The Ex-Middle Problem for Law-and-Economics

Abstract

Law-and-economics has an ex-middle problem. First, there is the problem of preserving law’s deterrent power, and its ability to influence later behavior, even when it is sensible to renegotiate incentives later on. The issue is hardly limited to contract renegotiation, and the ubiquity of this kind of ex-middle thinking is examined here. Second, there is the idea that the more our thinking is driven by an ex-ante perspective, the more it distances itself from common ethical intuitions that tend to involve ex-post observations, or simply results. Solving ex-middle problems by tinkering with incentives leads to increased objections from ethically oriented audiences, who find efficiency claims unattractive when they burden individuals in the interest of future unidentifiable beneficiaries. This conflict makes it hard for law-and-economics to have its deserved influence on lawmaking. When law renegotiates with positive incentives, it reduces its ex-ante impact; when it relies on negative incentives, either ex-post or ex-middle, accompanied by a readjustment of the optimal ex-ante rule, it runs the risk of offending ethical sentiments, and then it rarely takes hold. One aim here is to draw attention to ex-middle recalibrations, and the second aim is to suggest that a law-and-economics approach is most successful when it devises efficient rules that are not at odds with ethical sentiments.