Private Law: Public Choice and Government Law

This is part two of a series on Bruce Benson's The Enterprise of Law. Part one can be found here.

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width="300" height="207" border="0" align="right" hspace="5">In Part
II of The Enterprise of Law Bruce Benson examines the modern legal system through public choice theory. Public choice theory is a fairly recent development in economics that examines political systems from an economic viewpoint. The underlying assumption of public choice theory is that political actors are pursuing their own interests (whether their interests are for public good or personal profit does not matter), thus normal
economic analysis can be applied to the functioning of the political system.

Benson spends chapter 4 laying the foundation of public choice theory. He describes the role of interest groups in determining the assignment and enforcement of property rights and how government bodies react to the demands of the interest groups. Government bodies can be split into two groups, legislative* bodies and bureaucracies. Courts can be treated as either legislative bodies or bureaucracies depending on whether the judge is elected periodically or appointed. He then looks at the "commons problem":

Legislatures, courts, and police are like any other public property; when ownership rights are not assigned to a good or resource and prices are not charged to ration its use, the resource is overused and inefficiently allocated. Public owned property is available on a first come first served basis, with no user charge to discourage those whose desires for using the property generate relatively less welfare than those of others who might come later. Thus, too many laws are made, police spend too much time doing "social-worker, caretaker, baby-sitter, errand-boy" type activities, and the courts are clogged with frivoulous law suits.

In chapter 5 Benson begins the serious analysis of government law by looking at the demand side of the political market. Because of the large demand for low cost laws, the job of the legislator has grown beyond his means to manage it. The interest groups step up to this challenge, by writing the legislation themselves. The lobbyists have already struck deals between the interest groups and have a fully prepared bill ready to go before the legislator has to even think about it. Benson quotes Judge Neely, "When my court proposes changes to the legislature, we have a completed, polished bill already drafted and ready for introduction by members of each house. The same is true of every other organized interest group that is aggressively seeking positive legislative action." Moreover, Benson notes that the Berk-Brackman-Lesser study of penal code revisions reveals that " 'public opinion' played no identifiable role in Penal Code revision". Benson then points out that police, judges, and other taxpayer funded bureaucrats are major interest groups. This can present problems as these interest groups often have interests opposite to the "public interest" and that they can and do use tax funds to lobby for their interests. Benson finishes the chapter looking at the economic inefficiency in exclusionary rules due to the dynamics of interest group demand and court demand.

police.jpgTurning then to an analysis of the supply side,  Benson starts out showing the growth of the criminal justice system over the last few decades, and how there is still a shortage of law enforcement. There are serious problems with the supply of law: bureaucratic inefficiency, more laws than can be effectively enforced, perverse incentives for police and prosecuting attorneys, rationing of court time and rationing of prisons. Bureaucratic inefficiency is the same inefficiency that economics has long pointed out in the public sector. The number of laws that are on the books require law enforcement bureaucrats to use wide discretion to "choose which laws to enforce and which not to enforce at all. In fact, this discretion is an important ingredient for meeting the demands of powerful special interests; police can not only choose which laws to enforce, but which laws to enforce for whom." Police and prosecutors need to make arrests and get convictions to show they are on the job, while also needing a certain level of continuing crime to assure their budgets. Thus, police and prosecutors go after easy targets and do not put in as much effort on the difficult cases. For the courts rationing through means other than prices,  delays become the method of rationing. With a typical civil case taking years to get to trial, litigants are more likely to settle or not even bother to file complaints to begin with. Again, due to a lack of price information and the oversupply of laws, prisons become overcrowded and hardened criminals must be paroled or furloughed to make room forincoming violaters.

