A Focal Point Theory of Expressive Law

Abstract:     
Economic analysis generally assumes that law solves cooperation problems because legal sanctions change payoffs. Where the problem is one of coordination, however, this article contends that law also influences behavior by changing expectations, independent of payoffs. When individuals need to coordinate, law works to make one equilibrium "focal" and thereby creates expectations that others will play the strategy associated with that equilibrium. Once the expectations exist, they are self-fulfilling; even if the payoffs remain the same, everyone prefers to play the focal point strategy. Private expression can also change expectations, but law often has a comparative advantage in the publicity accorded to, and uniqueness of, its message, as well as the resulting reputation of public officials.

The focal effect is one way to explain how law influences behavior "expressively" by what it says, independent of the sanctions it imposes. The article initially demonstrates this result using a pure coordination game, but then broadens the analysis in two ways. First, the focal point exists even when individuals have conflicting interests, as long as they share a common interest in avoiding certain outcomes. Thus, focal points matter in "Hawk-Dove" games which plausibly model a substantial amount of real world conflict. In such situations, both adjudication and regulation have some expressive influence on behavior. Second, the focal effect exists in iterated situations where equilibria evolve over time. Legal focal points can influence behavior during disequilibrium and, in several ways, supplant an existing convention. These points are illustrated with examples of traffic regulation, a sanctionless anti-smoking law, and a law creating "imperfect" liability for landlords.

Accepted Paper Series