Enforcing
Rules
To
the modern ear, “law enforcement” implies police, but police are
only one of several mechanisms for enforcing legal rules. If someone
breaks your arm you call a cop; if he breaks your window you are more
likely to call a lawyer. Criminal law and tort law are mildly
different mechanisms for doing the same work. Someone does something
bad to someone, the legal system is called in, something bad happens
to him, and that is a reason not to do bad things to people. In one
case the offender is found and prosecuted by government employees,
police and public prosecutors, in the other by private actors, the
victim and his agents, but the basic logic is in both cases the same.
Sometimes either or both approaches can be used; O.J. Simpson was
first acquitted of the crime of killing his wife and then convicted
of the tort of killing his wife.
Lots and Lots of Ways of Doing it
Since we
are looking at the legal systems of a wide variety of societies, I
will spend this chapter listing all the enforcement mechanisms I know
of and considering the problems with each. As you will see, it is
sometimes hard to draw sharp lines between them. As a first cut at
classification it is useful to think of the task to be done as having
three parts, corresponding, in the criminal case, to the jobs done
by:
- police and public prosecutors—finding the offender and
proving his guilt
- judge and jury—deciding guilt
- police, prisons, etc.—enforcing the punishment.
Under
criminal law, all three jobs are done by professionals employed by a
government to do them. Tort law is criminal law with one change—the
police and public prosecutors are replaced by the victim and his
agents. It is their job to figure out who committed the tort, gather
evidence, and convince the court. The police and public prosecutors
are professionals who do it because that is the job they are hired to
do. The tort victim does it in order to collect damages; what the
tortfeasor pays as penalty the successful victim receives as a
reward. The victim may also have the additional incentive of private
deterrence, establishing the reputation of a bad person to commit
torts against, as discussed in Chapter IX.
Privately
prosecuted criminal law is intermediate between the first two.
Prosecution is by a private party who need not be the victim; in both
the English and Athenian cases, any adult male citizen could
prosecute any crime. In Athens the immediate incentive was a reward,
a share of the fine that the criminal defendant paid if convicted.
Prosecution could also be motivated by personal hostility or
political rivalry.
In England, during most of the 18th century, there was no reward for
a successful prosecution. The incentives were private deterrence and
the possibility of extorting an out of court settlement from a
defendant who, if convicted, was at risk of being hanged or
transported.
All three
of these approaches to enforcement—criminal, tort, and privately
prosecuted criminal—are broadly similar in their approach. Someone
violates a rule, someone—police officer, tort victim, or private
prosecutor—convinces a court that a rule has been violated and
shows by whom, the court delivers a verdict and the state enforces
it.
For a
very different approach to achieving the same objective consider a
private system such as that of the Rominchal. Jerry violates a rule,
harming Larry. Larry threatens Jerry with violence if he does not
compensate Larry for the harm. The three jobs of criminal law are all
done by the victim. He is, simultaneously, policeman, prosecutor,
judge, jury, and executioner.
At first
glance, such a feud system sounds more likely to produce bloodshed
than law enforcement, but in practice that need not be the case.
Jerry's ability to use force against Larry is limited by the
existence of Cary, Gary, Harry, … potential allies of both
parties. If they believe that Larry''s demand is unreasonable and
Jerry justified in refusing it, they will be unwilling to support
Larry and likely to support Jerry, making the attempt by Larry to
carry out his threat hazardous in the extreme. Thus a feud system can
successfully enforce a set of rules understood and accepted by the
participants. Enforcement depends on the threat of violence, but that
is true of other mechanisms for enforcing law as well. The
difference is that violence by one private party against another is
constrained by the symmetry of the situation; unlike the state, the
initiator of a feud does not have access to enormously greater
resources than the defendant.
Saga
period Iceland had a legal system intermediate between tort and feud.
As in our first three cases, there was an explicit body of law and a
system of courts to judge whether it had been violated and, if so,
with what legal consequences. But the final step of enforcing the
verdict was done privately by the tort victim and his allies. If the
defendant lost his case and refused to pay the resulting fine, the
plaintiff could have him outlawed and, if he failed to leave Iceland
in the next two weeks, be free to hunt him down and kill him. And a
victim who chose not to go to court had the option of demanding
compensation from the offender as in a feud system and, if it was not
forthcoming, using violence against him—at the risk of provoking
retaliation in the form of either return violence or a law suit.
All of
the ways of enforcing law that I have so far described depend on
force or the threat of force. For a very different mechanism, imagine
that you have bought a jacket from a department store that
guarantees to refund your money if you are not satisfied with what
you bought. If, when you discover that the jacket you bought is the
wrong size and your wife points out that purple is not really your
color, the store refuses to give you a refund, you are unlikely to
sue them—the amount at stake is not enough to make it worth the
time and trouble. Nonetheless, almost all stores in that situation
will, at least in my experience, take the product back—because they
want the reputation, with you and with others, of living up to their
promises.
