Friday, May 31, 2013

Laws are ink on paper

Laws are ink on paper, as argued by the chief economist of the World Bank, Kaushik Basu. What he means is that the fact that laws prescribe something does not automatically change the incentives of agents affected by the law. To be effective, laws must be enforced, and the enforcers must find it in their interest to apply the law. At most, laws can be focal points that make it possible for individuals to coordinate around one particular course of action among many. But in general there is no guarantee that individuals will coordinate around a legal focal point as opposed to some other focal point, arising for example from tradition or from violence. Important institutions may be formal as well as informal, as it has been argued by institutional economists such as North, Greif or Aoki. The latter has been the one that has most emphasized the importance of words, in the sense that words facilitate the cognitive salience of features of institutions that sustain individuals' beliefs. The relationship between institutions, laws and language has also been stressed by the philosopher John R. Searle, for example in his book "Making the Social Order. The Structure of Human Civilization." In practical terms, in my view the lesson of this is that it is very incomplete to suggest policy reforms that are merely based on legislative changes, which has implications for issues such as political reform, the fight against corruption or the legal creation of new institutions.

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