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Privatization of Justice

Privatization of Justice. Is Ordered Anarchy stable…..?. Hard-core-set of political institutions = involved with use of violence Taxation : gvt. takes money from citizen under threat of violence

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Privatization of Justice

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  1. Privatization of Justice Is Ordered Anarchy stable…..? Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  2. Hard-core-set of political institutions = involved with use of violence Taxation: gvt. takes money from citizen under threat of violence National defense: government uses organized violence either against outsiders’invasion or to attack outsiders Justice: government backs court system by using violence either to bring people to court or to execute sentences Section 1: Specificity of Privatization of Justice Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  3. Privatization of these hard-core-institutions is much more complicated issue than other privatizations Soft-body-privatizations 1.Pure private goods (excludable,rival): arguments= incentives (Smith),information(Hayek) 2.Collective goods (excludable,non-rival):arguments =club goods,equilibrium admission prices (Buchanan) 3. Public goods (non-excludable,non-rival): arguments=territorial clubs(Foldvary),repeated games(Axelrod) 4. Natural monopoly-network industry: arguments=private but regulated;(Liebowitz-Margolis) Section 1:Specificity of Privatization of Justice Section 1: Specificity of Privatization of Justice Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  4. Privatization arguments for soft-body-categories only valid when voluntary deals, through which spontaneous order evolves, are backed by predominant provider of violence 1. Markets in private goods need protection of property,enforcement of contracts,enforceable entry to market 2.Voluntary provision of collective goods: idem, to charge admission prices, to set up competing clubs 3. Voluntary provision of public goods: idem, to set up territorial clubs, to enforce contracts in repeated games 4. Private provision of natural monopolies: idem, especially enforceable entry to market Section 1: Specificity of Privatization of Justice Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  5. Soft-body-privatization Section 1: Specificity of Privatization of Justice Rule of Law Umbrella B State managed sector A Private competing firms Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  6. Hard-core privatization would mean break up of monopolistic provision of umbrella under which soft-body-privatizations can flourish Classical arguments related to soft-body-privatizations don’t work because monopolistic umbrella, under which they work is gone Umbrella is itself theater of competition Burden of proof is heavier: not merely showing that privatized sector works better, but also that broad impact on rest of society is beneficient Section 1:Specificity of Privatization of Justice Section 1: Specificity of Privatization of Justice Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  7. To focus the discussion: some assumptions, narrowing the research field are made Privatization of justice occurs in a world without redistributive taxes,without need for collective defense, without regulation and statist criminal law Section 2 : Assumptions Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  8. 1. No redistributive taxes: tax-income is spent to finance public services and to redistribute. In case of disappearance of predominant provider of violence, redistribution would occur through competing wealth grabbing firms. This would not only lead to inefficient overtaxation, but also to sources of violent conflicts. In order to purify the debate on justice privatization we start from a world were taxes are only used for financing purposes Section 2: Assumptions Section 2 : Assumptions Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  9. 2. No need for collective defense: two sub-assumptions No outsiders’ threat to society (p.ex. there is only one society in the world, the other societies are geographically very remote,the other societies are entirely peaceful) No internal collective threat of a take- over of the whole society; homogeneity in society, no racial,religious,cultural, political split; no need for prevention of revolution or civil wars Conflicts only interindividual or between small groups Section 2: Assumptions Section 2 : Assumptions Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  10. Why this assumption? If privatization of justice occurs in a world with predominant military organization it is very likely that this organization will fill the gap of violence provision No dramatic adjustments required;army is closest substitute of law enforcement Historical examples Military courts in army Use of military courts in post-war-era in Europe Laws against use of army for justice purposes (U.S.: Posse Comitatus Act 1878) Bruce Benson : influence of war-threat in Saxon England on law enforcement Section 2: Assumptions Section 2 : Assumptions Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  11. Existence of predominant military force would affect decisions in a world of privatized justice and lead to different outcomes Example : in a world without such a force weaker parties will confederate with others; in a world with such a force weaker party will run to military force in order to intervene in its favour for law enforcement Section 2: Assumptions Section 2 : Assumptions Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  12. No regulation, no criminal law: privatization occurs in a world in which litigation is only between private parties, never between private party and government; this is only possible when there are no regulations (p.ex. public zoning) or criminal law pitting state attorneys against indicted private parties Section 2 : Assumptions Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  13. Why this assumption? If privatization of justice occurs in a world of statist criminal law and/or regulation, disagreements on these rules could be an additional source of violent conflict;conflict will not be about law enforcement in its strictest sense, but about ‘policies’, will be a ‘civil war’ Starting point is state monopoly on protection of rights (property,contract,tort); Question:Is a world without such a state monopoly better or worse? Section 2 : Assumptions Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  14. Hobbesian anarchy: situation of multiple and lasting micro-wars; cooperation becomes impossible; society reverts to autarky Hobbes recognizes possibility of confederation, but such confederations can be agressive as well as defensive Section 3 : The classical argument against : Hobbesian anarchy Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  15. Hobbesian anarchy with regard to justice-provision: clash of law enforcement-agencies in case of incompatible sentences Example : PJA Able rules in favour of its customer (p.ex.land occupation) and PJA Tough in favour of its customer (p.ex. divestment of Able-customer of land); enforcement of both sentences leads to violent fight for the occupation of the land Section 3: The classical argument against: Hobbesian anarchy Section 3 : The classical argument against : Hobbesian anarchy Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  16. Libertarian literature: Hobbesian anarchy will be replaced soon by ordered anarchy (Rothbard, D. Friedman,Stringham, Caplan) Why? ‘violence is too costly to last’; violence is very costly for all involved parties; parties will make deals to settle conflicts peacefully, probably by arbitration Result: as peaceful as under state monopoly but more efficient because of competition Section 4 : From Hobbesian to ordered anarchy Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  17. Game theory lends support to libertarian position Confrontation game Tough C S C Able S Section 4 : From Hobbesian to ordered anarchy 0,0 9,2 2,9 7,7 Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  18. Confrontation game : two Nash- equilibria: (C,S) and (S,C) Which one? depends on different circumstances such as who is first mover, who has most credible threat However libertarian outcome is not guaranteed: suppose customer of Able is hard-working farmer, established title on unoccupied land; customer of Tough is brutal bastard who drove Able customer out; Able sentence is//natural law; however in confrontation game Tough-customer can prevail Section 4 : From Hobbesian to ordered anarchy Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  19. Conclusion : confrontation game, related to one-shot-confrontations under Hobbesian anarchy predicts peace, ‘equilibrium’, but it is not efficient (S,S, would be) and libertarian outcome is not guaranteed Result is bleak: neither justice nor efficiency is guaranteed; only lasting violence will be avoided Section 4 : From Hobbesian to ordered anarchy Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  20. Repeated games and arbitration: when customers of Able and Tough face the prospect of repeated confrontation games, perspective is likely that rather outcome (S,S) will prevail; which leads to cooperative surplus of (14-11=3) Able and Tough will coordinate, abandon use of force in the future and split cooperative surplus If one of the parties does not comply it can be punished in next game by the other party playing C Outcome is not ‘libertarian’ although closer to it than under one-shot Hobbesianism (7 instead of 9+2/2=5,5) Section 4 : From Hobbesian to ordered anarchy Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  21. Able and Tough can agree to leave interagency conflicts to arbitration comitee PAA Fair PAA Fair has an incentive not to bias in favour of one PJA; otherwise defection; will develop strategy to keep both as customers Section 4 : From Hobbesian to ordered anarchy Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  22. How? 1. Taking turns Tough C S suppose in F1 in favour of Able, Able C T will submit S suppose in F2 in favour of Tough, A will submit In this case correlated equilibrium; outcome is same as under Hobbesian one shot games, but cheaper because no more investments in violence; but not stable; customers may defect at their losing turn Section 4 : From Hobbesian to ordered anarchy 0,0 9,2 9,2 7,7 Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  23. 