A more elaborate example of the same
approach is provided by the New York diamond industry as described in
a classic article by Lisa Bernstein.
At one point, somewhat before the time she studied it, the industry
had been mostly in the hands of orthodox Jews, forbidden by their
religious beliefs from suing each other. They settled disputes
instead by a system of trusted arbitrators and reputational
sanctions. If one party to a dispute refused to accept the
arbitrator’s verdict the information would be rapidly spread
through the community, with the result that he would no longer be
able to function in that industry. The system of reputational
enforcement survived after membership in the industry became more
diverse, with organizations such as the New York Diamond Dealer’s
Club providing both trusted arbitration and information spreading.
The
reason the department store or diamond merchant is concerned about
his reputation is not fear of being disliked but of losing business.
The reason your friend will shop at another store if you tell him
that this one refused to take your jacket back is not that he wishes
to punish the store for cheating you but that he does not himself
want to be cheated. Reputational enforcement works by spreading true
information about bad behavior, information that makes it in the
interest of some who receive it to modify their actions in a way
which imposes costs on the person who has behaved badly. Deterrence
is not anyone’s objective, merely a side effect of interested third
parties acting in their own interest.
Next
consider the same sort of enforcement, this time used as a deliberate
punishment.
A community finds one of its members guilty of violating its rules
and pronounces a sentence of ostracism—in the context of the Vlach
Rom described in Chapter I, a sentence of marimé imposed by a kris
romani. Other members of the community refuse to associate with the
convicted defendant. If, as in the case of a gypsy community,
ostracism imposes very large costs on its target the threat provides
a reason not to violate the rules of the community.
There is,
however, a problem with this enforcement mechanism. The reason not to
associate with the convicted defendant is in order to enforce the
rules of the community. That is what economists call a public good;
an individual who goes along with it bears all of the cost of giving
up any mutually profitable dealing he might otherwise have with the
defendant, while the benefit is shared with all members of the
community. That makes it unlikely that an individual's share of the
benefit will be larger than his cost.
One
solution is the following rule:
You
shall not associate with anyone who has violated a communal
rule—including this one.
To see
how this works, start at a time when everyone accepts and follows all
of the communal rules. Jerry violates one of them and is sentenced to
ostracism. A second member of the community, Larry, has to decide
whether to help enforce the sentence by refusing to deal with him.
The cost/benefit calculation described above suggests that doing so
is probably not in Larry's interest, but there is now an additional
cost to be considered—continuing to associate with Jerry will
itself be a rules violation and will subject Larry in turn to
ostracism. That cost makes in in Larry's interest to refuse to deal
with Jerry. The members of the community (no longer including Jerry)
are in what is described in game theory as a Nash equilibrium; each
of them is following the best strategy for himself (refusing to
associate with rules violators), given how the others are acting.
Rewind our film a little to before Larry violated our rule and the
whole community, Larry now included, is in a Nash equilibrium; given
how everyone else is acting, it is in Larry's interest not to violate
communal rules, and the same is true for all the others.
So far I
have assumed a setting with a formal mechanism for imposing
ostracism. Informal norm enforcement is a more familiar version of
the same logic. There is no legal rule that forbids me from teaching
classes stripped to the waist, but doing so would be imprudent. Many
of my colleagues would conclude that I was not the sort of person
they wished to associate with—in part because if they continued
associating with me, their colleagues might reach a similar
conclusion about them.
The Nash
equilibrium provides one way in which ostracism can be a workable
mechanism for enforcing rules. Before offering a second solution to
the public good problem, I need to introduce one other approach to
rules enforcement: Divine.
Consider
an orthodox Jew who keeps kosher even when he is sure nobody is
watching, or a Muslim convert who suppresses his remembered taste for
pork. Either can be seen as an example of rule enforcement by the
threat of divine sanctions, whether a stroke of lightning or refusal
of entry to heaven. Alternatively, either can be seen as obedience
to a command not from fear of punishment but because obedience is
seen as right, what one ought to do. There is a whole continuum of
variants, with the believer in fear of divine punishment at one end,
Mencken's atheist brought up to believe that gentlemen do not cheat
at cards
at the other; for simplicity I lump all of it into the category of
divine enforcement, even though some examples depend on neither the
existence of a divinity nor the threat of punishment. What they have
in common is that they depend on either immaterial costs, such as
guilt from behaving as you believe you ought not to, or the belief in
material costs, such as being struck by lightening, due to
supernatural causes.
