17 November 2010

What Makes A Legal Order Work?

Do legal orders work mostly because they threaten penalties or mostly because they create a consensus about what is right and wrong?

When can we say that a society is organized as a legal order as opposed to some other type of order such as order based on religious authority, moral principles, emergent social norms, or tyranny? This question is of both theoretical interest and political and economic interest, as countries seek to transition from the rule of power or privilege to the rule of law to build market democracies and generate economic growth. We present a model that seeks to explain the distinctive characteristics of law – such as its generality, abstract reasoning, uniqueness and reliance on open and public processes – on the basis of law’s function to coordinate an equilibrium based on decentralized enforcement of rules.

We thus depart from the conventional assumption in both law and economics and positive political theory, namely that law is to be defined as a system of coercive enforcement of penalties by the state. We find that the capacity of law – meaning third-party classification of behaviors as wrongful or not – to coordinate enforcement depends on the ability of law to provide unambiguous classifications. Many of the features identified by legal philosophers as characteristic of legal orders, and some that legal theory ignores or deemphasizes, are predicted by the model.

The authors thus argue that law is most effective when it makes clear what is right and wrong, and that the ability of the state to punish those who violate it is of secondary importance.

From the paper:

The people of Buddhist Tibet prior to 1949 lived under what was clearly a legal system with rules, judges and o¢ cial processes to resolve disputes, but both the jurisdiction and the judgments of a court had to be consented to by both parties (French 2002, 138). From the tenth to the thirteenth century, Iceland had a developed system consisting of a legislature that enacted rules, a "Law Speaker" who committed customs and rules to memory, recited them publicly, and served as the …nal word on resolving disputes about the content of customs and rules, and a hierarchical system of courts to resolve disputes under the customs and rules as articulated by the Law Speaker; but it had no centralized system of enforcement (Bryce 1901, Friedman 1979). Similarly, in medieval Europe, there was a wide range of institutions that articulated rules governing trade, many of which relied extensively on non-state enforcement (Mitchell 1904, Milgrom, North &Weingast 1990, Grief 2006) and it is to these beginnings that we trace the development of modern commercial law. International law is characterized by distinctive and recognizable forms of legal reasoning and the use of legal procedures and tribunals, even though there is often no authority capable of enforcing these legal judgments. In many if not most of our daily interactions as citizens and economic agents there is little likelihood of coercive penalties and yet we look to laws and written contracts and legal advice in order to guide our actions: businesses spend significant resources on legal services to draft and interpret contracts even when they recognize that they are extremely unlikely to end up in litigation (Hadeld & Bozovic, in process). Analytically, by starting with the assumption that law consists of rules coercively enforced by a government, we limit our ability to explain how legal order emerges historically and in settings in which there is no established and legitimate state monopoly on force. . . .

We argue that law has its distinctive structure in order to serve as an ambiguity-reducing institution that coordinates beliefs among diverse individuals and thus to improve the capacity of the extra-legal rule enforcement mechanisms that cause behavior to align with rules. We contend that a designated third-party system of specialized public reasoning–which we call a logic–helps coordinate beliefs. To perform this function, this third-party logic must possess particular structural traits. Some of these traits derive from the need to provide a common knowledge focal point; the logic must for these reasons be a system of authoritative and unique classifcations. Other traits derive from the need for the system to be incentive-compatible. In our model, it is key that the system be one in which all of the required participants are willing to participate. This participation requires a degree of convergence between the classications o¤ered by the public system and those reached on the basis of private idiosyncratic reasoning. . . .

Positive political theory and the law has long recognized the importance of coordination in one aspect of the law, namely, constitutional law with a focus on constitutional stability. Most new constitutions fail (Elkins, Ginsburgh and Melton 2008), so why do those few survive? The literature provides some insight into this question, and it concerns the central issue of this paper, coordination. Hardin (1989, 2006), following Hume (1739-40), argues that the central feature of constitutions is to provide coordination for citizens around various rules (see also Ordeshook 1992). Constitutions, in this view, create focal solutions that allow citizens to create order. In a model closely paralleling that in this paper, Weingast (1997) argues that constitutional stability requires that citizens have the ability to coordinate against governments that seek to transgress constitutional provisions. To do this, citizens must create focal solutions to the problem of what features of the constitution are worth defending. Constitutions that become focal points (typically in moments of crisis) have greater ability to survive then ones that do not. Similarly, Fearon (2006) argues for the coordination effect of elections in democratic (and hence democratic constitutional)stability. . . .

[W]e look to how the deliberate effort to coordinate punishment of defectors can lead to the designation of a third-party institution–perhaps from many on offer–as an equilibrium coordination device. . . . The institution must supply a logic for classifying conduct that is both general and stable in order to meet the incentive-compatibility constraint. This provides a novel explanation of the generality and stability requirements that many legal philosophers believe is a sine qua non of a legal, as opposed to tyrannical or merely mangerial, order. In order to meet the common knowledge constraint, the institution must supply a logic that possess many of the features legal philosphers emphasize on other practical or moral grounds: it must be publicly accessible, open to the presentation of facts and arguments, and impersonal. . . .

This sheds light on a debate in legal theory between Dworkin (1986), who maintains that at least the ideal of a "right answer" is essential to law, and other legal positivists who emphasize the practical existence of deep disagreements among legal experts in difficult and contested cases. Our analysis suggests that even in the presence of ambiguity–indeed especially because of ambiguity due to heterogeneity among individuals and circumstances–in order to coordinate enforcement behavior, a logic-providing institution must assume ultimate stewardship of an ultimately final classification of behavior as right or wrong.

This also is a strong argument against widespread use of private arbitration, because of the importance of a public process in educating those not involved in the conflict about what constitutes right and wrong to the working of the system as a whole.

It also illuminates some intriguing facts, like the fact that in France, the Civil Code, which was devised for widespread public use, is viewed as more sacred to the legal order than the oft replaced constitution, despite being a mere statute, and the fact that the U.S. Constitution, in part as a function of its brevity, gets much more respect than its wordier state level cousins whose drafting was informed by much greater experience.

While the introductory and conclusory portions of the article are real advances and insights, by the way, the core of the article is a long and ultimately not very persuasive illustration of the ideas it presents using game theory that adds little that isn't obvious, or nearly obvious from the assupmtions that go into their models, or could be established from those assupmtions more generally and effectively without a mathematical gloss.

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