Agenda

Lotte Swank (University of Groningen) - The Political Economy of the Design and Enforcement of Law

Abstract:
We examine political constitutions and legal regimes in a theoretical model. We consider an elected, potentially biased, legislator who enacts the law by either selecting a strict liability or negligence regime. With strict liability, culpability is simply based on the damage caused. With negligence, besides damage, intentions are also taken into account. A neutral, appointed judiciary rules the courts and sets fines that apply when the law is not obeyed. We show that negligence regimes outperform strict liability regimes as more information is used under the former. Yet, we derive that a biased legislator may cater to the wishes of the economically powerful and select strict liability because court cases are less common under this regime. We predict that transitions from strict liability to negligence regimes occur when court efficiency improves and political equality increases. We present historical sources and data with trends that are in line with our theoretical predictions. Proceeding, we describe a normative analysis of a power separation between an elected legislator and an appointed judiciary. We show that such a power separation increases social welfare compared to a centralized constitution in which an elected legislator possesses all powers. Yet, also with a separation of powers, the first-best outcome cannot be achieved.