Econ 200 Law & Economics

Foldvary, Week 11

The legal process

Cooler and Ulen notes

Lawyers and attorneys

A lawyer is somebody who can give legal advice and has been trained in the law.

An attorney is somebody legally empowered to represent another person, or act on their behalf.

Hence, power of attorney.

The characteristics are usually combined into one person.

British usage:

"Solicitors" do most of the office work, draft documents, talk to clients, etc., and may only appear as advocates in the lower courts.

"Barristers" do most of the trial work, especially in the higher courts, where they are the only ones who may act as advocates.

Are attorneys ethical?

Schiltz, Patrick J., “On Being a Happy, Healthy, and Ethical Member of an Unhappy, Unhealthy, Unethical Profession,” 52 Vand. L. Rev. 888 (1999).

Only one in five Americans believes lawyers to be honest and ethical,

and the more a person knows about the profession,

the worse one’s opinion of attorneys is likely to be.

Lawyers are tempted by the opportunity to embellish a time sheet at the end of the month;

the practice of quoting legal precedent out of context to support a weak argument;

and the ability of white lies to make mistakes look less serious.

these problems can be traced to an obsession with “winning the game” –

making the most money for oneself and for the firm.

Lawyers who obsess about billable hours, client retention, and making partner

will inevitably work too many hours

and suffer the ill effects that come along with being a workaholic.

According to consumer research commissioned by the American Bar Association, Americans do not trust lawyers.

Lawyers are perceived as being greedy (69 percent of respondents)

and manipulative (73 percent),

and the profession is seen as unable to police itself (74 percent).

Criminal defense lawyers are criticized for representing guilty clients;

prosecutors for cutting too many deals;

public defenders for being inexperienced and overextended;

personal injury lawyers for chasing ambulances and pursuing frivolous cases;

divorce lawyers for exacerbating conflict;

and corporate lawyers for engaging in underhanded practices

in the interests of their powerful clients.

Attorneys in cases such as probate take the client’s money and then do nothing.

More neutral or positive reactions are found only for real estate lawyers,

who are largely viewed as functionaries;

and civil rights lawyers, who are said to be working in the public interest.

Why are lawyers so expensive?

Measuring the Rule of Law

Juan C. Botero and Alejandro Ponce, Nov. 2011

The Rule of Law Index by The World Justice Project.

Provides data on nine dimensions of the rule of law

-limited government powers; absence of corruption; order and security;

fundamental rights; open government; regulatory enforcement; access to civil justice;

effective criminal justice; and informal justice.

It is compiled from original surveys of the general public and local legal experts in 66 countries having 83% percent of the world’s population.

The rule of law limits on the exercise of power by government and private interests.

The concept of the rule of law was inherent in Biblical law.

If the laws are prescribed by God, man cannot change the law.

The rulers are bound by the law just as their subjects.

The laws are publicly promulgated, equally enforced, and independently adjudicated.

Ex post facto laws are inconsistent with the rule of law.

The U.S. Constitution is an attempt to establish a rule of law.

The WJP Rule of Law Index, is organized around nine basic concepts:

limited government powers; absence of corruption; order and security; fundamental rights; open government; effective regulatory enforcement;

access to civil justice; effective criminal justice; and informal justice.

Factor 1. Limited government: those who govern are subject to law.

Constitutional limits; divided government; elections.

Nongovernmental check: the press, freedom of speech.

Issues: executive orders. Wages of lawmakers.

Subfactor 1.1: Constitutional amendments.

Suspensions of constitutional rights.

1.3 judicial independence.

1.5 rules for misconduct

1.6 freedom of speech

1.7 transition of power; electoral fraud

Factor 2: absence of corruption

Corruption: use of government power for private gain and joy.

The motto of corrupt bureaucracy: denial of service.

Bribery, influence, embezzlement.

3. Order and security

The prime purpose of good government.

The right of self-defense.

Three elements:

Minimization of crimes involving force,

including homicide, kidnapping, burglary,armed robbery, extortion, and fraud.

