Berkeley Program in Law and Economics

Law deters, educates, and coordinates. Economists typically focus on deterrence and sociologists often focus on education. Since deterrence causes marginal changes and education confronts relatively stable preferences, economists and sociologists may overlook law’s largest effects on behavior. We hypothesize that law’s largest effects come from coordination. Normative systems have multiple equilibria, so announcing a new law can change expectations and cause behavior to jump from one equilibrium to another. To demonstrate this possibility, we ran games with interdependent payoffs in which we simulated a law by telling experimental groups that choosing Left will result in a “penalty” ten percent of the time. We set the penalty too small to change the equilibria among rationally self-interested actors, thus eliminating deterrence effects. First we ran a PD game in which the penalty does not affect the uniquely dominant strategy of each player. In these circumstances, any change in behavior caused by announcing the penalty must result from more people acting morally and renouncing self-interest. In fact, announcing the penalty did not change the number of moral actors. Next we repeated the experiment in a crowding game with a uniquely dominant strategy for each player and obtained the same results as in the PD game. Finally, we ran a coordination game with multiple equilibria. Announcing the penalty caused jumps in behavior from one equilibrium to another. The power of the penalty to coordinate increased as the proportion of actors decreased whose cooperation was needed to tip the system to a Pareto-superior equilibrium.