. It also reduces transactions costs, because they could pre-contract to arbitrate all of their disputes with a mutually agreeable judge. As a practical matter, then, the looming danger of confrontation would never rear its head; the firms would likely work out a dispute resolution system in advance. Most people assume that firms would defend even a guilty client to the death; but the reality is closer to the opposite.

Any firm that did that would face a massive adverse selection problem. Just as a health insurance company avoids insuring the terminally ill, so too would a police company avoid protecting professional criminals. Firms that did would attract a lot of high-risk clients. By protecting the guilty, they would virtually announce that all professional criminals should buy their protection. But criminals would, on average, be very expensive customers, since they would frequently injure the clients of other companies and thereby provoke disputes. Law-abiding citizens, in contrast, would pay their premiums but rarely call on upon its services.

Posner recognizes this adverse selection problem (without explicitly mentioning it) when he discusses law enforcement in primitive societies: "To be sure, the alleged thief who is clearly guilty and expects to be so adjudged by an impartial arbitrator may prefer not to submit to arbitration or not comply with the arbitrator's adverse judgment, but his kin group is a restraining influence. They may urge him to submit to arbitration to avoid getting involved in a feud over his deed, as they are likely to do because of their collective responsibility. And he will probably submit to their urging; otherwise they may desert him when the neighbor or the neighbor's kin retaliate for his refusal to submit to arbitration or to comply with the arbitrator's reward". 82 (emphasis added) Even family would not protect obviously guilty kinsmen for fear of the long-run consequences. A firm that sold security would have to be much more careful about harboring the guilty, because it is easier to switch security companies than join a new family. If a family gives bad incentives, family members may take more risks; but if a firm gives bad incentives, they could attract all of their competitors' high-risk customers plus encourage current customers to take more risks.

Presumably, then, if Gary of Becker's Police Services accused George of Stigler's Security, the two firms would set up a trial. They might sub-contract with an arbitration firm, jointly appoint a panel of judges, or what have you. But on the plausible assumption that accused customers would want trials, it would be rational for firms to protect accused clients until they get convicted. After a conviction, the guilty side would have no alternative but to comply with the ruling, because, as explained, it would bad business to defend guilty clients to the death. One vexing question about historical cases of private enforcement involves the rights of convicted criminals.

What incentive exists to defend their rights It is hard to locate them. And yet, criminal sentences were, nevertheless, graded according to severity. 83 Perhaps social opprobrium against over punishment sufficed. It is possible that competing protection firms might take up the cause of over punished criminals.

The historical facts seem more optimistic than economic theory; this question merits further investigation. Even the most avid opponent of the structure-conduct-performance model should be concerned about high market concentration in such a system. But most of the information that we have about the modern security industry suggests that there are no substantial economies of scale: about 7126 firms existed in 1981, and a great deal of the market growth in the previous 17 years came in the form of new firms rather than growth of existing firms. 84 While the need of firms to make many bilateral arbitration contracts might increase the minimum efficient scale, the total industry size (hence maximum number of efficiently-sized firms) would probably be much greater if there were full privatization. So long as the concentration remains fairly low, fears about outlaw firms staging a coup are far-fetched. Unlike governments, firms would not have a whole society's resources to tap to fight a war; all "war" expenses would have to come from stock- and bondholders.

And oppressed individuals would have many alternative security suppliers. Even if security were a local natural monopoly, abuse could tiger the intervention of a firm from another region. Murray Rothbard discusses this question with great enthusiasm and lucidity: "There is a myth that the 'American system' provides a superb set of 'checks and balances,' with the executive, the legislature, and the courts all balancing and checking one against the other, so that power cannot unduly accumulate in one set of hands. But the American 'checks and balances's ystem is largely a fraud. For each one of these institutions is a coercive monopoly in its area, and all of them are part of one government, headed by one political party at any given time. Furthermore, at best there are only two parties, each one close to the other in ideology and personnel, often colluding, and the actual day-to-day business of government headed by a civil service bureaucracy that cannot be displaced by the voters.