In the last chapter of the Public Choice analysis of the existing legal structure, Benson turns to a very disturbing result of public choice theory - police corruption. The relative amount of corruption is in line with the expected value of rights involved. "Thus, the greater the market distortion created by the laws being enforced, the greater the potential payoff to officials doing the enforcing." The second largest source of corruption is legitimate business trying to find their way through the maze of ordinances and regulations. The prime source of corruption is of course organized crime. "In instances where illegal activities could be prevented or severely limited...(e.g. gambling, prostitution) public officials have a valuable set of property rights that may be sold."Organized crime or criminal firms posses market power and enjoy economies of scale in purchasing corruption. Criminal organizations not only purchase a "blind eye", but also selective enforcement, giving the criminal firms an enforced monopoly. Efforts to police the police must also fail as the ability of taxpayers to fund multiple layers of internal investigation bureaucracies is limited, and the internal investigators also have property rights to sell. The Knapp Commission Report on Police Corruption in New York City "reported that their findings were hardly new. As long ago as 1844, when the State legislature created the New York police department as the first in the country, historians record an immediate problem with extortion and other corrupt activities engaged in by police." Of course not all corruption is necessarily bad as it may be in the public interest that some laws are not as well enforced.

After reading Bruce Benson's analysis of the current legal system using public choice theory, I am initially inclined to think that there are problems with public choice theory. Our legal system does have many problems, and Benson's presentation of evidence is damning, but public choice analysis would seem to indicate a Hobbesian jungle, yet we do not live in such a jungle. Public choice theory is well grounded in economic principles, so what gives? The best explanation is that the suppliers of law are generally decent people trying to do the best possible with what they have to work with. The fact that corruption is even worse in nations that have greater market restrictions (as predicted by public choice) suggests that the spontaneous order arising from markets keeps check on the potential for abuse. That is to say, the marketplace is not a net demander of law and order, but rather the chief supplier of law and order.

* The analysis can accurately treat most elected officials the same as legislators even though they are not legislators per se.

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Authoritarian law seems to

Authoritarian law seems to me to be a horrible twisting of the concept of justice. An authority arrogates to itself the right to redefine a trespass against me into a trespass against itself. How can this possibly benefit me?

Say someone steals my TV. First of all, the chance that they'll be caught by the police, hell, the chance that the cops will even *try* to find the thief, is slim to none. But let's just say the perpetrator is caught. Do I get my TV back? No, that's "evidence". Well then, surely the thief will pay me compensation? Yes, the thief is charged a fine, but that goes to the State. Oh, and also I get the privilege of paying for the thief to be imprisoned for a time, where he can be raped, beaten, or even murdered by other prisoners, and possibly learn how to be a *really* brutal criminal. How is this justice? Justice for who? Not only have I not recieved justice for the theft of my property, I've been made party to the brutalization of another human being.

If someone were looking for a way to socially engineer a class of super-criminals, I can't think of a better way than the prison system.

I think the difficulty is in

I think the difficulty is in convincing people that the TV thief only carried out a crime against you, not against 'society'. Most people think that any breaking of any law is a crime against 'all of us'.

That's what I can't figure

That's what I can't figure out--why people feel that way. It's both counterintuitive and counterfactual.

I can see the point of view that society is involved in the sense that it's to everyone's advantage to live in a society where a) people don't steal TVs, and b) if someone does steal your TV you get it back (in-kind or through compensation). That is justice. What we get with authoritarian law amounts to the State confiscating our justice. Wierd. We end up with a state of affairs in which if you seek "justice" through the State judicial system, you end up worse off than if you hadn't done anything about the crime at all. Extra-wierd.

Nice post--it has really

Nice post--it has really whet my appetite to learn more about public choice theory.

I have long noticed (and was reminded of it again in some of the last few days' posts on this site) that in many state-run institutions the people working at the coal face make the system work in spite of all of the skewed incentives. As you rise upwards in the administrative hierarchy you find more corruption. Municipal ambulance workers in South Africa were underpaid and overworked and did everything they could to 'make a difference'; administrators were selling ambulance parts out of the back door and inventing employees to pocket their pay.

Based on your post, I am going to explore a new tactic in my debates. My mother thinks I am cynical for considering that politicians do not act faithfully on our behalf. Now I will say, "Let's just look at the cold, economic forces at play. We will do a public choice analysis to show us what motivations are inherent in the system. There! See how the system puts a strain on the poor, dedicated civil servant, trying to make him do what he knows is not right? The system should simply be redesigned so this long-suffering servant can have some relief!"

