Katz highlights 4 'perverse' aspects of the Law. Yet each is necessary for the existence of a Legal regime.
1) Why does law prohibit certain win-win transactions? If at least one, non-repugnant, Pareto optimal transaction is not prohibited then the Law is not autonomous. A win-win situation would be to abolish the rule of Law and substitute for it whatever always yields the same result more economically. If the Law does not prohibit its own abolition, there would be no Law- perverse or otherwise.
Moreover, if a Legal regime does not incorporate at least one 'costly signal' (in this case, the chance that at least one 'win-win' transaction will be denied to those who agree to be bound by its decisions) then there is no 'separating equilibrium' and thus Law is purely Austin 'Command' - and thus effectually an executive function. It lacks a defeasible ethos and can't burgeon on a bilateral basis.
Thus, both for 'supply' and 'demand' reasons, the Law is rational, not perverse, to have this feature.
2) Why are there so many loopholes in the law? A Loophole is an example of less than universal access or coverage. If a Legal regime has a procedural monopoly it will practice service-provision discrimination- i.e. feature gaps in coverage or access- just like any other 'natural monopoly'. Even under imperfect competition- e.g. where jurisdiction shopping is permissible- we will expect to see service-provision discrimination and 'product differentiation' of the type noticed above.
3) Why does so much of law have a dichotomous nature? If it didn't, its scope would be restricted to univocal transactions such that no quid juris /quid facti type problem would arise. But in this case, it would lose salience and be replaced by something capable of wrestling with this demarcation dilemma.
Huang tells us, Katz takes a different approach to explaining 'why so much of the law has a dichotomous nature. The famous mathematical economist Graciela Chichilnisky introduced the condition of continuity on preference aggregation and in so doing, pioneered a field that has come to be known as topological social choice because of its use of the mathematical field known as topology that studies continuity in abstract settings. Chichilnisky offers two intuitive rationales to motivate the naturalness of her axiom that desirable voting rules be continuous. First, a desirable voting rule should produce an outcome that is tolerant of small errors in measuring the preferences of individual voters. Second, a desirable voting rule should satisfy structural stability in the sense that small changes in the preferences of individual voters should lead to small changes in the social preference that voting rule produces. The discontinuity of a voting rule means that for some small changes in the preferences of individual voters, that voting rule produces large changes in the resulting social preference.'
The problem here is that no rational voter would desire, or vote for, using up scarce resources to implement a 'desirable voting rule' of any description- more particularly Chichilnisky's.
Chichilnisky postulates that a society will and should avoid voting rules that can generate catastrophic jumps in the resulting social preferences
This can be done by avoiding voting rules altogether and in fact that's exactly what happens except on issues where it is in everybody's interest to have dramatic saltation events with respect to focal solutions to coordination problems.
Most things in life are neither 'justiciable' nor political. Those things which are either one or the other involve situations where a small, even incremental, change in the information set drastically alters collective decisions because a boundary has been crossed. Where this happens, a strong signal must be sent and if it appears 'catastrophic' so much the better. 'Respected Doctor jailed for kissing his kids goodnight' sounds dramatic. It makes for an arresting headline. However when we read that the Doctor incrementally changed the locus of his kiss from the middle of the cheek till it was upon the lips of the child we feel it important that the fellow be made an example of.
Similarly, in 1938, everybody knew Hitler was a nasty man who was gobbling up Czechoslovakia but only a minority wanted to go to war with Germany. Within a year, that had changed decisively though Hitler was only acting incrementally.
In my second year of graduate school, I submitted to the Western Economic Association International annual conference a paper that applied Rene Thom’s catastrophe theory to analyze discontinuities in social choice.
These discontinuities are a feature of choice as opposed to unconscious processes. Their absence, not presence, would be evidence that Social Choice in the polity was dysfunctional.
Katz explains that Chichilnisky’s impossibility theorem has a profound implication for the credibility of law and, correspondingly, the foundations of justice in a society . He uses the phrase “sharp boundaries” to refer to the discontinuities that are the subjects of Chichilnisky’s impossibility theorems. And he observes that in the typical situation where the law generates only one of a pair of two possible outcomes, Chichilnisky’s theorem implies that two very similar legal cases may produce very different legal outcomes. For example, in the criminal law context, there can be two defendants who are so alike that most people are unable to distinguish between their cases and yet a court may find one defendant guilty and the other defendant not guilty. The possibility that comparable legal cases may result in such drastically different and even diametrically opposed outcomes makes the legal process appear to be arbitrary, capricious and unjust. Such legal discontinuities can jeopardize the rule of law by leading the public to question the authority, fairness and legitimacy of law.
