The Proper Scope of Behavioral Law and Economics

15 Pages Posted: 18 Jan 2018 Last revised: 24 Jan 2018

See all articles by Christoph Engel

Christoph Engel

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; University of Bonn - Faculty of Law & Economics; Erasmus University Rotterdam (EUR), Erasmus School of Law, Rotterdam Institute of Law and Economics, Students; Universität Osnabrück - Faculty of Law

Date Written: January 1, 2018

Abstract

Behavioral law and economics applies the conceptual tools of behavioral economics to the analysis of legal problems and legal intervention. These models, and the experiments to test them, assume an institution free state of nature. In modern societies, the law’s subjects never see this state of nature. However, a rich arrangement of informal and formal institutions creates generalized trust. If individuals are sufficiently confident that nothing too bad will happen, they are freed up to interact with strangers as if they were in a state of nature. This willingness dramatically reduces transaction cost and enables division of labor. If generalized trust can be assumed, simple economic models are appropriate. But they must be behavioral, since otherwise individuals would not want to run the risk of interaction.

Suggested Citation

Engel, Christoph, The Proper Scope of Behavioral Law and Economics (January 1, 2018). MPI Collective Goods Discussion Paper No. 2018/2, Available at SSRN: https://ssrn.com/abstract=3104475 or http://dx.doi.org/10.2139/ssrn.3104475

Christoph Engel (Contact Author)

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Universität Osnabrück - Faculty of Law

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