Contrast to these mythical checks and balances the real checks and balances provided by the free-market economy! What keeps A&P honest is the competition, actual and potential, of Safeway, Pioneer, and countless other grocery stores. What keeps them honest is the ability of the consumers to cut off their patronage. What would keep the free-market judges and courts honest is the lively possibility of heading down the block or down the road to another judge or court if suspicion should descend upon any particular one+These are the real, active checks and balances of the free-market economy and the free society".

85 Rothbard goes on to add that, "The same analysis applies to the possibility of a private police force becoming outlaw+Of course, such a thing could happen. But, in contrast to present-day society, there would be immediate checks and balances available; there would be other police forces who could use their weapons to band together to put down the aggressors against their clientele". 86 One need not agree wholeheartedly to see his point: Competition checks the abuse of power. Indeed, our system of federalism and division of powers purports to be precisely that. But it is hard to deny that U.S. history reveals (1) cooperation (or "collusion") between the executive, legislative, and judicial branches to enlarge the power of the federal government, and (2) growing federal dominance over state and local governments. Imagine what would happen if three large security firms had 60% of the industry and 50 small firms shared the remaining 40%.

It would not be surprising if the three largest colluded with each other to expand their power and bully the 50 small firms into submission. So long as the security market were unconcentrated, the market's competitive checks on abuse of power might be superior to those of our own Constitution. Remarkably, it looks like there is an incentive structure behind pluralistic enforcement systems that leads to tolerable performance. Full legal privatization is at least conceivable.

Naturally, many criticisms might be levied against such a system. But the most obvious complaint, that plural enforcement logically implies a Hobbesian war of all against all, is mistaken. This generalization doesn't hold up historically, and economic theory can give a fairly complete description of the incentives that let pluralistic enforcement systems function. 4.9 Criticism of purely private enforcement At last, we have a picture of what a fully private system would be like. The horrible costs of inter-firm violence would probably induce voluntary arbitration of conflicts; repeated interaction would magnify this incentive and reduce dispute resolution transaction costs; the adverse selection problem would discourage harboring the guilty; and competitive checks (assuming a de concentrated industry) would keep would-be outlaw firms in line. This system may be imperfect, but there is no historical or theoretical reason to think that it would instantly degenerate into gang warfare.

While the simplistic Hobbesian critique is invalid, there are other more sophisticated of purely private enforcement. Let us consider six major complaints, then see how convincing they are. 1. Private enforcers would only handle offenses with identifiable victims. While the desirability of some such laws - like drug, gambling, and prostitution prohibitions - is questionable, legalizing other offenses would be intolerable. Pollution is one example.

While we could imagine class-action suits to discourage pollution, the concentrated interest of polluter firms would typically overpower the diffuse interest of the public in clean air. We should not neglect the possibility of private solutions to externality problems (as Coase told us), but private solutions usually work only if the transaction costs are low. Society-wide pollution reduction transaction costs are astronomical. 2. While the market could take over individual protection, it is difficult to envision national or even regional protection. In my model, I assumed that the whole world had private enforcement.

But if some areas still had governments, well-organized and well-funded foreign armies might overwhelm private enforcers. Even if the security companies could repel any attack if they united, the transaction costs of organizing joint defense would be prohibitive. Individual security firms have incentives to protect their clients against sporadic crime or the attacks of others firms, but the firms do not have incentives to protect a whole region or nation. If the concentration of the security market were higher, joint action against foreign aggressors might become more feasible, but then domestic collusion within the security industry would be a danger.

The better the market's checks against foreign governments, the weaker its checks against inter-firm collusion, and vice versa. 3. Who would supply public goods Granted that firms would have incentives to create law and order, but what about the provision of assistance to the needy, or roads, or other public goods that government provides One may doubt that the range of public goods is as extensive as commonly supposed (local public goods, for example, might be supplied by housing developers, etc. ), the complaint about their non-provision is sensible. Indeed, once enforcement were privatized, it would make no more sense to ask security companies to provide public goods than, say, to ask milk producers to supply public goods. Both would be private entities with no special public responsibilities.

