Law and Preferences

Posted: 29 Feb 2008

See all articles by Oren Bar-Gill

Oren Bar-Gill

Harvard Law School

Chaim Fershtman

Tel Aviv University - Eitan Berglas School of Economics; Tinbergen Institute

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Abstract

Legal rules do more than provide incentives, they change people. When preferences and norms are endogenously determined via a process of imitation and learning, legal rules, by affecting the market outcome, may affect the dynamics of preference formation. Analyzing the effect of different legal rules should therefore go beyond the analysis of the incentives they provide. It should also include an analysis of their effect on the distribution of preferences and norms of behavior. We illustrate this claim by considering a simple market game in which individuals may have preferences that include fairness concerns. We show that different legal rules change not only the pattern of trade in a market game, but also individuals' fairness concerns. That is, different rules may eventually make individuals care more (or less) about a fair outcome. Specifically, our model suggests that enhanced remedies for breach of contract may reduce equilibrium preferences for fairness.

Suggested Citation

Bar-Gill, Oren and Fershtman, Chaim, Law and Preferences. The Journal of Law, Economics, and Organization, Vol. 20, No. 2, pp. 331-352, 2004, Available at SSRN: https://ssrn.com/abstract=832339

Oren Bar-Gill (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

Chaim Fershtman

Tel Aviv University - Eitan Berglas School of Economics ( email )

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Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7167 (Phone)
+972 3 640 9908 (Fax)

Tinbergen Institute ( email )

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Netherlands

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