In developed and less developed countries alike, many worry about why laws are so often ignored. But there’s a converse question that may be even more puzzling: Why are laws obeyed at all?
It’s a question that Cornell professor Kaushik Basu, one of the world’s leading economists, answers in his latest book, “The Republic of Beliefs: A New Approach to Law and Economics.” In the process, he offers a new methodology for doing law and economics, rooted in game theory, that he says will result in a deeper understanding of why the law works and thereby help us make more effective laws and a fairer society.
“Each society is like a game and laws provide some of the rules of the game. In this delightful and penetrating book, Basu offers a new approach to law and economics that flows from a deep understanding of the society-as-game paradigm,” said noted economist Herbert Gintis.
In the book, Basu, former chief economist of the World Bank and current president of the International Economic Association, says the intersection of law and economics is one of the most successful interdisciplinary fields in the social sciences.
“Yet the field is plagued by one underlying fallacy, which is to mechanically assume that all ordinary citizens are individual, selfish profit maximizers, and all agents of the state – police, judges, politicians – are automatic, robotic agents enforcing the law the way they are supposed to,” said Basu, the C. Marks Professor of International Studies and professor of economics.
In fact, a law doesn’t change the underlying game of life that society is locked in. The only way to affect societal outcomes is to change people’s beliefs about what others may or may not do. Basu writes: “In truth, the most important ingredients of a republic, including its power and might, reside in nothing more than the beliefs and expectations of ordinary people going about their daily lives and quotidian chores. It is in this sense that we are all citizens of the republic of belief.”
This idea forms the basis of his new theory of law and economics, which he calls the focal point approach. The law is like a focal point, he says, a little sign post that helps us coordinate our behavior.
“As soon as a new law is enacted, in societies that have a culture of abiding the law,” he said, “our expectation kicks in of one another’s beliefs and one another’s behaviors and that locks us into a particular kind of behavior.”
He draws on modern game theory to give the approach a concrete shape. For example, game theory can illustrate a way to cut down corruption. In many countries, the person who gives a bribe and the person who takes it are punished equally. Although that may sound like a noble law, Basu reaches a different conclusion, using simple game theory.
The law gives the bribe-taker and the bribe-giver a common interest: the desire to hide the bribe because both of them will be punished for it. But if the punishment is asymmetrical – that is, if only the bribe-taker is fined – then the two parties have no reason to collude and the authorities will have an easier time uncovering the crime. And knowing this, the bribe taker will be more hesitant to take the bribe in the first place.
This approach has reduced prostitution in Scandinavia, where the sex buyer is fined and the sex worker is not. And it has reduced an ancient form of suicide in India, where witnesses to “sati” – a practice in which a widow commits suicide soon after her husband’s death – are not punished but a widow who attempts it is, because to treat witnessing sati a crime would ensure that there will be no witnesses in court.
“These are small, subtle changes that you can make in the law where you are actually treating the enforcer of the law also as a human being with human foibles, human follies,” Basu said. “With this recognized, you begin to make changes in the law, which makes the law much more effective than a well-meaning law that is built on a false precept of human infallibility.”
The first four chapters of the book present the standard model of law and economics, describe the problem and inconsistencies in it, provide a brief introduction to game theory, and then develop the focal point approach. In subsequent chapters, Basu presents some applications of the new approach and analyzes the interface between the law and social norms. The last three chapters illustrate how the focal point approach can be brought to bear on diverse real-life problems, such as the prevalence of corruption, the origins and risks of totalitarianism and the challenge of global governance and order.
“Focused on what goes on in people’s minds, Basu offers an ambitious new account of why people obey the law. A major contribution for theorists and practitioners alike,” said Cass Sunstein, administrator of the White House Office of Information and Regulatory Affairs in the Obama administration.
The book doesn’t provide final answers but ratheroffers an analytical structure, a kind of grammar, with which to analyze laws and understand why they get poorly implemented, Basu said.
“At one level the book is a closure of a certain kind of law and economics,” Basu said. “But it also opens a new window for more research and more avenues for taking these ideas farther forward … for the sake of laws and strategies of implementation that are more effective.”
This story also appeared in the Cornell Chronicle.