24 Pages Posted: 21 May 2013 Last revised: 4 Dec 2015
Date Written: October 9, 2013
In many situations legal systems use ambiguous standards and moral language in instructing people to behave. In the realm of the common law, much of this ambiguous, morally inflected legal component is associated with “equity.” In civil law systems, something similar goes under the banner of “abuse of right” or “abuse of law.” According to this approach, part of the presumed advantage of equity is related to its ability to prevent opportunism by limiting the ability of people to exploit loopholes in specific rules to their advantage. Most of the current research on ambiguity and vagueness in the law follows a rational choice approach, where ambiguity is expected to increase the cost of deciding how to behave. This increase in the cost of learning on how to behave is intended to nudge people toward greater compliance, assuming a certain risk aversion on their part. Another assumption of this perspective is that ambiguity is more likely to harm opportunistic and “bad” individuals than “good” people because the former have greater difficulty circumventing an ambiguous law.
The present paper challenges these behavioral assumptions and the legal paradigms that are based on them. We use the findings of psychology, behavioral economics, and behavioral ethics to revisit three main related assumptions of the rational choice approach to equity, by developing three main points: first, not only bad people try to circumvent the law; second, behavior depends on the relationship between specificity, trust, and the type of motivation triggered; and, third, moral priming has a different effect on good versus bad people.
Based on these three modifications of rational choice assumptions about the law versus equity distinction, we suggest two normative prescriptions: first, we offer a dynamic “acoustic separation” model that attempts to examine the effect of law versus equity on both good and bad people; and second, we offer an initial taxonomy of the optimal mixture of law versus equity.
Keywords: Legal Ambiguity, Law vs. Equity, Opportunism, Behavioral Ethics, Standards vs. Rules
JEL Classification: D80, K00, K11, K42, D23
Suggested Citation: Suggested Citation