Incentive to Enforce

If nobody benefits by enforcing a legal rule, the rule will not be enforced. If someone benefits too much by convicting someone else of violating a legal rule, there is a risk that innocent parties will be prosecuted in the hope of profit. The problem is the same whether the benefit comes as a reward, the collection of tort damages, career advancement for a police officer who gets his man, or favorable publicity for a politically ambitious prosecutor. In modern American criminal law, the problem of too much incentive to convict shows up as the problem of civil forfeiture,[1]  in tort law as the controversy over class actions and punitive damages.

It shows up in other legal systems as well. In England in the mid 18th century, the Crown established large rewards for conviction for offenses for which it was feared that private prosecution was inadequate.[2]  The result was a series of scandals in which a party was either framed for an offense he did not commit or entrapped into committing an offense. Eventually rewards for conviction were replaced by partial compensation for the expenses of a successful prosecution—not enough to make prosecution profitable, merely less costly.

One response to the problem is to design legal rules to make it much harder to convict the innocent than the guilty—ideally impossible to convict the innocent. In theory, that is how the trial mechanism is designed. It is far from clear how well the theory fits the facts; we have no good measure of the rate of false positives, the fraction of defendants convicted of crimes they did not commit. DNA testing has demonstrated that the absolute number of such cases is large but not how large it is relative to the total number of convictions.

One feature of the modern American legal system that affects both the frequency of false convictions and the size of the associated penalties is plea bargaining. An innocent defendant facing a ten percent risk of conviction on a charge likely to lead to a life sentence might find it prudent to plead guilty to a lesser charge, be sentenced to six months in prison, and released for time served awaiting trial. On the other hand, a system that convicts ten innocents on a lesser charge and releases them for time served is arguably better than one that convicts one innocent on a more serious charge and sentences him to life in prison, so even if plea bargaining increases the number of innocent defendants convicted it may reduce the total penalty imposed on them.[3]

Another feature that may well increase the frequency of false convictions is the practice of providing indigent felony defendants with defense attorneys chosen not by the defendant but by the state, the same organization that chose the prosecutor.[4] Moving the argument one level up, it is unclear how one would give the judges and legislators who create the rules in a modern society an incentive to design rules in a way that achieves the purported purpose of separating innocent from guilty. Even if the rules are designed to achieve that objective, it may often be easier to find some innocent person, out of the universe of all potential suspects, who is easier to convict than the actual offender, whether because he is less competent at persuading jurors of his innocence, has a worse lawyer, or is a member of some group that jurors regard as likely to commit crimes.

Shifting our attention from modern America to Imperial China several centuries ago, one striking feature of the cases recorded in Von Gulik () is the number of them in which an innocent defendant confesses under torture, only to be saved by the wise official who somehow recognizes that the confession is false. Clearly the imperial authorities knew that torture was quite likely to result in convicting innocent defendants, and used it anyway.

Putting aside improvements in the accuracy of trial procedures, the problem of incentive to enforce seems to be merely a problem of adjusting the size of the incentive to convict, trading off costs of failure to prosecute on the one hand against costs of abusive prosecution on the other. There are, however, other and more interesting ways of dealing with the problem.

One example is provided by Athenian law. What we would think of as criminal cases could, like criminal cases in 18th c. England, be privately prosecuted by any adult male citizen. Conviction usually led to a large fine; the incentive to prosecute was the share of the fine collected by the successful prosecutor. This had an obvious potential for abuse in a system where conviction was by majority vote of a large jury, with nothing to limit the use of demagoguery by an able prosecutor intent on conviction, preferably of a defendant with deep pockets.To deal with the problem, Athenian law provided that a prosecutor who failed to get at least 20% of the jury to vote for conviction was himself fined.[5]

A different example is provided by criminal law in 18th c. England. Even a successful prosecution of a criminal offense was unprofitable in cash terms, since unlike a tort case a criminal prosecution did not result in a payment to the prosecutor.[6] So why were cases prosecuted? One answer is in order to deter future offenses against the victim/prosecutor, directly if he was a likely victim of repeat offenses, indirectly if he was a member of an association for the prosecution of felons. The incentive was not a money reward but deterrence.