Error, negligence or corruption do jeopardize the rule of law in the manner stated. However, ordinary people readily understand both the notion that 'Hard Cases make bad law' on the one hand as well as the notion that sometimes a signal has to be sent by what appears to be a violation of natural justice.
4) Why does the law not criminalize all that society morally condemns? Society has well known Preference Revelation and Falsification problems. In any case, the Law needs to guard its autonomy or risk being hijacked by an Ecclesia.
Huang writes- 'Katz proposes in the second part of his book that exploiters of loopholes introduce a seemingly irrelevant alternative precisely to cause a preference reversal between a pair of relevant alternatives. He draws the analogy between exploitation of loopholes and manipulation of voting rules, arguing that loopholes are the logically unavoidable consequence of law involving multiple criteria decision-making. In other words, because the law strives to balance partly conflicting objectives, society cannot eliminate the presence of loopholes. As he observes on page 211, it follows from the seminal result of social choice—Arrow’s impossibility theorem—that society cannot eradicate agenda manipulation in otherwise desirable voting procedures.'
This is nonsense. An individual's preferences arise in the context of multiple criteria decision making. Rationality, since at least the time of Socrates, has been defined as seeking to make one's preferences consistent with some more or less conflicting set of meta-preferences. Judicious reasoning about personal decisions is actually the sine qua non for judicial reasoning within a Legal regime. In Capitalist Societies, this consists of applying the standard of the reasonable man, though diminished responsibility might be a defence. In Soviet Russia, greater weight was given to class origin as determining consciousness because 'the reasonable man' was both subject to and the object of Dialectical Reason.
It is sufficient for us to re-define 'reasonable man' as 'Muth Rational' man- i.e. one who judges according to the correct theory- for problems of McKelvey 'dimensionality' or 'cyclicity' to disappear. Why? Well, whatever can be said of the individual must also be true of the aggregate because of the nature of Muth Rationality. No doubt there may be stupid people or those with antagonomic preferences but, if Chichilnisky's specification that preference diversity meet a Goldilocks condition of not being too little or too great- which is also the condition for the underlying subject to be effable- then the Condorcet Jury theorem has purchase. In other words, the Law can't be more perverse than the 'reasonable man'.
Huang says- 'Katz draws connections in the third part of his book between the usually binary nature of law and Chichilnisky’s impossibility theorems proving the prevalence of discontinuities in preference aggregation.'
Actually, what is salient in Chichilnisky's work is the notion of 'limited arbitrage' which only arises where there are 'gains from trade' and, in consequence, Law has a subject matter. If we further restrict our domain or enquiry to situations where 'reasonable man' type tests are salient- though the Social Choice space may feature 'holes', no great scandal arises for the Law because, once again, no greater perversity can be ascribed to it than that which is the common lot of every Muth rational agent. Indeed, in so far as the Law is salient for co-ordination problems, 'perversity' is reduced by its actions.
Huang continues- 'Katz connects discontinuities in social choice with menu dependence by observing that drawing a sharp line between two polar endpoints of a continuum is only necessary when considering how to rank some third intermediate alternative relative to each of the pair of endpoint alternatives . When society draws that somewhat arbitrary sharp line a discontinuity in the social ranking will result.'
There is an obvious Hohfeldian objection we must make here. Either there is a way to 'factorise' alternatives so that they are independent or else they aren't alternatives at all but rather convey information as in the Monty Hall problem.
Huang writes- 'Economists are trained to believe that a hallmark of rationality is transitivity of choice behavior. Conversely, economists view intransitivity of choice behavior as evidence of irrationality.'
Economists get some training in mathematics where transitivity is important. However, Economists are perfectly happy using 'representative agent' models or partial equilibrium models which have been shown to feature intransitivity and not just irrationality but downright stupidity.
Indeed, the market for Economic theories, robustly displays nothing but stupidity which is why the Econophysicists feeding off Big Data have already supplanted Economists in FinTech.
Social Choice theory is simply silly. No body would vote for a 'desirable voting rule'. The whole Academic Availability Cascade arises out of an assumption of intransitivity.