Divine
enforcement provides not only an independent mechanism for rules
enforcement but also a way of facilitating other mechanisms. The
point of swearing to tell the truth, the whole truth, and nothing but
the truth, so help me God, is that the oath makes it more likely that
you will actually do it, for fear of divine punishment or out of
belief in your obligation to act as God wishes. The reason to allow
the defendant in a suit under Jewish law to “swear and be quit,”
defeating the suit (Chapter III), or the plaintiff, in a case where
the evidence is stronger, to “swear and take,” is that plaintiff
and defendant, as believing Jews, will be very reluctant to swear
falsely. Both the criminal and civil mechanisms for rules enforcement
depend on a court being able to judge guilt or innocence, doing that
is easier if the court is provided with a lie detector, and the
practice of swearing oaths by believers reluctant to swear falsely
for fear of divine punishment provides one.
Divine
intervention can also substitute completely for a court trial. If God
supports the right, trial by combat or ordeal vindicates the innocent
and convicts the guilty. Even if divine intervention is only
mythical,, the belief in it gives an advantage to the party who knows
he is innocent over the party who knows he is guilty.
Divine
enforcement could also provide another solution to the public good
problem faced by enforcement via the threat of ostracism. One feature
of marimé, from the point of view of a traditional gypsy, is that it
is contagious. Another is that being polluted is not merely a
violation of communal norms, it also has serious real world effects,
bad luck and related risks. That provides members of the community a
reason not to associate with a fellow gypsy under sentence of marimé
for failing to conform to the verdict of a kris Romane.
For
another example of the same pattern, consider the mechanism by which
the Cheyenne indians capped the level of physical violence by one
Cheyenne to another.
Fighting, even quite violent fighting, was allowable. But a Cheyenne
who killed another member of the tribe, for whatever reason, was
banished from the tribe—not because he had been wicked but because
he now smelled of death, and the smell, and its consequences in ill
fortune, were contagious. After a period of years he could petition
for readmission, and the petition might be granted, especially if the
circumstances of the killing made it appear excusable.
But for the rest of his life, nobody else would drink from his bowl
or share his pipe, because they, and he, still smelled of death, even
if time had diluted the effect enough to make his presence in the
tribe again tolerable.
And
What is Wrong With Each of Them
All of
these methods for enforcing rules have been used by real world
societies; they all work. Sometimes—all have also, at various times
and places, failed to work or worked very imperfectly. Why? What are
the problems with each of the alternative approaches? I start with
criminal law.
Crime
In an
ideal system of criminal law enforcement, everyone involved in the
project, from prison guards and police officers up to the politicians
ultimately responsible for selecting and controlling everyone else,
will act in the general interest of the population they serve, doing
their best to convict the guilty and acquit the innocent while
minimizing unnecessary costs of the legal process.
That is a
desirable outcome, but a hard one to achieve. Politicians, like the
rest of us, are more interested in serving their own objectives than
those of other people. If, in a high profile case, the real criminal
can not be found, there may be much to be said for finding someone
else who can be convicted; what the voters don't know won't hurt
them. If campaign contributions are needed, organized groups of
government employees, such as cops and prison guards, are one place
to get them, which gives the politician an incentive to follow the
policies those those interest groups support. In California, the
prison guard union routinely, and often successfully, lobbies
against policies that would reduce the number of prisoners and thus
the demand for their services.
Some
costs of enforcing criminal law are paid by the law enforcement
agency that incurs them, giving it an incentive to hold them
down.Other costs are imposed on other people without compensation and
so may, whenever those people have insufficient political influence
to make their complaints matter, safely be ignored. Criminal law in
imperial China provides multiple examples. Torturing a witness or an
innocent defendant imposes a cost on him but not on those who impose
the torture, so there is little reason for them to take account of
that cost in deciding when to employ torture and when to refrain from
doing so.
The same
logic applies in modern systems. Holding a suspect in jail imposes a
cost on him. Shutting up a restaurant where a crime has occurred
until all relevant evidence has been collected imposes a cost on the
restaurant owner and his customers and employees. Seizing computers
containing all the copies of important information—the only draft
of a book or a doctoral thesis, say (real cases)—and
holding them until the police are certain that they no longer
contains evidence of interest to them, imposes costs, possibly very
large costs, on the computers' owner, but costs nothing to the
police. Not only do they have the option of ignoring costs they
impose on others, they have the option of deliberately imposing such
costs as a way of punishing people whose legal behavior they
disapprove of. If the police smash down my door, shoot my dog, scare
my children half to death, and only them discover that they have come
to the wrong address, they have no obligation to compensate me for
the damage they have done, hence little reason to take extra care to
avoid such costly (to me, not them) errors.
Focussing
less on police and more on the whole system, it is far from clear how
to make it take account of one of the most serious costs it imposes
on other people, the cost to defendants who end up convicted of and
punished for crimes they did not commit. For a discussion of that
problem, in the context of criminal law and alternative enforcement
systems, see the next chapter.
A
different sort of incentive problem was pointed out in an old article
by George Stigler and Gary Becker.
