David Friedman. Private Rights Enforcement.

I imagine a society where there is no government. Where each individual is the customer of a firm that sells him the service of protecting his rights and settling his disputes. And this raises an obvious problem, which is if I have a dispute with you and we have different rights enforcement agencies, different firms, how do we settle the dispute?

And people imagine that it can't possibly work because the two firms end up fighting each other. And my response to that is that warfare is expensive. It produces rather unpredictable results, so from the standpoint of both firms, it makes much more sense to agree on a private court, an arbitration agency, that will settle disputes between them and whose verdicts they will abide by.

And then the question is what enforces that agreement given that in this imaginary society there is no government to enforce contracts? And the answer is it is being enforced by what is sometimes referred to as the discipline of constant dealings. The fact that they're repeat players, and so my firm knows that if, when it loses a case - when its client loses the case - it doesn't go along with that verdict, then the next time that the other firm's client loses the case, it won't go along and they're back having to fight each other or engage in some other less satisfactory way of settling their disputes.

So in that society, law itself is being produced on the market. That is to say, each arbitration agency wants to have a set of rules and procedures such that rights enforcement agencies will want to use their services. Each rights enforcement agency wants to contract with arbitration agencies that have rules and policies such that the customers of the rights enforcement agency want to be under them.

So in effect, you've got a market where people are trying to design legal systems for customers. You might argue the same thing is true in a democratic political system, that the laws are made by a legislature and the legislators want to do things the voters will like.

But in the democratic political system, the individual voter knows that his vote has very close to zero chance of influencing the outcome. It therefore is not in his interest to devote much time and energy to figuring out what the law should be or whether his representatives have done the right things.

So that means that in order for the individual voter to do what democracy, in a sense, expects him to do, he has got to bear sizeable costs, and he gets essentially no payoff for doing that. And generally, people are very reluctant to do things that are expensive and do them no good, so they don't.

Whereas in the system I'm describing, the individual has to some degree the ability to choose what rights enforcement agency and what set of laws he's under. The individual consumer has a rational incentive to be reasonably well informed and to act on that information.

And the fact that he has those incentives means that the providers - both the rights enforcement agencies and the arbitration agencies - have an incentive to provide the services the customers want.

If you'd like to see more videos like this, support Tomasz on Patreon.