Moral Externalities: An Economic Approach to the Legal Enforcement of Morality

Abstract

In this paper I examine a number of economic arguments for the legal regulation of morality. Firstly, I present the harm principle as it was famously defined by John Stuart Mill, not only as a principle for a liberal objective criminal law but as a guiding principle for political liberalism. I call Mill’s principle, the “liberal principle” to differentiate it from the “democratic principle” of majoritarian collective decision-making. Even though these two principles are antagonistic in contemporary liberal democracies they also have a symbiotic relationship. After discussing the critique to the liberal principle by legal paternalists and legal moralists, I examine an additional argument in favor of a moralistic view of the law, the “moral externalities” argument. This is a quite powerful and interesting argument which is based on amoralistic grounds and it is defended by major law & economics scholars, among others. I am linking this argument to Sen’s impossibility of Paretian Liberal theorem and the traditional moralistic arguments developed by philosophers and lawyers (Stephen, Devlin). I rebut these arguments by defending a narrow version of the right to self-ownership based on the Coase theorem as this was reconstructed and used by Richard Posner and Guido Calabresi. The problem with welfarist moralistic argument is that they lead to the assignment of rights to a moral majority under the assumption that this would maximize total welfare. But this undermines Coasean dynamics because of the creation of open classes of right holders. In addition, the external effects that “immorality” can create are value effects, not physical effects. My conclusion is not a system of moral anarchy, but an appeal to the importance of “establishing closed and identified classes of rights holders.” This can be achieved by assigning the right to self-ownership to individuals themselves (“natural owners”), instead of making society, i.e. a “moral majority” a co-owner. An auxiliary objective is to show how law & economics literature can be fruitfully used in the discussion of issues that are considered prima facie irrelevant to the economic approach.

Keywords: legal regulation of morality, harm principle, legal moralism, moral externalities, Coase theorem, self-ownership, law & economics, John Stuart Mill, Amartya Sen, Richard Posner, Guideo Calabresi

JEL Classification: A12, A13, D62, J12, J16, K10, K36, K42