Imagine that I am a cop, you are a criminal, and I have the goods on
you, the evidence that will get you convicted. The punishment that
will result is, from your standpoint, equivalent to a hundred
thousand dollar fine. If I bring in you and the evidence, I will be
rewarded with a gold star on my report card, an improvement in my
reputation with my employer that will result in a twenty thousand
dollar increase in my lifetime income.
From the
standpoint of Dragnet, the rest of the story is obvious: I turn the
evidence over to the D.A., you are arrested, tried and convicted.
From the standpoint of economics, the rest of the story is also
obvious. I have something that is worth twenty thousand dollars to me
and a hundred thousand dollars to you. Resources move to their
highest valued use; you pay me fifty thousand dollars, I give you the
evidence, you burn it. In order for the criminal model of law
enforcement to work, something has to prevent this obvious and
mutually profitable transaction, which means that we need a second
cop watching me, which may substantially raise the cost of law
enforcement and may or may not entirely eliminate the problem.
Becker
and Stigler proposed a solution the problem they described; stop
paying salaries to police officers and instead compensate them with a
reward equal to the penalty paid by those they convict. Now the only
bribe I will accept is one of at least a hundred thousand dollars, in
which case you have paid your fine and I have received my pay. We
have simply cut out the middleman.
Richard
Posner and William Landes responded to Becker and Stigler with an
article of their own,
pointing out a number of problems with the proposal, among them the
problem of allocating the right to catch a criminal; I would not want
to spend lots of time and effort collecting the evidence only to have
a competitor arrest the criminal first and collect the fine. One
simple solution is to give the right to the victim and let him sell
it to whomever offers him the highest price. Work through a few
organizational details and we have privatized law enforcement,
replacing police departments with firms that buy offenses from the
victims, catch and convict offenders, and support themselves on the
resulting fines.
Becker
and Stigler had, without realizing it, reinvented tort law, although
not in precisely the current form. The victim of a tort owns the
right to collect the fine—called a damage payment—paid by the
convicted tortfeasor. He can transfer part of that right to a private
enforcement agency—we call it a law firm—that is willing to take
the case on a contingency basis. If the law firm convicts the
defendant some of what he pays goes to the firm to pay for its
efforts, some to the victim as the price at which he has sold his
claim. Which brings us to our next topic.
Tort
Tort law,
as the arguments of Becker and Stigler suggest, in part privatizes
the job of enforcing legal rules; by doing so it solves some, but not
all, of the problems raised by criminal law. A tort plaintiff can
impose some costs on the defendant without compensation, such as the
cost of paying for a lawyer to defend against the suit or of
responding to a discovery demand, but, not being protected by the
principle of sovereign immunity, he is less able to do so than a
police department. The lawyer representing the plaintiff might, like
the corrupt policeman, sell out to the other side, but there is
already someone in whose interest it is to prevent that from
happening—the plaintiff. Many of the arguments that suggest that a
competitive private market usually does a better job of producing
goods and services than a government monopoly apply here, where the
service being produced is that of detecting and proving violations of
legal rules. We do not usually think of government enforcement of
criminal law as a form of socialism but, economically speaking, that
is what it is—government ownership and control of the means of
production—and the usual arguments for the inefficiency of
socialism apply.
Tort law
brings with it, however, a new set of problems. Consider first tort
law as it now exists, in which the damage payment owed by the
convicted tortfeasor is “enough to make his victim whole,”to
compensate him for the damage that the tort did to him. The damage
payment is both the penalty to the convicted tortfeasor and the
reward to the plaintiff and his lawyer for convicting him, and there
is no good reason to expect it to be the proper sum for either
purpose.
Consider,
for instance, a tort which is difficult to detect and prove, with the
result that half the tortfeasors escape unpunished. The damage done
is (say) ten thousand dollars, so that is what convicted tortfeasors
pay, making the average penalty five thousand. If deliberately
committing the tort benefits me or precautions to prevent it cost me
more than five thousand dollars,
I am better off committing the tort and (sometimes) paying for it,
even though what saves me (say) six thousand dollars is costing you
ten, and so on net makes us worse off. So some torts that should be
deterred will not be.
The
problem is worse than that, because we must consider the incentives
of the victim as well as those of the potential tortfeasor. If
spending six thousand dollars on a law suit buys me only a fifty
percent chance of collecting a ten thousand dollar damage payment,
suing you makes me poorer, not richer, so I don't. And if I am not
going to sue you, the penalty you pay for committing a tort is not
five thousand dollars but zero.
One solution to this problem might be a probability
multiplier for damage
awards. If damage done is ten thousand but the probability of
successful suit is only fifty percent, set the award at twenty
thousand. Now the average punishment is equal to the damage done,
giving potential tortfeasors an incentive to prevent any tort whose
prevention costs less than the damage done by not preventing it. Some
scholars, including Landes and Posner, have suggested that punitive
damages, damage awards greater than damage done, serve just that
purpose.