Mininal including terrorism, armed conflict, and political unrest;

Minimal violence as a socially acceptable means to redress personal grievances.

Factor 4: Fundamental Rights

The fourth factor measures protection of human rights.

The rule of law must be more than merely a system of rules

A system of positive law that fails to respect human rights

is a “rule by law,” rather than a rule of law.

4 includes equal treatment and absence of discrimination;

the right to life and security of the person; freedom of thought,

religion, and expression, including freedom of the media; freedom of association

Prohibition of forced and child labor8; the right to privacy;

the rights of the accused

Did the USA have a rule of law during the 1800s?

During WWII? Now?

5. Open government

Requesting information from public authorities is an important tool to empower citizens by giving them a way to voice their concerns and demand accountability from their governments.

Four basic elements: clear, publicized, and stable laws;

administrative proceedings that are open for public participation;

official drafts of laws and regulations that are available to the public;

and the availability of official information.

Factor 6: Effective regulatory enforcement

The sixth factor measures the fairness and effectiveness in enforcing government regulations.

Public enforcement of government regulations is pervasive in modern societies as a method to induce ‘good’ conduct.

A critical feature of the rule of law is that such rules are upheld and

properly enforced by authorities, particularly because public enforcement might raise the scope for negligence and abuse by officials pursuing their own interest.

Focus is on how well regulations are implemented and enforced.

Environmental restrictions, public healthrequirements,

workplace safety conditions.

Absence of government takings of private property without adequate compensation.

Factor 7: Access to civil justice

Access to dispute resolution mechanisms and access to tribunals.

Civil justice is measured bt whether people can resolve their grievances through formal institutions of justice in a peaceful and effective manner,

in accordance with generally accepted social norms

rather than resorting to violence or self-help.

Access to civil justice requires that the system be accessible, affordable, effective, impartial.

Accessibility includes general awareness of available remedies (sub-factor 7.1);

availability and affordability of legal advice and representation (sub-factor 7.2);

and the absence of excessive or unreasonable fees, procedural hurdles, linguistic barriers, physical location of courthouses, and other impediments to access to formal dispute resolution systems (sub-factor 7.3).

Impartiality includes absence of arbitrary or irrational distinctions based on social or economic status and other forms of bias (sub-factor 7.4).

Access to justice also implies that court proceedings are conducted and

judgments enforced without unreasonable delay (sub-factor 7.7).

Factor 8: Effective criminal justice system

Whether the criminal investigation and adjudication systems are effective.

Whether the criminal justice system is impartial and free of improper influence.

whether due process of law during arrest and detention, as well as the rights of the accused are effectively protected.

Whether correctional systems are effective in reducing criminal behavior.

The presumption of innocence, arbitrary detention,

torture and abusive treatment to suspects, secret trials,

effective legal representation, and rights of prison inmates.

Factor 9: Informal justice

Traditional, tribal, and religious courts as well as

community-based systems in resolving disputes.

These are in our framework, but not in our data collection effort.

We do not look at the laws as written (de jure),

but at the consequences in practice (de facto).

Factor F4: fundamental rights

Canada .79

China .40

India .63

Iran .32

Norway .90

Russia .54

South Africa .65

Sweden .92

USA .73

4.1 Equal treatment and absence of discrimination are effectively guaranteed .58

The Political Economy of Governmental Corruption: The Logic of Underground Government

Bruce L. Benson and John Baden

Source: The Journal of Legal Studies, Vol. 14, No. 2, (Jun., 1985), pp. 391-410

The tax-induced underground economy is very large and growing, in the United States and in other parts of the world.

Regulations also induce underground activity.

There are thriving markets in drugs, prostitution, gambling, stolen goods, and the labor of illegal aliens. There is also non-commercial defiance of laws such as speed limits and dress codes.

Governments regulate by modifying and changing the allocation of previously existing rights.

Restrictions reduce the scope of property rights,

and mandates shift the ownership of fund, labor, and resources to others.

