X-Message-Number: 23123
From: "Aschwin de Wolf" <>
References: <>
Subject: Law as a Private Good
Date: Wed, 17 Dec 2003 08:29:03 -0500

> The problems that Mike and I and others see with anarcho Libertarianism
> is that on the one hand there is a total disdain for taxation and yet on
> the other hand somehow almost if by magic either everyone will obey
> unwritten laws (since regulations are also held in disdain and laws are
> regulations) and have complete mutual respect for all thereby
> alleviating a need for law enforcement, a highly unlikely scenario, or
> there will be minimal law enforcement but supported how if not by
> taxation?

No magic involved.

You may want to read: Robert C. Ellickson - Order Without Law: How Neighbors
Settle Disputes (Cambridge, Mass: Harvard University Press, 1991).

Short review by Bryan Caplan:

"Classical liberal scholars have long observed that it is possible to have
law without legislation; and several noted analysts such as Bruno Leoni,
Murray Rothbard, David Friedman, and most recently Bruce Benson, have
applied economic analysis to customary and judge-made law. Robert Ellickson,
professor of law at Yale University, takes the argument one step further in
his Order Without Law: Not only is legislation unnecessary for law, but law
is unnecessary for order. After studying dispute resolution among ranchers
and farmers in Shasta County, California, Ellickson came to realize that
most people find the costs of learning about the law (judge-made or
statutory) and submitting to formal resolution procedures to be so high that
it is easier to fall back on common-sense norms. He finds that all three of
the functions of law - dispute resolution, rule formation, and enforcement -
get supplied by means of these informal norms. Ellickson derives this
observation about the importance of informal dispute resolution from "law
and society" scholars, but firmly rejects their characteristic disinterest
in economic analysis. The frequent use of informal rules is in fact an
implication of the Coase Theorem, though one that Coase himself did not
recognize. Says Ellickson: "Coase overstates the influence of law. His error
lies in his implicit assumption that people can effortlessly learn and
enforce their inital legal entitlements, and that they confront transaction
costs only when they attempt to bargain from their legal starting positions.
In a world of costly information, however, one cannot assume that people
will both know and honor law." (p.281) Among law-and-economics scholars, the
usual debate is whether transaction costs under bilateral monopoly are high
or low: if low, they think that the government should let actors solve
problems by bargaining; if high, the government should solve the problems by
picking proper laws. What Ellickson points out is that if the transaction
costs of learning the law are high, then there is little use for
governmental re-molding of the law, since actors will ignore it anyway.
Hence, high transaction costs (of learning and using the law) becomes an
argument for bargaining rather than governmental solutions to property
rights conflict.
Ellickson also makes extensive use of game theory. He predictably elaborates
on the strategy of tit-for-tat to show how cooperation can emerge when
agreements cannot be directly enforced. But he also considers interesting
variant repeated games and their appropriate strategies. For example, he
considers a game called Even-Up, in which unilateral defection can enhance
total wealth; he argues that players would make "side-payments" to preserve
cooperation. Happily, Ellickson's forays into game theory remain quite
readable, and he carefully chooses games and strategies that have plausible
real-world applications.

It is indeed hopeful to see work of this kind coming from a professor at one
of our most prestigious law schools. Though not himself a classical liberal,
he shows appreciation of classical liberal thinkers thoughout the book. But
Ellickson does not merely repeat and popularize for academia the same points
that earlier thinkers have made. He also explores the frontiers of our
understanding of social order, and the aid that economics may give for that
understanding. The only weakness of the work is that Ellickson has no
economic theory to explain how efficient norms tend to outcompete
inefficient ones. Perhaps we may look forward to such a theory in his next

See also:

Bryan Caplan: The Economics of Non-State Legal Systems (pdf)

Table of Contents:
1. Introduction
2. Adjudication of Disputes
  2.1.  Inefficiency in the public courts: overview
  2.2.  Inefficiency in the courts: under-pricing, nuisance suits, input
waste, and more
  2.3.  Inefficiency in the courts: fostering wasteful legal conflicts
  2.4.  Private dispute resolution: an efficient alternative
  2.5.  The potential and limits of private dispute resolution
3. Formation of Rules
  3.1.  Preview
  3.2.  The economic theory of rule-making with no externalities
  3.3.  Rule-making in the real-world: the problem of externalities
  3.4.  Non-patentable innovations and externalities problems
  3.5.  The evolution of custom as a substitute for intellectual
property rights
  3.6.  Ways to  internalize the benefits of rule-production
  3.7.  The variety and flexibility of private rule production
  3.8.  Public vs. private rule-creation: an exercise in comparative
4. Private Enforcement of Law
  4.1.  Ostracism and boycott
  4.2.  The Becker-Stigler model
  4.3.  Posting rewards and the Posner criticism
  4.4.  Torts and crimes: incentives for enforcement
  4.5.  Security guards and private police
  4.6.  Monopoly on coercion: the source of the limits of arbitration
  4.7.  Purely private enforcement: a model
  4.8.  Criticisms of purely private enforcement
5. Conclusion


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