While
this might be an attractive solution in some cases, it too has
problems. For one thing, the damage award is limited to what the
tortfeasor can pay; in the case of a serious offense with only a low
probability of successful prosecution, that may be less, perhaps much
less, than the damage done scaled up to allow for the low probability
of conviction.
A second
problem is that a probability multiplier may make it profitable to
create fictitious torts. Late at night, as your car comes around the
bend, I shove mine into the road and hastily stand back. When the
dust has cleared and you have gotten free of the wreckage—I
considerately staged my fake accident on a slow road, so that you
would survive to be sued—I commence a legal action, claiming five
times the value of my car on the grounds that it was only by great
good luck that you did not succeed in escaping after smashing my car
and that four friends of mine just happened to be lurking in the
underbrush to witness the accident and testify against you. In order
to frame you I had to create a real accident, so it was made
profitable only by the existence of a probability multiplier.
So far, I
have assumed that the tort victim only sues in order to collect
damages, hence will not sue if damages come to less than the cost of
suit. If that were always the case, then privately prosecuted
criminal law without rewards, the criminal law of England through
most of the 18th century, could not have worked, since there was no
damage payment to compensate for even modest costs of prosecution.
Yet that system, described in Chapter IX, existed and functioned.
Part of
the explanation was that plaintiff and defendant together could
convert a criminal punishment, such as hanging, into a tort
punishment by a covert out of court settlement. Another part is that
potential victims could precommit to prosecute and inform potential
felons of that commitment, making deterrence a private good, hence
one the potential victims were willing to pay for.
Another
assumption I have been making is that the tort victim has sufficient
resources to prosecute if he chooses to. That may not always be the
case. If we shift the story from 21st century American to tenth
century Iceland, the man whose brother has been killed be old, weak,
and with no remaining relatives willing to help him press his suit
against offenders perfectly willing, if they can get away with it, to
beat him up when he tries to go through the legal procedures required
for a law suit.
The
Icelanders had a simple solution to that problem; tort claims were
transferable. I may not have the resources to press my claim, but one
of my neighbors, a wealthy farmer with four strong sons who went
a-viking in their youth and lots of relatives and allies, does.
Successfully pressing the claim results in collecting several hundred
ounces of silver as wergeld, tort damages for the killing. I transfer
my claim to my neighbor, he prosecutes it successfully, keeps
whatever share of the profits we have agreed to and gives me the
rest.
The same
solution could be applied in a modern context. A tort victim in our
legal system has the option of finding a lawyer willing to take the
case on a contingency basis, but he has no way of knowing which
lawyer will do a good job of winning a hefty award and which will
sell him out for a concealed side payment from the other side. If
tort claims were transferrable, he could sell his to the highest
bidder, at which point he no longer cares how well it is prosecuted.
Transferable
tort claims could solve another problem in our system as well.
Consider a tort that does a small amount of damage to each of a large
number of victims, small enough so that no individual victim or small
group will find it worth the trouble of suing. The current solution
is a class action; an enterprising lawyer gets himself named as
attorney for the class of all victims, sues on their behalf, and
collects damages or accepts an out of court settlement. One problem
with that solution is that there is nothing much to keep the attorney
from acting in his own interest instead of that of his imaginary
clients, settling on terms that give him a substantial sum in real
cash and them compensation in the form of discounts on their
hypothetical future dealings with the defendant.
Transferable
claims make possible a better solution. The lawyer purchases a large
number of small claims, perhaps with the assistance of middlemen,
then sues on his own behalf as their owner.
In this respect, at least, our legal system is a mere eleven hundred
years behind the cutting edge of legal technology.
Feud
So far I
have explored problems with the two legal mechanisms central to
modern legal systems, hence the two most familiar to my readers,
especially any of them who happen to be lawyers. The third distinct
system, feud, is less familiar; inasmuch as moderns have opinions on
it they are highly colored and almost entirely negative. Yet it too
is a system that can function and has functioned for enforcing legal
rules. What problems limit its ability to do so?
One is
that it depends, to a considerable extent, on the availability of
commitment mechanisms. The benefit of it being known that if I am
injured I will revenge myself, whatever the cost, may be very great,
since it sharply reduces the risk both of being injured and of having
to bear the costs of revenge. But after I have suffered a serious
injury from a formidable opponent, the cost of revenging myself,
assuming he refuses to offer adequate compensation, may be more than
the benefit is worth—better to be a live wimp than a dead hero. The
solution, as in the parallel case with private prosecution of
criminal law, is to find some way of committing myself in advance. In
18th century England it was done by prepayment to a prosecution
association. In a less developed society, it depends more on some
combination of social norms and internal incentives.