4. Many people think that voting and democracy have intrinsic worth. It is better if vote-seekers run our society rather than profit-seekers. Public choice theory strongly undermines this claim.

One might also point out that intelligent voting is a pure public good, and is therefore undersupplied in democracies, just as markets under supply pollution abatement. Nevertheless, many people would suggest that voting counterbalances the power of wealth, and would be preferable for that reason. 5. However beautiful the economic theory of market enforcement is, it just wouldn't work. Every social system requires a general sense of legitimacy to survive. People wouldn't go along with privatization of enforcement, perhaps irrationally or for ideological reasons.

Hence it is better to stick with the status quo, which at least enjoys general acceptance and the sanction of tradition. 6. Whatever the economic theory of market enforcement says, most people wouldn't believe that it would work. They would except that chaos and violence would break out immediately. This would lead them to support almost any leader who pledged to "reestablish order".

The result of attempted privatization might be to replace our imperfect political system with something even worse. Other criticisms exist, but these are the most plausible. Indeed, they look devastating. Still, I don't think that the issue isso simple. One of the most important conclusions of public choice theory is that for any imaginable "market failure", we can imagine a parallel "government failure".

Thus, market create externalities like pollution, but the democratic process creates externalities like special interest legislation. Markets do not supply public goods, but the democratic process fails to reward public goods like intelligent voting. If markets have imperfect information (as in the Akerloff lemons model), so do governments (for example, voters are usually ignorant about politicians' voting records and sources of funding, as well as the likely consequences of a given piece of legislation). And if markets create monopolies, so too do governments (e. g., agricultural cartels, or the post office). Any valid comparison of market and government performance, then, is essentially comparative; merely pointing out problems in one of the two is never conclusive. Moreover, we mustn't compare an imaginary perfect government with real-world markets; the fair comparisons are between ideal government and ideal markets, and real-world government and real-world markets.

With this in mind, we can see why the previous six criticisms of purely private law are not as convincing as they appear. While market enforcement works poorly for pollution and other dispersed harms, many government activities create comparable externalities. For example, special interest groups lobby for legislation that injures all tax-payers slightly, even though the aggregate damage is high. Might the harm from this exceed the harm of pollution The question is not an easy one. Or take the second argument.

Market enforcement would indeed be unlikely to provide effective national or regional defense. Yet national defense is necessary in the first place only because some governments use their national "defense" for aggressive conquest. The fact that some governments use their military offensively creates the need for national defense. National defense is, strangely, only a public good on the assumption that some military forces are a public bad. Moreover, once one creates a national defense, there is the danger that one's very own armies will be used for aggressive rather than defensive actions. (Presumably, this is true of at least half of the sides in any international conflict.) Usually this is a public bad.

The citizens of Nazi Germany, or Saddam Hussein's Iraq, for example, would likely have been much better off if their military did not exist in the first place. The wars that their militaries provoked were worse than any wars that their militaries deterred. The point is that even though national defense nominally exists to benefit everyone, military actions frequently bring net harm to their own nation's citizens; though national defense is theoretically a public good, empirically it is often a public bad. If we do an international survey, it is not clear that the advantages of national defense typically outweigh the costs of its frequent abuse. The problem of public goods is, again, inconclusive. Public choice theory suggests that governments supply what interest groups lobby for.

It is unclear whether what interest groups lobby for are in fact public goods; many of them (farm cartels or tariffs, for example) are public bad. As mentioned earlier, local public goods could be supplied by housing developers. Are the remaining public goods that could not be privately supplied so valuable that they outweigh the abuse of legislative power The answer is far from clear. The fourth complaint was competitive enforcement would would make voting atrophy or disappear. Wealth would be the only measure of social value.

Public choice theory undermines this complaint by showing that campaign contributions and wealth strongly influence democratic politics. One might also note that intelligent voting is a pure public good (society benefits if I inform myself before I vote, but I pay all of the cost of informing myself), and is therefore undersupplied under democracy. With these facts in mind, one might doubt that democracy is as wonderful as usually believed, especially if non-political alternatives could work. Complaints five and six, which doubt that market enforcement could ever win the loyalty and trust of most people, are more difficult to answer. Even in areas where markets are perfectly workable, voters routinely prefer government ownership and control. They have more confidence in the legitimacy of the government than they do in the legitimacy of the market.