Private deterrence as an incentive has two attractive features. The first is that it bases the reward for prosecution on the social benefit of prosecution. In a perfectly efficient system, offenses are prosecuted only if doing so provides net social benefits, with resources spent on prosecution up to the point where the marginal benefit equals the marginal cost. A modern criminal system, where prosecution is by professionals employed by the state, achieves that objective only to the extent that the political incentives of those employing and rewarding police and prosecutors are aligned with social benefit—or in other words, that the state can be modeled as a philosopher king. And even if the incentives of the employers are correct, there remains the agency problem of controlling the employees. If prosecution is instead controlled and paid for by a private party in order to deter offenses against himself, and if matters can be arranged to make deterrence entirely a private good, the problem of generating efficient actions is solved by self-interest in the usual fashion of other market goods and services.

Obviously there are many slips between this particular cup and lip. Offenders are not perfectly informed with regard as to which potential victims are committed to prosecute felonies aginast them, making deterrence in part a public good; my successful prosecution of felonies against me may deter felonies against you. On the other hand, my private deterrence may deter an offender out of stealing from me and into stealing from you, a negative externality. And if my private prosecution results in a felon being hanged or transported, his incapacitation benefits other potential victims, another positive externality.

Private deterrence, considered as an incentive for prosection, has another and less ambiguous advantage. Convicting a suspect of a felony against me deters other potential felons only to the extent that they  believe he was guilty. Under a reward system, catching the first feeble minded beggar to wander past my shop and railroading him to the gallows gets me the same reward as hunting down the actual perpetrator. But while doing so may deter feebleminded beggars from my neighborhood it will not deter potential felons from robbing me. If, as seems likely, potential felons know each other and so are reasonably well informed as to the guilt or innocence of convicted suspects, private deterrence provides a reward which depends on convicting the right person. To that extent it is superior to incentive mechanisms that depend only on conviction.

These examples suggest two different approaches to improving on the simple mechanism of reward based on conviction. One is to penalize abusive prosecution, the other to base the reward on something that correlates with guilt more closely  than does conviction.

The Athenian approach could be applied to a modern legal system directly by penalizing a tort plaintiff or public prosecutor who failed to get more than some minimum number of jurors to vote for conviction. Alternatively, or in addition, one might impose a penalty on prosecutors responsible for convictions later shown to be mistaken, as in the case of DNA reversals. The problem with that approach is that although it provides an incentive for prosecutors not to convict the innocent, it also provides an incentive for prosecutors who suspect they have convicted an innocent defendant to make strenuous efforts to prevent the error from being discovered.

Feud

Someone who believes that he has been injured and is considering a demand for compensation backed by a threat of force has two incentives for making it—compensation if the other party gives in to the threat, deterrence of others who might injure him whether or not the other party gives in. He has one incentive not to—the cost of the violent conflict that may result, including both the immediate clash if he tries to carry out his threat and any subsequent conflicts if the other party retaliates. The clearer it is that he is in the right and the other in the wrong, as judged by potential allies of both, the more likely the other is to give in to his demand and the lower the expected costs of conflict. How likely a pure feud systrem is to “convict” the right people thus depends on how accurately others in the community can judge guilt. In the case of a feud system with a court, along Icelandic lines, it also depends on how reliably the court process can distinguish guilt from innocence.

 

The same considerations come in on the benefit side of your calculation as well. Starting a feud only provides deterrence against future wrongs if those who might commit them believe that your action is justified, that you really have been wronged, hence that your response is evidence that it would be prudent for them not to wrong you in the future. The less clear the evidence for your position is, the less the benefit you get from demanding compensation or, if it is not forthcoming, carrying out the threatened violence. If, in the view of your neighbors, your action is  entirely unjustified, hence evidence not that it is risky to wrong you but that it is risky to have anything to do with you, the benefit of deterrence turns into a reputational cost.

Reputational Enforcement

Criminal law punishes offenders in order to deter offenses, and rewards those who impose the punishment for doing so. Tort law, while often seen as existing to compensate victims, can be viewed as a privately prosecuted equivalent to criminal law, with tort damages providing the reward for successful prosecution.[7] Privately prosecuted criminal law with a reward for successful prosecution, as in the Athenian Legal system, provides a third variant on the same basic approach.

In the previous chapter I discussed an entirely different approach to enforcing rules, reputational enforcement, where the “punishment” is a side effect of efforts by individuals to protect themselves by not dealing with parties that they believe cannot be trusted. How does that effect the risk that they will get it wrong, punish the innocent or fail to punish the guilty? Those who impose the “punishment” benefit themselves if the “defendant” is guilty, since they are protected from dealing with a party who cannot be trusted. They injure themselves if he is innocent, since they are mistakenly giving up opportunities for potentially beneficial transactions. Hence they have some incentive to distinguish innocent from guilty and, unlike prosecutors who will be rewarded for a conviction, no incentive to convict the innocent. But while there is no benefit to convicting the innocent, there is in most cases only a small cost—there are usually lots of other department stores and diamond merchants to deal with. Hence the third parties whose acts provide contract enforcement have only a weak incentive to avoid convicting the innocent.

