What You Don't See Can't Hurt You: An Economic Analysis of Morality Laws

Abstract

This paper provides an efficiency explanation for laws regulating sex, drugs and gambling. The argument is motivated by the observation that the design of these laws often promotes discretion by the people engaging in such activities. We propose that morality laws can be best explained by considering the proscribed activities to impose a negative externality on others when the activity is observed. In such a case, efficiency requires discretion on behalf of the individual who engages in such activities. Since discretion is often difficult to regulate, the activities are instead proscribed thereby giving individuals incentive to hide their actions from others. In addition, since some level of activity is efficient, the optimal sanctions are not maximal.

Keywords: Crime, externality, law and economics, morality, enforcement

JEL Classification: K42, K32, H32