Perhaps imperfect information is the problem. If people understood the relative pluses and minuses of the two systems, but still selected government supply, economists would have nothing to say. But if people base their preferences on mistaken economic theories, economists have a professional responsibility to at least explain their errors to them so that they may make informed choices. This section is not intended to be a conclusive proof of the superiority of competitive enforcement outlined in section 4.8. It merely discusses the common arguments against competitive enforcement, and argues that they are not as persuasive as they initially appear. Most criticisms compare perfectly functioning governments to real-world markets; this biases the whole analysis.

The appropriate economic comparisons are between perfect governments and perfect markets, and between real-world governments and real-world markets. When we keep this in mind, the choice between the two systems is hard to make. Policy analysis for this section is less determinate than earlier sections'. The lesson to draw is that we have everything to gain from gradual experimentation. Market enforcement has overlooked potential.

How much potential It is difficult to know a priori. What we can know is that if we permit experimentation, we can gradually get a realistic picture of its potential. If problems arise, experimentation can halt; but there is no harm in incrementally opening up alternatives to the status quo. 5. Conclusion Almost all scholars regard the supply of law as a pure public good that simply must be supplied by the government. Yet there are many present-day and historical counterexamples: arbitration, the law merchant, trade associations, ostracism and boycott, security guard companies, and so on.

Puzzled by these counter-examples, scholars such as Posner, Landes, Becker, and Stigler investigated the theory behind the private supply of law, distinguishing three aspects of law: dispute resolution, rule formation, and enforcement. This thesis considered non-state provision of each of these conceptual legal branches. Corresponding to each branch is a theory that describes how the system would work in the absence of market failures; a description of the most obvious market failures from which each branch suffers; and a discussion of the severity of the failures. The overall conclusion of this paper is that, while each branch - dispute resolution, rule formation, and enforcement - has flaws, the problems are rarely overwhelming.

Scholars are usually too quick to dismiss them on the grounds of market failure, without first considering the magnitude of the market failure, or whether the government could realistically do any better. Most scholars find much to praise and little to criticize in private dispute resolution. It reduces transaction costs, gives parties greater flexibility, and helps ease the case burden of the public courts. It would not be difficult to open up a wide range of disputes to private resolution. As the public courts grow more clogged, we can expect alternative dispute resolution to expand. If the public courts give arbitrators sufficient autonomy and enforce their decisions as a matter of policy, the expansion might startle us.

In contrast, there is considerable skepticism about private rule formation. Posner and Landes point out that the production of precedents is a public good. Since a patent system for precedents is not feasible (parties could use precedents without citing them, as Posner suggests), it is difficult to see where the incentive to supply rules and procedures comes from. While there is something to this complaint, Posner and Landes overstate its importance. The externality problem did not stop whole private legal systems from blossoming, from the international law merchant to the customary law of primitive tribes. As my treatment explained, modern patent law fails to protect a whole range of innovations; but innovation in unprotected sectors continues.

This is mainly because firms can capture much of the gain just by being the first firm in an industry to adopt an innovation, even if there isn't any legal protection. A second source of customary law, I suggested, is cultural evolution - the piecemeal accumulation of minute innovations. This is the process that gives us language, custom, and frequently the foundations of our legal system. The basic common law categories of property, contract, tort, and crime sprang up long before there were formal governments or even professional judges, as Posner himself shows in The Economics of Justice. What conclusion can we draw from this Mainly, Posner and Landes see a genuine problem for private rule formation, but the problem has been sufficiently mild to permit substantial private rule creation throughout history. There is a sound reason to at least remove legal barriers to private rule formation and see what happens.

Private rule creation, like non- patentable innovation in general, could prove quite workable. The most controversial area is private enforcement of law. Most people see something subversive and scary about this, though such eminent economists as Becker and Stigler see that it has great potential. Whatever one's views on this matter, private law enforcement is already a respected part of our society and economy. Professional boycott and ostracism is a common sanction for breach of contract, fraud, and other unscrupulous business practices.