Seen from
this standpoint, the human trait of vengefulness is not an irrational
passion but a hardwired commitment strategy,
a psychological pattern whose result appears irrational after the
fact, when I have to do my best to hunt down the killer of my kinsman
at considerable risk to myself, but rational ex ante, when
the knowledge that I will hunt down anyone who kills my kin is one
reason my kin do not get killed, and the knowledge that they will
hunt down anyone who kills me one reason I don't.
Part of
the modern hostility to feud is the belief that its violence is
unbounded in both time and magnitude, with a minor conflict
generating seas of blood for a century or more. Part of the basis for
this view, at least among Americans, is the legendary Hatfield/McCoy
feud—legendary not only because it is famous but also because it is
mostly fictional. In the appendix to this chapter, I sketch the real
history. The parts that fit the feud stereotype of revenge killing
total one exchange in which three members of one family killed one
member of the other and were themselves killed in revenge, and a
second, five years later, in which a renewal of the conflict set off
by the intervention of the governor of Kentucky resulted in one death
on one side, revenged by two on the other. The rest of the famous
feud exists in movies and newspaper stories but not in the work of
careful historians, illustrating my rule of thumb for evaluating
historical accounts: View with suspicion any anecdote that makes a
good enough story to have survived on its literary merits.
Moderns
are less familiar with the much more extensive record from societies
such as saga period Iceland. A careless reading of the sagas makes
it sound like a violent society, until you notice that two successive
chapters, recounting two violent clashes, are separated by enough
time for a character not yet born at the time of the first to
participate in the second as an adult. A more careful examination
suggests that most feuds terminated either at the first round, when
the offender agreed to pay the penalty set by court or arbitrator,
or at the second, after the victim of the first clash had reversed
roles for the second. Only a few continued beyond that for multiple
exchanges—and so, with the boring sections removed, provided the
material for sagas.
If I
honestly believe that the compensation you are offering me for the
damage you and your allies did to me is absurdly low while you regard
it as generous, we may have a hard time finding any settlement that
does not make at least one of us feel as though he has abandoned his
own commitment strategy, making him fair game for any future
aggressor. So a well functioning feud system may require, in addition
to mechanisms for commitment, enough commonality among the
participants to make it possible for the two sides to agree on
settlements, whether negotiated between them or arranged by a third
party arbitrator. An alternative may be a mechanism whose authority
is commonly recognized, such as the Icelandic court system. Even if I
believe that what the court awarded me was unreasonably little I can
still accept it without signaling my unwillingness to defend my
rights against future aggressors, since they will have no reason to
expect the court in the cases spawned by future clashes to err in
their favor.
Reputation
Reputational
enforcement works well for parties engaged in repeat voluntary
transactions; once you have obtained a reputation forfailing to
fulfill your contractual obligations, other people become unwilling
to deal with you. Anticipating that, you fulfill your obligations. It
does not work for a one time transaction, a con-man who intends to
cheat his victim out of a fortune and then retire. Nor does it work
for involuntary transactions; a mugger does not require the consent
of his victims. And even in the case of repeat voluntary
transactions, there is a risk of end game betrayal, the trader who,
having built up a reputation for trustworthyness by twenty years of
honest dealing, spends the final year before his planned but
unannounced retirement borrowing money he has no intention of paying
back and taking payment for orders he does not plan to fill.
These
problems may be ameliorated in several ways. Even if I am only an
occasional participant in any particular market, I routinely engage
in other transactions, social, economic, political. If I sell you a
car which I know, and you do not know, is about to fall apart, I suffer
a reputational penalty even if I never plan to sell another
car. The fact that I cheated you over a car will be seen as evidence
of bad character, implying that I am likely to mistreat other people
in other ways. One way of making sense of our moral judgements is
that we put two different acts into the same moral category precisely
because we believe that the willingness to do one correlates
positively with the willingness to do the other.
Once enough people have heard your story and inspected your car, I
will find landlords unwilling to rent me a room, employers reluctant
to hire me, fathers refusing to allow me to date their daughters.
Mugging
is an involuntary transactions, but even muggers depend on voluntary
transactions for much that they value. In a society where people know
each other well enough for reputational enforcement to work well, the
mugger, even if he has never been convicted, even if his society has
no courts to convict him in, may find that his reputation costs him
in that part of his life that does not consist of mugging people.
The
argument can be expanded beyond the loss of trading opportunities.
Humans are social animals; most of us want to be liked, want to be
admired, want to be seen as high status. Being viewed as someone who
cannot be trusted costs in all those dimensions, which may be a
reason, even for someone planning no repeat transactions that depend
on trust, to choose to be trustworthy. Human beings reveal their
feelings, values, thoughts in facial expressions, voice tones,
gestures. That makes it difficult, although not necessarily
impossible, to maintain the reputation of being an honest,
trustworthy, generous person while awaiting a good opportunity to
swindle all and sundry. Good con men exist, but they are rare.
