Economic Analysis of the Legal System

Legal Commitment Through the Rule-of-law Mechanism versus Transactional Governance

May a government which is purely opportunistic, or transactional, in its approach to law still find it in its best interest to comply with the legal order? We show that the legality requirement under the rule of law implements an endogenous enforcement mechanism supporting lawful behavior: Under the rule of law, unconstitutional laws are not enforced. Assume a government considers acting outside the legal order but will reinstate the legal order if this better serves its objectives. Agentsí non compliance negatively affects the government's objectives. Under the rule of law, returning to full constitutionality rules out enforcement. Hence, expecting such return may be self-fulfilling. We show that this mechanism is effective in deterring the government from violating legal constraints. With Nadeem Naqvi and Bernhard K. Neumaerker. PDFile

Strategic Constitutional Choice in an Autocracy: The 1980 Constitution in Chile

In a spatial model of political bargaining we show that there exists a constitution which a suffciently patient autocrat would want to design and the parties forming a succeeding constitutional assembly would accept as a basis for negotiations on constitutional reform. A middle class in favor of redistribution discourages con- stitution writing. Increases in middle class wealth encourage constitution writing unless taxation is too effective" in redistributing wealth. We relate our findings to the so-called "Pinochet Constitution" in Chile. With Katja Michalak. PDFile

Stable Constitutions in Political Transition, in: Advances in Political Economy, ed. by Caballero, G., Kselman, D. and Schofield, N., Springer 2013.

This paper develops a spatial model where an autocrat selects a status quo constitution which a succeeding elected constitutional assembly may or may not accept as a blue print for negotiations on constitutional reform. If the autocrat expects that the future constitutional assembly is dominated by parties which favor redistribution, he does not want to bind himself by the constitution. If the middle class opposes redistribution or the middle class and the right dominate the constitutional assembly, stable constitutions exist which are in the interest of the autocrat. This framework is applied to transition processes in Chile and Egypt. With Katja Michalak. PDFile

Rationality and the Legal Order, in: Economics, Rational Choice and Normative Philosophy, ed. by Tom Boylan and Ruvin Gekker, Routledge 2009.

While a constitution assigns the government the means to force others to comply, there is no outside enforcer who forces the rulers to play by the rules. In this paper we argue that the legality principle of the rule of law gives incentives for the rulers to accept the constitutional order. We develop a model where a short-lived government imposes a tax and may violate the constitutional order by redistributing property in order to gain a one-off prize in terms of political support. Under the rule of law, a constitutional government must not accept illegitimate ownership. If the future government is expected to act lawfully, illegitimate property owners curb effort and an expropriating government loses revenue. We give conditions under which there is a unique trembling hand perfect equilibrium where all governments are constitutional with a probability approaching one. PDFile