Security guards and private police give us at least as much protection as public police (probably more, since public police spend so much of their time and money on victimless crimes). There is no reason at all to be frightened of these forms of private law enforcement. Boycott and ostracism are mild but effective ways to enforce decent behavior at very low cost. Since the security guard and private police industries are highly unconcentrated, they pose no realistic political danger to anyone. There is a strong argument for greater reliance on and legal recognition of these sorts of private enforcement. Yet there is a less conservative side to private law enforcement.

Some historical legal systems permitted competing private bodies to take over the most basic function of government: the use of violence against criminals. In section 4.8, I discussed the workings and incentives of such a system, and argued that, at least so far as economic theory is concerned, such a system could, contra Hobbes, operate peacefully, fairly, and efficiently. This is a rather radical conclusion; but I intend it mainly to be a model of a polar case, the polar case in which all enforcement is private. Section 4.9 brought up six economic and political criticisms of purely private enforcement. After probing each of these arguments, I found them less than fully convincing. Public choice theory's most important discovery, I think, is that every market failure has an analogue in the public sector.

The critics of purely private enforcement probably make an unfair comparison because they only point out private sector failures without asking if public sector failures are worse. For this reason, as radical as the idea of purely private enforcement is, economic analysis cannot dismiss it out of hand. A great deal of work in this area is necessary before scholars can make an intelligent judgment. In Foundations of the Metaphysics of Morals, Immanuel Kant writes that, "Reason, therefore, relates every maxim of the will as giving universal laws to every other will and also to every action toward itself; it does so not for the sake of any other practical motive or future advantages but rather from the idea of the dignity of a rational being, which obeys no law except that which he himself also gives". 87 (emphasis added) In one sense, expanding the role of the private sector in our legal system fulfills Kant's ideal by permitting parties to opt out of the public court system and set up their own rules and procedures.

Private legal systems let parties create the very law that governs them, since they may contract with each other to select an arbitrator, procedures, rules, and sanctions. But the other feature of Kant's ideal, that parties act not "for the sake of any other practical motive or future advantages" is entirely absent. The chief reason why parties opt out of the system is precisely to win "practical motives and future advantages" - to reduce dispute resolution costs, select efficient rules, and swiftly and painlessly enforce rulings. The conclusion to draw is that, contra Kant, non-state legal systems both let parties create law that governs them and enhance their well-being. Autonomy and efficiency are not in tension; each requires and implies the other. Notes 1: Richard Posner, The Economics of Justice (Cambridge, Mass: Harvard University Press, 1981), p. 178.2: Harold Berman, Law and Revolution (Cambridge, Mass: Harvard University Press, 1983), p. 52. a: Jerold Auerbach, Justice Without Law (Oxford: Oxford University Press, 1983), p. 113. b: For a brief overview, see Robert Cooter and Thomas Ulen, Law and Economics (no city, HarperCollins, 1988), p. 480.3: Richard Posner and William Landes, "Adjudication as a Private Good", Journal of Legal Studies, vol. 8., p. 236.4: Berman, op. cit., pp. 348-354.5: Gary Becker and George Stigler, "Law Enforcement, Malfeasance, and Compensation of Enforcers", Journal of Legal Studies vol. 2, p. 6. c: Thomas Hobbes, Leviathan (New York: Collier Books, 1963), p. 132.6: On this, see Bryan Caplan, "Archical Fallacies: Hobbes vs. Locke on the State of Nature", unpub. ms., available on request.

