Trust, Treason, and Trials--An Example of How the Evolution of Preferences Can Be Driven by Legal Institutions

Journal of Law, Economics, and Organization, Vol. 14, No. 1 (Spring 1998)

Posted: 8 Feb 1998

See all articles by Steffen Huck

Steffen Huck

University College London - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Abstract

This study tries to enlarge the scope of law and economics by providing an example that legal institutions do not only have short-run effects on present behavior by changing the cost-benefit relation of different actions but can also drive the evolution of preferences. Therefore, legal design has long-run effects on behavior which should not be neglected by legislators. The study presents a simple model of cooperation where only one party has the option to observe the outcome of joint efforts. While this party can pretend a failure of cooperation, the other party has the option to monitor its partner. The model considers resource variables and a psychological variable reflecting remorse in case of betrayal. Players are assumed to behave rationally according to given preferences, but preferences may change in the course of evolution. The results show that a 'good' design of legal institutions can crowd out 'bad' preferences.

JEL Classification: D10

Suggested Citation

Huck, Steffen, Trust, Treason, and Trials--An Example of How the Evolution of Preferences Can Be Driven by Legal Institutions. Journal of Law, Economics, and Organization, Vol. 14, No. 1 (Spring 1998). Available at SSRN: https://ssrn.com/abstract=57957

Steffen Huck (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 207 679 5895 (Phone)
+44 207 916 2774 (Fax)

HOME PAGE: http://www.ucl.ac.uk/~uctpshu/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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