Law and Preferences
New York University School of Law
Tel Aviv University - Eitan Berglas School of Economics; Tinbergen Institute
The Journal of Law, Economics, and Organization, Vol. 20, No. 2, pp. 331-352, 2004
Legal rules do more than provide incentives, they change people. When preferences and norms are endogenously determined via a process of imitation and learning, legal rules, by affecting the market outcome, may affect the dynamics of preference formation. Analyzing the effect of different legal rules should therefore go beyond the analysis of the incentives they provide. It should also include an analysis of their effect on the distribution of preferences and norms of behavior. We illustrate this claim by considering a simple market game in which individuals may have preferences that include fairness concerns. We show that different legal rules change not only the pattern of trade in a market game, but also individuals' fairness concerns. That is, different rules may eventually make individuals care more (or less) about a fair outcome. Specifically, our model suggests that enhanced remedies for breach of contract may reduce equilibrium preferences for fairness.
Accepted Paper Series
Date posted: February 29, 2008
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