7: Richard Neely, Why Courts Don't Work (New York: McGraw-Hill Book Co., 1982), p. 165.8: ibid, p. 166.9: Posner and Landes, loc. cit., p. 252.10: See Robert Cooter and Thomas Ulen, op. cit., p. 486.11: Posner and Landes, loc. cit., p. 252.12: Richard Posner, Economic Analysis of Law (Boston and Toronto: Little, Brown, and co., 1977), pp. 433-434.13: Neely, op. cit., p. 185.14: Ronald Coase, "The Nature of the Firm", in George Stigler and Kenneth Boulding, eds., Readings in Price Theory (Chicago: R.D. Irwin, 1952), pp. 331-351.16: See F.A. Hayek, "The Use of Knowledge in Society", in F.A. Hayek, Individualism and Economic Order (London: Routledge and Kegan Paul, Ltd., 1948), pp. 77-91. d: See Posner, Economic Analysis of Law, op. cit., pp. 450-453.17: Posner and Landes, loc. cit., p. 247.18: Nathan Isaacs, Review of Wesley Stages, Treatise on Commercial Arbitration, 40 Yale Law Journal, pp. 149-151, quoted in Auerbach, op. cit., p. 111.19: Posner and Landes, loc. cit., p. 248.20: ibid, p. 239.21: Bruce Benson, The Enterprise of Law: Justice Without the State (San Francisco: Pacific Research Institute for Public Policy, 1990), p. 300.22: See Posner, Economic Analysis of Law, op. cit., pp. 419-421,426-427.23: Richard Epstein, "The Static Conception of the Common Law" Journal of Legal Studies, vol. 9, p. 254.24: Benson, op. cit., 225-227.25: Posner and Landes, loc. cit., pp. 257-258.26: Benson, op. cit., p. 278.27: Richard C. Levin, Alvin Klevorick, Richard R. Nelson, and Sidney G. Winter, "Appropriating the Returns from Industrial Research and Development", Brookings Papers on Economic Activity (1987, no. 3), pp. 803, quoted in F.M. Scherer and David Ross, Industrial Market Structure and Economic Performance (Boston: Houghton Mifflin Company, 1990), p. 628.28: F.M. Sherer, Industrial Market Structure and Economic Performance (Chicago: Rand McNally College publishing co., 1980), p. 444.29: ibid. e: Sherer and Ross, op. cit., p. 626.30: See for example Robert Bork, The Antitrust Paradox: A Policy at War with Itself (New York: Basic Books, 1978), esp. pp. 163-197; and Harold Demsetz, "Two Systems of Belief About Monopoly", in Harvey Goldschmid, H. Michael Mann, and J. Fred Weston, eds., Industrial Concenctration: the New Learning (Boston: Little, Brown, and co., 1974), pp. 164-184. f: See F.A. Hayek, Law, Legislation, and Liberty, vol. 1: Rules and Order (Chicago: University of Chicago Press, 1973), p. 37.28: Richard Posner, The Economics of Justice, op. cit., p. 177.29: On cultural evolution, see F.A. Hayek, The Fatal Conceit: The Errors of Socialism (Chicago: University of Chicago Press, 1988), pp. 11-28 and passim. 30: For a overview of the harmful effects of social experiments in this century, see Paul Johnson, Modern Times: The World from the Twenties to the Eighties (New York: Harper and Row, 1983). 31: See Berman, op. cit., pp. 49-84.32: Robert Ellickson, Order without Law: How Neighbors Settle Disputes (Cambridge, MA: Harvard University Press, 1991). 33: ibid, p. 185.34: ibid, p. 188.35: ibid, pp. 213-219.36: ibid, p. 227.37: Quoted in ibid, p. 251.38: ibid, p. 250-252.39: Richard Posner, The Economics of Justice, op. cit., pp. 178-179.40: Richard Epstein, Simple Rules for a Complex Society, forthcoming - call Sheldon 41: Ellickson, op. cit., p. 254.42: For example, in his Economic Analysis of Law, op. cit. 43: Benson, op. cit., p. 279.44: ibid, p. 280.45: Harold Demsetz, "Information and Efficiency: Another Viewpoint", Journal of Law and Economics, vol. 12, pp. 1-3.46: Posner, Economic Analysis of Law, pp. 422-423.47: Neely, op. cit., p. 35.48: Bruno Leoni, Freedom and the Law (3rd edition; Indianapolis: Liberty Fund, 1991), p. 23.49: ibid, p. 22.50: ibid, p. 24.51: Posner, Economic Analysis of Law, pp. 404-405.52: Posner and Landes, loc. cit., pp. 259-284.53: Becker and Stigler, loc. cit., p. 12.54: ibid, p. 11.55: See William Dickens, Lawrence Katz, Kevin Lang, and Lawrence Summers, "Employee Crime and the Monitoring Puzzle", Journal of Labor Economics, July 1989, pp. 331-347.56: On the problem of "liquidated damages", see Cooter and Ulen, op. cit., pp. 293-296.57: Becker and Stigler, loc. cit., p. 14.58: ibid, p. 14.59: ibid, p. 15.60: Posner, Economic Analysis of Law, p. 167.64: Posner and Landes, loc. cit., p. 235.65: From lecture notes from Prof. Olney, visiting professor at UC Berkeley.