Reputational enforcement becomes a little harder in the case of
firms, which have no faces to show expressions and which can discard
a bad reputation by filing a new set of incorporation papers under a
new name.
There is
a further problem with reputational enforcement, one which becomes
more serious the larger the society. When you cheat me by failing to
fulfill your side of a contract and I complain, you respond by
explaining to any who ask that you only pulled out of the contract
because I had failed to fulfill my side of the bargain. An interested
third party with ne easy way to tell which of us is lying may
conclude that it would be prudent not to trust either of us.
Anticipating that response I conclude that public complaint about
your default will only make a bad situation worse—better to take
my losses and keep my mouth shut. This raises a serious problem of
incentive compatibility for a system which depends on action taken,
not by government employees hired to enforce the law, but by private
individuals acting in their own self interest.
So one
requirement for reputational enforcement to work is that the
information cost to interested third parties of figuring out who was
at fault be low enough to make it worth their while to do so. One way
of fulfilling this condition has already been mentioned—employ
reputational enforcement in a small society where everyone knows
everyone else and has a pretty good idea whose account can or cannot
be trusted. Another way is the use of arbitration, ideally
prearranged. If you and I have publicly agreed in advance that any
dispute in our gemstone dealings will be settled by the New York
Diamond Dealers' Association, or by the local rabbi, all a third
party has to know is the arbitrator's verdict, which takes a lot
less effort than investigating the details of the controversy
himself.
A third
way is demonstrated by the dealings of Chinese merchants on Taiwan,
in an environment almost entirely without contract law hence largely
dependent on reputational enforcement, as described in Chapter XIV.
Structure your contracts in ways that make it as easy as possible,
when there is a disagreement, for third parties to tell who was at
fault. If my goods are being stored in your warehouse and I complain
that you have let them be damaged, or that some of them are missing,
it will be hard for a third party to judge the dispute, so follow the
simple rule that ownership goes with physical possession. Make a
buyer responsible for inspecting goods before he accepts them and
forbidding him, save in the most extreme cases, from demanding
compensation if he later discovers that their quality is less than he
was led to expect—the rule of caveat emptor. It is easier to
demonstrate whether or not I delivered the goods than what happened
to them afterwards, or what condition they were delivered in.
The
effectiveness of reputational enforcement is different for different
people, strong for repeat players, weaker for someone who only
expects to participate in such transactions rarely. So design
contracts to put the temptation to default on those who can be
trusted not to yield to it. If you can be trusted and I cannot, then
I pay in advance; you could take my money and fail to deliver what it
bought, but you won't.
Ostracism
There are
two major problems with ostracism as a way of enforcing rules. The
first is that someone has to decide who to ostracize, which requires
some decision making procedure whose results practically everyone
accepts. Absent that, an attempt at ostracism may divide the
community between those who accept the verdict and go along and those
who do neither. The second problem is that the collection of people
participating in the ostracism has to include a large enough
proportion of those the target would like to interact with so that
their refusal to interact imposes a serious cost on him.
In a
large society this is hard to arrange, since only a small proportion
of its members need defect to provide the target with an adequate
number of trading partners. In a small community embedded in a larger
society, the gypsy (and Amish and Mormon and …) case, it works only
if the barriers to a member of the community interacting outside it
are high. That condition can be met, as in the case of the Vlach Rom,
but at a considerable cost, and it may cease to be met due to changes
that make either the community or the society less intolerant of the
other. If the barriers are not high, then the threat of ostracism is
only a mild deterrent, giving the community only a very limited
ability to enforce its rules on its members—which may be why the
Vlach Rom in America found it necessary to modify their divorce rules
to make them more favorable to wives than before, to avoid the risk
that unhappy wives would look for a divorce from American courts
rather than the gypsy Kris.
That
suggests that ostracism will be most effective for a small community
either entirely isolated or set in a very unfriendly larger society.
Outside of one of those situations it can still be used to enforce
rules, but only rules that nobody has strong reasons to want to
violate.
Divine
Enforcement: In Foro Interno
The pure
form of divine enforcement depends on everyone believing in the
divinity and his willingness to enforce or their obligation to obey.
That belief may be shaken if violators of the rules are seen to
escape unpunished. One way to avoid that is to start with beliefs
sufficiently strong to make violations, or at least detected
violations, rare. Another is to incorporate in the belief system
forms of divine punishment that are unobservable from the outside,
such as punishment post-mortem, or at least difficult to observe,
such as bad luck.
