The Law and Economics of Identity

Abstract:     
In a paper published in 2000, George Akerlof and Rachel Kranton introduce[d] identity - a person's sense of self - into economic analysis. Identity fits into the utility function: people seek identity benefits; they seek to avoid identity costs. Identity payoffs thus affect what people will do, interacting with other motivations for action. In this paper, I argue that law and economics' policy prescriptions can be enriched by taking identity into account.

What counts as an identity? The category is potentially broad and amorphous: being African-American is an identity, as is being civic minded, as is being a jock or nerd. The common feature is the possibility of identity payoffs that strongly influence action. For instance, a person with a strong gourmand identity may incur significant identity payoffs if he receives a diagnosis of diabetes and has to restrict his diet accordingly. What generalizations can be made about identities so disparate? I consider at this juncture two stylized types of cases: one where the law is importantly involved in identity creation, and the other, where law is dealing more with identities that can be regarded as pre-existing. I discuss various examples in disparate contexts, including corporate law and criminal law. The paper also argues that taking identity into account doesn't just mean considering identity-as-payoff. As psychologists and sociologists have amply documented, identity is also a perceptual lens through which people perceive the world. Taking identity-as-perceptual-lens into account will be far more difficult than taking identity-as-payoff into account; it is necessary, though, to further the broader goal of making law and economics more realistic.

Keywords: identity, behavioral law and economics

Accepted Paper Series