A rights modification that combines theft and governmental influence:

a rights modification can be purchased from a corrupt government official

who is endowed with appropriate discretionary control.

Why is drug dealing an underground market act,

while theft is not?

Illegal underground markets arise when the institutional structure precludes

private owners from allocating their resources in a competitive market.

For example, black markets occur whenever government prohibits

sellers from setting their prices at the market-clearing level.

Thousands of black markets exist, including the markets for illegal goods

and services (for example, drugs and prostitution).

Illegal aliens typically supply labor services at a price below the minimum wage.

Tax evasion can be eliminated with taxes that cannot be evaded.

Corruption is a consequence of discretionary political authority.

The dangers for abuse are heightened whenever some general law bars voluntary transactions,

hence creates the background conditions for the rise of illegal markets.

Where detection has a low cost, an illegal property rights modification requires the

participation of a government official.

Officials can sell monopoly rights in a private-sector underground market and then enforce those rights allocations against third parties.

The illegal activities of the policeman on the beat are a common theme in fiction and a common occurrence in fact.

Organized crime can be regarded as monopolized crime.

Criminal firms possess market power because there are economies of scale in buying corruption from police and other governmental officials.

The potential for political corruption also exists when government precludes market allocation through direct public ownership of property rights for which no good private-sector substitutes are available at prices comparable to what a corrupt official might charge.

In such cases, the desired alteration in property rights cannot be achieved solely through

either legal or illegal private-sector transactions.

The rights allocation involves public officials.

There is corruption in the form of patronage, for example,

where relatives or supporters are given public service jobs that many others want.

Corruption is also induced when the government is a large and important buyer.

A private sector seller may be willing to bribe a public official for two reasons.

First, buyers may willingly pay for the right to be the exclusive supplier of some

product consumed by government.

Willingness to pay a bribe implies that there are other potential suppliers who would, in a competitive sellers' market, produce and sell the good to the government.

Second, a bilateral monopoly situation arises when a seller is already the only supplier.

The bribe amount depends on the bargaining strength of the parties.

If the government is in a superior position, the seller has incentives to bribe an official in order to obtain the right to set a monopoly price.

What determines the magnitude of the potential payoff from corruption?

1) The expected value of the rights that the official is able to allocate.

The greater the market distortion created by a tax or regulation,

the greater the potential payoff to officials who are to enforce the tax or regulation.

Excessively restrictive and specific building codes

or rigorous and geographically expansive zoning laws, for example,

generate the potential for large payoffs to corrupt officials.

If an official has allocative power over a large portfolio of different rights,

the payoff could be large even though no single right has tremendous value.

For example, the Tweed organization made more than $60 million through graft and corruption during the decade following the Civil War, because it controlled the taxing and regulatory powers in New York City.

When the power to allocate rights is concentrated in the hands of one or a few officials,

or in the hands of a political machine, the corruption payoff to those individuals

can be extremely large.

A corruption monopolist may require relatively high bribes and, in doing so, may restrict the actual quantity of illegal transactions.

Alternatively, a corruption monopolist may be able to practice price discrimination.

The higher the probabilities of detecting an illegal rights allocation and of identifying and prosecuting a corrupt official, the lower the likelihood of official corruption.

There are several possible ways to monitor governmental activities.

Individual citizens might make efforts to monitor individual officials,

using the freedom of information acts,

but this involves a small personal payoff.

There are several fairly active government-watch organizations that may pose some

threat to potentially corrupt officials, but it is likely that these collective

efforts will be relatively limited because of the free-rider problem.

Such organizations often claim to represent large constituencies,

but they receive active support from only a small part of those constituencies.

The general citizenry does not constitute a major threat to a corrupt official.

The news media are another potential source of monitoring.

It is doubtful whether the news media are a major threat to most corrupt officials.

Few members of the media devote much time to trying to detect political corruption.

Corruption exposed by others is reported,

but there are relatively few instances in which news personnel

have actively sought out illegal activity.