66: Roger Ransom and Richard Sutch, One Kind of Freedom (Cambridge: Cambridge University Press, 1977), p. 3.67: See for example Richard Steckel, "A Peculiar Population: The Nutrition, Health, and Mortality of American Slaves from Childhood to Maturity", Journal of Economic History, Vol. 66, no. 3, Sept. 1986, pp. 721-741.68: For this highly entertaining story, see Jeffrey Shedd, "Making Good [s] Behind Bars", Reason 13, March 1982, pp. 23-32.69: Posner, Economic Analysis of Law, p. 468.70: See Cooter and Ulen, op. cit., p. 479.71: See for example Edward Banfield, The Unheavenly City, (Boston: Little, Brown and co., 1970), pp. 158-184; Edward Banfield, "Present-Oriented ness and Crime", in Randy E. Barnett and John Hagel, Assessing the Criminal (Cambridge, Mass: Ballinger Publishing Co., 1977), pp. 143-162; and Samuel Same now, "The Challenge of Habilitation", in ibid, pp. 121-132.72: See for example Randy E. Barnett, "Restitution: A New Paradigm of Criminal Justice", in ibid, pp. 349-383.73: Posner, Economic Analysis of Law, pp. 433-434.74: ibid, p. 468.75: Benson, op. cit., p. 148.76: ibid, p. 3.77: ibid, pp. 137-140.78: Anectode told to me by Prof. Grossman, UC Berkeley Economics Dep't. 79: David Friedman, "Private Creation and Enforcement of Law: A Historical Case", Journal of Legal Studies, vol. 8, p. 406.61: See Benson, op. cit., pp. 128,211. Unfortunately, it is difficult to get same-year figures; high inflation during the 1979-1982 period somewhat overstates the difference. With approximately 14% inflation in 1980, 11% in 1981, and 7% in 1982, the 1982 aggregate security personnel payroll in 1979 dollars was about $16.0 billion. 62: ibid, p. 212. g: See Harold Demsetz, "Why Regulate Utilities", Journal of Law and Economics, vol. 12., pp. 55-65.63: ibid.

80: Friedman, loc. cit., p. 410.81: Posner, Economics of Justice, op. cit., p. 119.82: ibid, p. 175.83: Friedman, loc. cit., p. 413; Berman, op. cit., pp. 53-55.84: Benson, op. cit., p. 212.85: Murray Rothbard, For a New Liberty (New York: Libertarian Review Foundation, 1978), pp. 235-236.86: ibid, p. 236.87: Immanuel Kant, Foundations of the Metaphysics of Morals, in A.I. Melden, Ethical Theories (Englewood Cliffs, NJ: Prentice-Hall, 1967), p. 348.