It is amazing how even small, impersonal uses of force can corrupt the spontaneous order that would otherwise arise when we only profit through producing goods that satisfy our lives or the lives of our customers.

Mark, I think the phenomenon


I think the phenomenon you describe is a pathology common to all large-scale organization, public and private. Anton Wilson described it in the Illuminatus! trilogoy as the tendency of all hierarchical organizations to create imaginary worlds for those at the top. He even wrote an article entitled "Empire of the Rising Scum" for Loompanics a couple of years ago.

I've worked in some private sector workplaces where the regional and central headquarters were as out of touch as Gosplan was in the old Soviet Union. In a restaurant where I worked, the manager had to fill out a template for calculating product wastage, etc., down to the penny. And no doubt some apparatchik at Mazzio's HQ was congratulating himself in the same terms as that nineteenth century French minister who boasted he could look at the clock and know what subject was being studied in every school in France.

The problem is, all the data going into the template was a wild guess or a deliberate fabrication. You might say that a more efficient information tracking system would provide competitive advantages to companies adopting them, and thus provide an incentive to eliminate such inefficiency. But unfortunately, with a relatively limited number of competing chains, and all of them following the same business culture and management theory fads, in the same lemming-like fashion, such incentives seldom made themselves felt.

But I'm sure the government exacerbates the problem a great deal in the private sector, with subsidies and regulations that encourage enterprises on a larger scale than they would otherwise be, without such state intervention. The market incentive to rationalize and streamline information flow would be much greater if the state didn't allow pathological organizations to externalize all their inefficiency costs.

Nice post--it has really

Nice post--it has really whet my appetite to learn more about public choice theory.

Yeah, I like what I know (at a very superficial level) about public choice theory.

Nice post--it has really

Nice post--it has really whet my appetite to learn more about public choice theory.

Thank you. This really makes my day.

If market participants

If market participants "irrationally" punish cheating/unfairness, they will also punish failure to punish.

If participants believe they will be punished for tolerating corruption when they see it, they will avoid being connected with it. The "irrational" goodness is viral and you end up with a stable equilibrium of goodness.

Rather than interpreting government as rent-seeking/corruption perhaps it is better viewed as a system for people performing support for fairness.

The cultural issue then arises around tolerance for inequality and local definitions of fairness.

Rather than interpreting

Rather than interpreting government as rent-seeking/corruption perhaps it is better viewed as a system for people performing support for fairness.

That would be detemining the desired result and constructing analysis to match. Neither Dr. Benson or myself started with an assumption of what the participant's aims were. We take basic economics (mostly price theory), the human action axiom, and the well documented process of governance to deduce a theory, make predictions based on that theory, and then test the predictions against reality. The resulting theory is public choice, and the conclusions of the theory are that the participants in the political "market" must be omniscient and morally pure in order to not have corruption/rent-seeking.

Also, you are confusing the economic use of "rational" (and its derivatives) with the common usage. Economic usage is specifically with respect to the actor not the observer. See Mises' Human Action, pages 19-22 (43-46 of the pdf) for a more in depth look at rationality with respect to the human action axiom.

David, I think you took


I think you took performing in a manner I did not intend. I was also using "irrational" ironically.

My point is that there are multiple equilibria that prevent various forms of corruption and cheating.
If each agent expect that it risks high payments:

1. If it engages in corruption
2. If it fails to participate in extracting payment from those caught engaging in corruption.

Then Agents rent-seek (engage in corruption) only when there is a lack of transparency in the decision making process -- no different from stealing from a store because no one is looking.
So, it is not that we need moral purity to avoid rent-seeking, it is that we need institutional transparency.

Note: I am NOT defining the meaning of corruption (or fairness here). My point is that the enforcement behavior I'm describing occurs only in the context of some cultural perception on corrupt/fair behavior. Whatever the cultural norm is, there is an incentive in the above system, to
perform acts which appear to bind one to the local moral system.

I am not making any claim about a desired result. I am only making a claim about stable equilibria.