For reasons discussed in the previous chapter, how serious this problem is will depend on how easily third parties can determine who is at fault in a dispute. If there is a significant cost to doing so and only a small benefit, they may instead assign some probability of guilt to the offender, some to the complaining victim, and avoid dealing with both—in which case complaining becomes a losing strategy and reputational enforcement breaks down.

Ostracism

Identifying rules violators by some formal or informal mechanism and punishing them by ostracism has one attractive feature in common with reputational enforcement; the punishment is costly for those who impose it as well as the one it is imposed on,[8] giving the former some incentive to get it right. On the other hand, it is easy to imagine circumstances where one member of a community can benefit by expelling another, perhaps a rival in love or communal politics. If the former is influential or very persuasive and the latter unpopular, there is an incentive for, and risk of, false conviction.

Divine Enforcement

One additional mechanism for enforcing legal rules is worth mentioning—divine intervention. If potential offenders believe in the existence of a supernatural power that punishes those who violate divine law, they have an incentive not to do so. The potential offender has inside information, not about divine will but about his own actions. Hence religion provides a potentially perfect mechanism for punishing the guilty and only the guilty, provided the religion is true and the divinity omniscient. Perhaps more important, as long as potential offenders believe in the religion, it provides a mechanism for making them believe that if they are guilty they will be punished. Thus a traditional gypsy has an incentive to avoid polluton even if he is sure nobody is watching, and similarly, mutatis mutandis, for a Jew or Muslim.

Arguably this approach as well, at least if implemented without the assistance of an actual divinity, has the potential for overenforcement.  Religious law must be interpreted by someone. If the interpretation is by the individual believer, he may refrain from actions that ought not to be deterred in the mistaken belief that they are sinful. If interpretation is by others, they may use the threat of divine punishment to serve their own mundane objectives.

If God is the judge, He is also the legislator. If the divinity in question is real, omniscient, and benevolent, that should not be a problem. But a divinity who exists only in the imagination of believers may use his power to enforce laws that ought not to be enforced, or fail to enforce ones that ought to be enforced.[9]

References

Bernstein, Lisa, "Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry," 21 Journal of Legal Studies, 1992, pp.115-157.

Friedman, David, Law’s Order: What Economics Has to do With Law and Why it Matters. Princeton University Press 2000.

"Rethinking Indigent Defense: Promoting Effective Representation Through Consumer Sovereignty and Freedom of Choice for All Criminal Defendants" with Stephen J. Schulhofer. American Criminal Law Review, Vol 31 nbr 1 (Fall 1993), pp. 73-122.

"Why Not Hang Them All: The Virtues of Inefficient Punishment," Journal of Political Economy, vol. 107, no. 6 (1999) pp. S259-269.



[1] Reference to work on civil forfeiture by Bruce Benson. The problem may also appear in high profile cases where the prosecutor needs a conviction to further his political ambitions.

[2] See Friedman ().

[3] For further arguments on the effect of plea bargaining, in particular its ability to let the prosecution focus its resources on those defendants who refuse to accept a proferred bargain, see Friedman ( ) pp.   . The result might be to either reduce or increase the chance that innocent defendants will be convicted, depending on the incentives of the prosecution.

[4] For a discussion of that problem and a proposal for reducing it, see Friedman and Schulhofer, …  .

[5] There was also a procedure by which three cases a year could be initiated for XXX, abusive prosecution, but the details of how it worked are obscure.

[6] With the exception, as noted in Chapter XXX, of a brief period in mid-century when the crown offered rewards for successful prosecution of a subset of felonies.

[7] For a much more extensive discussion of this point, of differences between the two approaches, and of whether there is a good reason why modern systems use both in the way they do, see Friedman (2000), chapter 18, webbed at: http://www.daviddfriedman.com/Laws_Order_draft/laws_order_ch_18.htm.

[8] For a discussion of this point in the context not of enforcement mechanisms but of alternative forms of punishment, see Friedman (1999).

[9] For ways of dealing with this problem, working around the fixed points of divine law, see chapter XXX (Jewish law).