Casual empiricism suggests that if you point out to people that their choices are intransitive, they usually will change their choices to avoid intransitivity. It would be interesting to use the methods of experimental philosophy to investigate people’s intuitions about loopholes, menu dependence and the desirability of transitivity of individual choice behavior.
No it wouldn't be interesting at all but just more Junk Social Choice. We already know about things like Cognitive Dissonance and Newcomb type problems and Hawthorne effects. Since we are time-bound creatures, we don't maximise utility but achieve something like aggregate 'regret minimization'. We do change our behaviour when someone tells us something or 'nudges' us because cognition is costly and 'crowd-sourced'. Economists, at one time, had an Aumann signalling function because they could defy Preference Falsification associated with 'Conventional Wisdom'. Since then, they have shat the bed too many times and, in any case, now publish worthless click-bait.
Huang says 'The phenomenon of menu dependence and its close relatives, cycles, loopholes and discontinuities, raise deep questions about what rationality means and should mean.'
This is nonsense. The people who raised these 'deep questions' were discovered to be shitheads because they gave the worst possible policy advice. Think of Amartya Sen, Kaushik Basu or, the academically less gifted, Varoufakis.
Menu dependence does not exist unless you are an academic closing your eyes very tight and wishing upon a shooting star that your worthless paper get published and cited by other worthless papers so that your career can develop yet more meretriciously.
The examples Huang quotes are risible.
Take the case of a kid who won't eat his peas though his Mum pleads with him to do so. Later, he accepts money from his Gran to eat peas. This causes his Mum to force him to eat peas without paying him as a 'costly signal' of his love for her.
There is no 'menu dependence' or cyclicity here at all. Eating peas now has a signalling function- viz. to demonstrate love, or fear- which it did not previously have.
Amartya Sen has a story about a guest who chooses the smaller of two pieces of cake. The host now offers a third much larger piece. The guest now switches to the medium sized piece of cake. Why? Her information set has changed and so her choice which was 'take the second largest piece' has changed in a consistent manner.
Discontinuity in either individual or social ranking suggests that there is an arbitrage opportunity involving a dis-coordination game. Economists now see this as necessary for dynamic efficiency. But, Equitable Jurisprudence has had the same view since the time of Aristotle. There is no great scandal here.
'In the fourth part of his book (206-08), Katz relates how menu dependence can explain under-criminalization. It should not be surprising that how society and criminal codes rank a pair of alternative blameworthy acts can depend on whether and which other blameworthy acts are also being ranked. He analyzes non-felonious villainies which entail acts of misconduct that do not appear to be so immoral when viewed in light of the whole spectrum of all possible wrongdoing and yet will seem quite immoral when compared to a particularly innocuous offense.'
Where labour has a non zero marginal product or the cost of punitive justice is high, we are bound to see under-criminalization. Thus the Iraqi bogus refugee who raped a kid in a swimming pool because of 'a sexual emergency' has been released after a couple of years in prison- presumably to be deported. It is costly to lock him up. On the other hand, chopping off his head is cheap, so jurisdictions which go in for that sort of thing would have disposed off his case in that manner unless, of course, he had money enough to buy his freedom.
'Katz 'also provides details about how menu dependence is the root cause of these four specific examples of loopholes: contrived defenses, obtaining political asylum by subterfuge, asset protection and tax shelters (109-18). ' This can't be true. An arbitrary Tribunal excused from having to act consistently or to publish ratios in each case might arrive at the same conclusions. Indeed, if loopholes arise by reason of discontinuities then arbitrage opportunities exist such that novel combinations of 'factorised' rights are created- these can have the feature of a Parrando Game which permit a sort of Agency Capture by reason of bilateral rent seeking.
It is the essence of ergodic Economics- as opposed to clickbait articles- that both commodity and preference space are infinitely factorizable and re-constitutable. 'Menu dependence' can't arise because opportunity cost is a global concept. All that matters is the information set. To argue otherwise is itself a wilful blindness or actio libera in causa.
Which is not to say that Spam Jurisprudence, like Junk Social Choice theory, we oughtn't to have always with us because Professors are assholes too and assholes gotta do what assholes gotta do
The marriage between Law & Economics helped securitize their joint student debt which was then sold to the stupid ordoliberal Krauts who wrongly believed that both couldn't be as utterly bankrupt as Trump University. Sad.