Even if
belief is not sufficiently strong and uniform to make divine
enforcement a substitute for more mundane alternatives, it may still
make those alternatives more workable. To use oaths as a lie detector
it is not necessary that everyone be a believer, only that there is
some reasonably reliable way of knowing who is not and refusing to
accept their oaths. One way is for there to be religious practices
which are costly and not enforced, hence engaged in only by the
believers; as I suggested in Chapter III, one way of interpreting
kosher rules and similar restrictions is that they provide a way of
recognizing who believes, hence whose oaths are to be trusted. An
extreme version of this is a situation where being a member of the
group is itself costly, so costly that nobody would choose to join
unless he really believed in the religion. Arguably that describes
those who participated in the early years of the Mormon church, when
the faithful were fleeing most of the rest of mankind to set up their
own refuge in what would become Utah, and equally describes the core
of believers who accepted expulsion for Mecca in order to join
Mohammed in Medina.
Which
suggests that religions such as the LDS or Islam, at least in their
early stages, have a significant advantage over more conventions and
less controversial rivals; they know who can be trusted, because
nobody who can't will join. Arguably an analogous situation exists
for political movements. There are undoubtedly advantages to being in
power, but also a significant disadvantage—since identifying with
the party in power pays, there is no easy way of distinguishing
dedicated believers who can be trusted from rice Christians who
cannot.
Appendix:
Hatfields and McCoys, The Feud that Mostly Wasn't
According
to a popular tale, the Hatfields and McCoys, two families of
Appalachian hillbillies living on opposite sides of the Tug Fork, the
border between Kentucky and West Virginia, started killing each
other before the end of the Civil War and continued to do so through
a long series of revenge killings, each inspiring the next, for some
decades thereafter.
The real
history is shorter and less dramatic. Asa McCoy volunteered for the
Union Army, was invalided out, returned to the Tug valley, and was
killed, a murder often claimed to have been the first in the feud.
There is, however, no evidence that his death had anything to do with
a family feud, and who killed him was never discovered. Practically
everyone in the Tug Valley other than Asa, both Hatfields and McCoys,
was pro-Confederate, providing an obvious motive for his killing.
The first
definite conflict between Hatfield and McCoy occurred 13 years later,
when Old Ranel, the patriarch of the McCoy clan, suspected that Floyd
Hatfield had stolen one of his hogs. Instead of getting down his
rifle and telling his boys to fetch theirs, however, Ranel took his
suspicions to the nearest Justice of the Peace. Floyd Hatfield was
tried and acquitted. A year and a half later, two of Ranel's nephews
got in a fight with Bill Staton, a relative of both families who had
been a witness for Floyd Hatfield's side in the trial, and killed
him. They were arrested, tried, and acquitted on grounds of
self-defense—on the Hatfield side of the river by a Hatfield judge.
No revenge killings followed.
The first
exchange of violence fitting the pattern of a proper family feud
occurred in 1882. In the course of an election day fight, Ellison
Hatfield was badly wounded by three of the McCoys. The three were
arrested and on their way to the Pikeville, Kentucky, jail when their
party was intercepted by a larger group led by Anse Hatfield and the
prisoners seized. The captors, uncertain whether Ellison's wounds
were mortal, waited until he died and then killed the three McCoys.
That
should, of course, have brought forth return violence from the
McCoys. What actually happened was that they took the matter to a
Kentucky court, which issued warrants for twenty-one of those
involved in the killing but did nothing else. Five years passed with
no further violence.
At which
point a new governor of Kentucky was elected who happened to be a
friend of Perry Cline, a lawyer, friend and distant relative of Ranel
McCoy. Cline persuaded the governor to announce rewards for Anse
Hatfield and his fellow killers and begin extradition proceedings.
Kentucky posses crossed the state border into West Virginia with no
authorization from its authorities, killed Anse's uncle, captured
nine of those charged with the earlier killing and brought them back
to Kentucky, where they were eventually tried and convicted; one was
hanged, the other eight given life sentences.
That set
off the second and final instance of retaliatory killing; a group of
Hatfield supporters attacked Ranel's home, burned it, and in the
process killed two of his children. That was the point at which the
conflict began to draw national attention, with newspapers describing
it in dramatic, and wildly exaggerated, terms. Also the point at
which the whole conflict was over, at least for the two families.
Not,
however, for the lawyers. The governor of West Virginia demanded the
return of the nine citizens of his state who had been kidnapped at
the bidding of the governor of Kentucky, carried off, and tried in a
Kentucky court. The case eventually reached the Supreme Court which
held that although the kidnapping was illegal, there was no recourse;
once the nine were in Kentucky, the Kentucky court could try them.
Two
things are worth noting about the story. The first is that at most
seven killings are clearly due to conflict between the families, of
which five were revenge killings, two the killings that inspired the
revenge. The other is that, so far as we can tell, the “feud”
would have ended with a total of only four killings—for five years
had ended—had not the state government of Kentucky chosen to revive
it.
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