Kaushik Basu’s new book uses game theory to explore why some laws are obeyed while others are flouted.
No one doubts that air pollution is a big concern in the National Capital Region of Delhi. Every year, the situation deteriorates by the time Diwali arrives and the Delhi government comes up with various knee-jerk measures. This year, in addition to a number of steps taken by the government, the Supreme Court got involved. In its verdict on October 23, the apex court placed various restrictions on the sale and bursting of firecrackers on Diwali. The ruling, however, did not deter citizens of Delhi, and many went ahead and engaged in gross violations of what the SC mandated.
Even putting aside the question of health, how can we explain this stubborn behaviour that is clearly in violation of law? Kaushik Basu’s recent book, titled The Republic of Beliefs, can help us understand this. Basu uses modern game theory to understand why some laws get successfully implemented while others are blatantly flouted and remain merely “ink on paper.”
Basu takes the traditional economic analysis of law head-on and argues that the assumptions in conventional models of law and economics are conceptually flawed and inconsistent. Contemporary approaches assume that citizens are primarily self-interested individuals who focus solely on maximising their gains, and that the state functionaries (police, bureaucrats, judges, etc.) ensure that citizens remain within the bounds of the laws. In doing so, they assume the state actors are devoid of any selfish interests and diligently follow their duty as enforcers of the law. It is therefore difficult to explain state corruption within this framework.
The mainstream approaches also assume that a new law changes the rules of the game that the society is playing and, by extension, the game itself changes. However, Basu contends that a new law or an amendment does not change the game; it only changes people’s beliefs about the rules of the game. He says:
The might of the law, even though it may be backed up by handcuffs, jails, and guns, is, in its elemental form, nothing but a structure of beliefs carried in the heads of all the people in society—from the ordinary citizenry to the police, politicians and judges—, intertwining and reinforcing one another, till they become as strong as concrete structures, and create the illusion of being made of bricks, mortar and steel.
The legitimacy of the law, therefore, comes not from the power of the state but from the power of citizens’ beliefs.
Per Basu, the only way in which law affects people’s behaviour and social outcomes is by creating and shifting focal points. Focal points are those self-enforcing equilibriums that help people guess what others expect them to do, and hence coordinate their actions. According to him, law brings about change only “… by altering what I expect the other person to do and altering what the other person expects me to do. It also probably affects higher-order beliefs, that is, beliefs about beliefs.” Laws, therefore, ought to shift focal points from low-level equilibriums to better equilibriums. Of course, focal points take time to gain salience, and until that happens, some people might be caught in an old low-level equilibrium.
While the focal-point approach makes perfect intuitive sense, Basu himself admits that the concept is not fully developed. For instance, while he recommends that a law shouldn’t direct the society to an outcome that is not a focal point, it is not clear how one can determine focal points in the first place. Nevertheless, he provides a starting point, which is to create a foundational belief in society that laws are meant to be followed. This can come about by building and fostering a bureaucratic culture where civil servants punish each other for not doing their job. He argues that once this focal point is created, law enforcement will become effective.
It is fascinating that the language of beliefs and expectations that Basu uses regarding legitimacy of law is very close to that used in the study of social norms as championed by Christina Bichhieri. Indeed, Basu has also dedicated one of the chapters in the book to the topic of law and social norms, and he points out many similarities and differences between the two. While the book in itself is very well researched, he could have leveraged Bichhieri’s extensive work to enrich the discussion on this topic.
Basu has an exemplary profile. He was also the chief economic adviser to the government of India during Manmohan Singh’s term, and regales the reader with many anecdotes (often of the self-deprecating kind) of his experiences as a policymaker. Even though Basu uses two chapters to lay the foundations of modern game theory and the traditional approach to law and economics, there is never a dull moment in the book. The lucid writing shines in the synthesis of various philosophical arguments in law and formation of beliefs in societies. For all those who spend their energies in bringing about change in society, this book is a must read.