Bibliography

Jerold Auer beck, Justice Without Law (Oxford: Oxford University Press, 1983).
Edward Banfield, The Unheavenly City, (Boston: Little, Brown and co., 1970).
Randy E. Barnett and John Hagel, Assessing the Criminal (Cambridge, Mass: Ballinger Publishing Co., 1977).
Gary Becker and George Stigler, Law Enforcement, Malfeasance, and Compensation of Enforcers", Journal of Legal Studies, vol. 2., pp. 1-17. Bruce Benson, The Enterprise of Law: Justice Without the State (San Francisco: Pacific Research Institute for Public Policy, 1990).
Harold Berman, Law and Revolution (Cambridge, MA. : Harvard University Press, 1983).
Robert Bork, The Antitrust Paradox: A Policy at War with Itself (New York: Basic Books, 1978).
Bryan Caplan, "Archical Fallacies: Hobbes vs. Locke on the State of Nature", unpub. ms. Ronald Coase, "The Nature of the Firm", in George Stigler and Kenneth Boulding, eds., Readings in Price Theory (Chicago: R.D. Irwin, 1952), pp.
331-351. Robert Cooter and Thomas Ulen, Law and Economics (New York: HarperCollins, 1988).
Harold Demsetz, "Information and Efficiency: Another Viewpoint", Journal of Law and Economics, vol. 12, pp. 1-22. Harold Demsetz, "Two Systems of Belief About Monopoly", in Harvey Goldschmid, H. Michael Mann, and J. Fred Weston, eds., Industrial Concenctration: the New Learning (Boston: Little, Brown, and co., 1974), pp.
164-184. Harold Demsetz, "Why Regulate Utilities", Journal of Law and Economics, vol. 11, pp. 55-65. William Dickens, Lawrence Katz, Kevin Lang, and Lawrence Summers, "Employee Crime and the Monitoring Puzzle", Journal of Labor Economics, July 1989, pp.
331-347. Robert Ellickson, Order Without Law: How Neighbors Settle Disputes (Cambridge, MA: Harvard University Press, 1991).
Richard Epstein, Simple Rules for a Complex Society (Cambridge, MA: Harvard University Press and Cato Institute, 1993, forthcoming).
Richard Epstein, "The Static Conception of the Common Law", Journal of Legal Studies, vol. 9, pp. 253-275. David Friedman, "Private Creation and Enforcement of Law: A Historical Case", Journal of Legal Studies, vol. 8, p. 399-415. F.A. Hayek, The Fatal Conceit (Chicago: University of Chicago Press, 1988).
F.A. Hayek, Law, Legislation, and Liberty, vol. 1: Rules and Order (Chicago: University of Chicago Press, 1973).
F.A. Hayek, "The Use of Knowledge in Society", in F.A. Hayek, Individualism and Economic Order (London: Routledge and Kegan Paul, Ltd. ), pp. 77-91. Thomas Hobbes, Leviathan (New York: Collier Books, 1963).
Paul Johnson, Modern Times: The World from the Twenties to the Eighties (New York: Harper and Row, 1983).
Bruno Leoni, Freedom and the Law (3rd edition; Indianapolis, IN: Liberty Fund, 1991).
Richard C. Levin, Alvin Klevorick, Richard R. Nelson, and Sidney G. Winter, "Appropriating the Returns from Industrial Research and Development", Brookings Papers on Economic Activity (1987, no.
3), pp. 783-831. A.I. Melden, Ethical Theories (Englewood Cliffs, NJ: Prentice-Hall, 1967).
Richard Neely, Why Courts Don't Work (New York: McGraw-Hill Book Co., 1982).
Richard Posner, Economic Analysis of Law (Boston and Toronto: Little, Brown, and co., 1977) Richard Posner, The Economics of Justice (Cambridge, MA: Harvard University Press, 1981).
Richard Posner and William Landes, "Adjudication as a Private Good", Journal of Legal Studies, vol. 8, pp. 235-284. Roger Ransom and Richard Sutch, One Kind of Freedom (Cambridge: Cambridge University Press, 1977).
Murray Rothbard, For a New Liberty (New York: Libertarian Review Foundation, 1978).
F.M. Scherer, Industrial Market Structure and Economic Performance (Chicago: Rand McNally College publishing co., 1980).
F.M. Scherer and David Ross, Industrial Market Structure and Economic Performance (Boston: Houghton Mifflin co., 1990).
Jeffrey Shedd, "Making Good [s] Behind Bars", Reason 13, March 1982, pp.
23-32. Richard Steckel, "A Peculiar Population: The Nutrition, Health, and Mortality of American Slaves from Childhood to Maturity", Journal of Economic History, vol. 66, no. 3, Sept. 1986, pp.