The relationship between law and the market

 The relationship between law and the market:

- lse lecture

-https://www.youtube.com/watch?v=ffq5UI58-5w

- Pretty interesting lecture, even though Im not really aspiring going into law. I think what stood out for me most was the fact that civil liability is a way to force companies to be more cautious and regulate them by punishing them for their actions. It seems more effective in the sense that government doesnt have to spend resources to actively find flaws rather than punish for flaws that have been incidented (if thats a word). I found it a decently compelling argument to also tackle issues such as market failure espeecially for governments with low budgets. 

Legislation – rules created for all people in a jurisdiction.

• Top-down, uniform, and politically enforced.
• Often slow to adapt and vulnerable to political incentives.

Public choice economics
-Politicians and regulators respond to incentives just like market actors.
-Legislation may serve special interests rather than public goods.
-Regulatory capture is a central risk.  

Public goods
->Markets tend to underprovide them without institutions.
->Legislation is often justified on public-goods grounds.

Politicians and incentives
-> George Mitchell, senator until 1922.
->Respected for integrity and commitment to public goods.
->But integrity is not guaranteed—institutions matter more than individuals.

What is the market?
->Unregulated voluntary transactions between individuals.
->Coordination without central authority.
->Prices transmit information.

Markets are not value-free
->Customary practices, religious beliefs, moral norms shape behavior.
->Ethics and social norms constrain harmful actions.
->Civil liability reinforces these norms.

How to deal with TOC

• privatise- can be dangerous

• restrict use

Seahorse. Marine biologist taught how to make fish net to prevent baby from dying but keep parents. Gained trust and help privatise. Once they did that, many people started poaching and stealing. 

Civil liability insurance, prevented companies from doing extremely dangerous things.

Regulation through liability and civil regulation both didn’t really work 

Common law
-Law that emerges from cases and precedents.
-Markets are endogenous to common law institutions.
-Rules evolve through disputes rather than legislation.

Regulatory machismo
-Overconfidence in legislation as the primary solution.
-Ignores decentralised enforcement mechanisms already operating.

Public policy analysis problem
-Focuses narrowly on one policy lever (usually legislation).
-Fails to compare alternatives like common law and civil liability.

Civil liability as regulation
-The “invisible gorilla” of public policy analysis.
-Always present, rarely discussed.
-Operates "ex post" rather than "ex ante"

Negative externalities
-If harms are not internalised by ethics, customs, or civil liability,

then regulation to internalise them is justified.
-what mechanism works best?

Comparative institutional analysis
Good public policy compares:
– legislation
– common law
– civil liability
– social norms
Not legislation vs nothing.

Pretty cool Mcdonald’s hot coffee case
Woman suffered third-degree burns.
Initially wanted $800 to cover medical bills.
McDonald’s refused to settle.
Jury awarded $2.1 million in punitive damages.

Why the case mattered?
-McDonald’s had been sued many times before.
-company ignored known risks.
-cvil liability created real incentives to change behavior.

civil liability vs regulation:
civil liability can outperform standard regulation.
government regulators face budget constraints.
regulators can be captured; attorneys are harder to buy off.

High-stakes liability
Plane crash can generate ~$1 billion in liability.
Creates strong safety incentives without detailed regulation.

Role of personal injury lawyers
Enable ordinary people to challenge large corporations.
Counterbalance regulatory capture.
Decentralised enforcement.

Tragedy of the commons (TOC)
Possible solutions:
– privatise (can be dangerous)
– restrict use
– social norms and liability

Seahorse example
Marine biologist taught selective fishing techniques.
Built trust with local community.
Attempted privatisation led to poaching and theft.
Shows limits of simple property rights solutions.

Civil liability insurance
Insurers price risk.
Discourages extremely dangerous behavior.
Acts as a private regulator.

Limits of liability and regulation
Neither works perfectly in all cases.
Institutional context matters.

Free speech
Free but responsible speech.
Civil liability applies:
– defamation
– negligence
– misrepresentation
– tortious interference
– emotional distress

Speech regulation through tort law
Speech constrained without criminalisation.
Victims seek compensation rather than punishment.

Criminal law
Alternative mechanism for discouraging violent or dishonest acts.
Used when civil liability is insufficient.

Final question
How far should we go before legislation?
Government is not required for law.
Common law is binding law.
Legislation is only one regulatory tool- not the default.