Question for help
ItSaulGoodman
Chapter1.pptxChapter 1
The Economic Rationale for the Criminal Law
Civil Law – The body of law that involves disputes between individuals or other legal entities (e.g. Corporations)
Primarily concerned with enforcing contracts and property rights
Criminal Law – The branch of public law in which government takes actions against individuals
Example Illustrating Civil Law
Suppose Alpha’s vehicle collides with Beta’s while driving on the highway.
This collision delays traffic and totals Alpha’s and Beta’s vehicles.
Civil Law allows Beta to collect for damages done to Beta (damage to vehicle, injuries, etc.)
Example Illustrating Criminal Law
Suppose Alpha is driving recklessly and erratically at a high rate of speed.
Alpha does not collide with Beta, however, the police stop Alpha and issue a citation for reckless driving.
Efficient Markets and Law
Criteria for efficient markets requires that agents consider the full marginal costs of their decisions
Civil law forces Alpha to internalize the cost to Beta
Criminal law forces Alpha to internalize other externalities not covered in civil law
Cost to police
Cost from traffic delays
Interaction Between the Civil and Criminal Law
Prosecution under the criminal law does not preclude and may even enhance civil actions
Standard of guilt under criminal law is unanimous agreement of jury.
Standard of guilt under civil law is a majority or supermajority of jury.
Thus, finding guilt in a murder case makes the finding of guilt in a wrongful death action very likely.
Interaction Between the Civil and Criminal Law
Criminalization of an activity may prevent application of the civil law to the enforcement of contracts.
Contracts in illegal drug markets are not subject to civil action and the courts cannot be used to collect payment or enforce contracts.
Making the civil law inoperable due to criminalization of transactions can cause criminals to use violent means to enforce contracts and property rights.
Interaction Between the Civil and Criminal Law
Legalization can lead to civil actions.
Criminalization can lead to civil action
Some agents are unable to exercise their rights under civil law (For example, children, mentally infirm, elderly, etc)
Relatives are expected to represent them; however, this mechanism fails when the relatives are the ones abusing their rights.
In this case, criminalization serves to internalize cost and can lead to civil action once criminal action is taken
Interaction Between the Civil and Criminal Law
It is useful to consider how the decision to criminalize proceeds under a welfare economics criterion as opposed to other rationales for criminalizing.
There are many justifications outside welfare economics such as religious beliefs or cultural norms.
We will go through three examples to distinguish economic thinking from other motives for criminalizing behavior.
It is useful to consider how the decision to criminalize proceeds under a welfare economics criterion as opposed to other rationales for criminalizing.
There are many justifications outside welfare economics such as religious beliefs or cultural norms.
We will go through three examples to distinguish economic thinking from other motives for criminalizing behavior.
Case #1 – Public Nudity
Nudity in private locations is legal but is mostly illegal in public places.
Is there an economic approach to criminalizing nudity?
As the degree of nudity increases, the potential for external costs imposed on the general public increases according to the cultural norms of that society.
Economic theory suggests as some point these external costs might become large enough that criminalizing nudity is efficient such that those wishing to participate in public nudity must consider the social costs to those wishing to avoid public nudity.
While this treatment of criminal law is heavily influenced by cultural norms, it is not inconsistent with economic theory.
Case #2 – Financial Misrepresentation
Financial misrepresentation – the offering of debt contracts or other promises to pay by individuals who intentionally misrepresent the value of those contracts or make claims about assets without basis.
Civil fraud is designed to remedy private wrongs and criminal fraud to address public wrongs.
Financial misrepresentation that are mailed, broadcast, or otherwise circulated to the public are likely to be addressed by specific criminal statutes and to be prosecuted under the criminal law.
Financial misrepresentation that involve individuals making false claims on single applications made to a single plaintiff are unlikely to result in criminal actions.
Cases of single contracts may result in large costs to individual plaintiffs, but these can be recovered as damages under the civil law.
Case #2 – Financial Misrepresentation
Financial misrepresentation that is circulated publicly, particularly accounting fraud, may cause substantial harm aggregated across many agents, even if it results in small losses to any individual investor.
Potential investors lose because they must exercise greater precaution in evaluating debt contracts.
Potential borrowers lose because they must provide additional evidence for statements that they make.
Financial intermediates suffer additional costs as it becomes more difficult for them to bring investors and borrowers together to complete financial transactions.
Case # 3 – Prostitution
Treatment of prostitution in the criminal law varies substantially across countries.
Some argue that prostitution leads to public health externalities, and some may wish to avoid exposure to this industry.
Some countries choose to deal with these externalities through regulation while others choose to criminalize.
While criminalization may address these externalities, it will also hinder civil lawsuits and increase the cost of enforcing contracts.
Conclusion
The problems that are considered in civil and criminal law involve situations in which on agent’s actions impose costs on others and are not considered by the individual taking the action. This is the classic externality problem in welfare economics.
Civil litigation can be effective in making agents recognize (or internalize) the costs they impose on others when harm is easily identified, concentrated, and observable.
Criminal law is a mechanism that forces agents to internalize general costs not faced in civil actions.
Criminalization can hinder or enhance civil action.