Newspapers and other media require daily or weekly output,

so most reporters must concentrate on news that can be obtained easily and quickly.

Detecting corrupt officials is difficult and time consuming.

With lower circulations, budget cuts reduce investigative reporting.

Other public officials, constitute a second source of potential monitoring of corrupt activities.

Bureaucracies and and legislatures have their own systems for self-monitoring,

internal affairs division and ethics boards.

But officials may have incentives not to expose corruption within his organization.

The Catholic Church is an example in which the higher-ups keep the problems private.

Whistle blowers often get punished rather than rewarded.

A third source of potential detection comes from other government units.

One function of elected representatives is to monitor bureaucracies.

But they themselves benefit from transfer seeking.

A fourth source of detection involves candidates who run on a "good government" ticket.

Many candidates have obtained office with a "throw the rascals out" theme.

But corrupt groups may have sufficient power to prevent the election of reformers,

by funneling campaign funds to the incumbent.

Also a mere change in personae does not change the institutional structure,

with its incentives and payoffs.

The voters cycle between Democrats and Republicans,

and don’t seem to learn that the lesser evil is evil.

An ever increasing scope and size of government will induce greater corruption

at an increasing rate.

There are ever stronger incentives to become corrupt.

The more severe the legal constraints on private markets,

the more valuable become the rights controlled by public officials.

The payment likely to be forthcoming to a corrupt official increases.

Furthermore, as the power to make ever greater numbers of rights allocations

is placed in the hands of public officials, the potential returns to corruption expand even if no single right has tremendous value.

An increase in the size and power of government in a representative democracy must lead to a greater delegation of discretionary powers to bureaucrats.

Monitoring for corruption then becomes increasingly ineffective.

Detection of corruption becomes less likely.

When government officials and their constituencies are considering a tax or regulation, the likelihood of political corruption should be entered into their cost-benefit calculations.

The Spontaneous Evolution of Commercial Law

Bruce Benson

also Enterprise of Law

The commercial sector is capable of establishing and enforcing its own laws.

Modern commercial law was developed by the merchant community.

It evolved from market exchange.

State government is not a prerequisite for law.

With the increase in commerce during the Middle Ages,

and with diverse local governments,

there was a demand for uniform laws for trade among countries.

The result was European mercantile law, lex mercantoria.

The Law Merchant.

Commercial transactions were government by this law after 1000.

This body of law was voluntarily produced, adjudicated, and enforced.

Trading induces reciprocity.

Roman Commercial law preceded the Law Merchant.

This law itself evolved with commerce.

But it was not adequate for Medieval commerce.

The Church was of little help.

The Law Merchant evolved as customary law.

The Law Merchant put foreign traders at an equal legal status as local ones.

The Law Merchant reinforced local practices.

Commercial law became increasingly written down, such as in contracts.

Reciprocity involves fairness in exchange.

Fraud and duress were not enforceable.

Contracts could not be unduly adverse to society.

The authority for the Law Merchant arose from reciprocity.

There arose participatory merchant courts.

Merchants formed their own courts to adjudicate disputes.

The decisions were backed by ostracism - a boycott sanction.

The courts used expert judges, not lawyers.

Merchant courts featured speed and informality.

Appeals were forbidden to avoid excessive litigation and delays.

Common law was still state produced by the king’s courts;

common law did not adapt and change as fast and the Law Merchant.

Trade was facilitated by promissory notes, bills of exchange, and futures contracts.

These became transferrable.

Banks extended credit on collateral.

Credit enabled trade to flourish.

The Law Merchant became absorbed by common law and civil law.

Appeals could be taken to government courts.

Private courts were no longer used after the early 1600s,

as British law became a monopoly.

The Law Merchant had been transplanted into the USA.

Commercial arbitration continues the practice.

Arbitration creates precedents that become customary law.

In California, individuals in a dispute may have a court hearing before any referee.

There are many “rent a judge” cases.