2. Choose an open ended criterium P.ex in property conflicts Lockean-Bartolian rule: homestead plus peaceful transfer; customers of Able and Tough may accept this when they are unable to make credible guesses about their prevailing-rates; when however Tough only violent bastards and Able nice people, no agreement; if mixed it will When substantial criterium is accepted: important shift in nature of services of PJA’s; not simply prevail but prevail, given a normative context, i.e. the substantial rule; by providing good arguments,evidence,by limiting the sanction Section 4 : From Hobbesian to ordered anarchy Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  24. Related to libertarianism: adoption to open-ended rules close to Hayekian formal rule of law-ideal; but different from natural law-position of Rothbard; see for instance rule that property disputes will be decided by toss up; also open ended, but not natural law Section 4 : From Hobbesian to ordered anarchy Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  25. Until now dyadic world; what will happen in a world of coalitions? P.ex.: third PJA Smart; when PJA Able is attacked by PJA Tough the latter can ask for help to PJA Smart ( see Hobbes, defensive and agressive confederations) Such an anarchy unstable? Section 4 : From Hobbesian to ordered anarchy Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  26. Section 4 : From Hobbesian to ordered anarchy • Three agency-game of de Jasay • First two parties make coalition against third • In next round second one deserts and make coalition with third of former round Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  27. Result of three rounds is equal; each party in rich-poor-exploited position Churning of redistribution is very costly; Parties will make an agreement to stop this violent redistributive game; divide cooperative surplus and also to resort to arbitration Conclusion : also in coalition -world there will be stable and ordered anarchy based on open-ended rules Section 4 : From Hobbesian to ordered anarchy Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  28. Until eighties debate was exclusively on likelihood of Hobbesian(statists) or ordered anarchy(libertarians) Libertarians (Friedmanites,Hayekians, not natural law-ones) have carried victory in this debate by showing the likelihood of ordered anarchy based on arbitration and open-ended rules This only when no external threat necessitating military structures Section 5 : From ordered anarchy back to the state Section 5 : From ordered anarchy back to the state Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  29. In nineties: Impossibility theorem of Tyler Cowen Cowens’ argument is broader than only on anarchy debate Libertarian paradox: against government intervention for public good-market failures because PD-problems can be solved by voluntary cooperation (see p.ex. ethics turnpike- de Jasay-PD-problems can be solved by tribal solidarity,altruism,Kantian morality,repeated games, money-back-guarantees) Section 5 : From ordered anarchy back to the state Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  30. However libertarian argument against anti-trust: collusion is public good towards cartellists; cartel-partners will cheat and cartel will collapse spontaneously If voluntary cooperation is stable in providing public goods, beneficient to society, why should voluntary cooperation not be stable for PG-provision, detrimental to society? Libertarians cannot have it both ways: either no state intervention is necessary to provide ‘good’ public goods, but then it is necessary to prevent provision of ‘bad’ public goods Either state intervention is not necessary to prevent ‘bad’public goods’, but then state intervention is necessary to provide ‘good’ public goods Section 5 : From ordered anarchy back to the state Section 5 : From ordered anarchy back to the state Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  31. Application of impossibility theorem to problem of anarchy Argument of Friedman: network of PJA’s and PAA’s will not lead to collusion; see for instance grocery industry Tyler Cowen: privatized justice-industry is network-industry;the larger the network the more it is attractive for customers Besides economics of scale(benefit from supply side) network-effect is benefit from demand side PJA-PAA-network connected by bilateral but also multilateral agreements Section 5 : From ordered anarchy back to the state Section 5 : From ordered anarchy back to the state Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  32. According to Cowen: stand alones will face huge problems to attract customers; in case of interagency conflict, confrontation game looms; Network will therefore become dominant in territory Network will become locus of collusion; will limit price competition;will stamp out stand alone PJA’s;no enforceable right of entry Back to the state:will be states run by shareholders of network-PJA’s; improvement compared to liberal democracy? Section 5 : From ordered anarchy back to the state Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  33. Networking and collusion are not the same(argument of Caplan-Stringham) Networking=problem is coordination-game; looking for compatible standard; Problem of lock-in into suboptimal standard is not so dramatic because choice is often not discretionary (p.ex. mixed solution strict-negligence liability) Section 5 : From ordered anarchy back to the state Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  34. Collusion = prisoners’dilemma; much more difficult to set up and to maintain than network; so anarchy is stable when network benefits are higher than network costs and collusion costs are higher than collusion benefits Section 5 : From ordered anarchy back to the state Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  35. Networks don’t lead easily to collusion; empirical cases Credit card :’big tent’ approach but still competition Clearing houses of banking sector : no platforms of collusion Exception ‘superstar markets’:network+collusion Section 5 : From ordered anarchy back to the state Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  36. Distinction of Caplan/Stringham is right but does not prove that anarchy is stable 1. Costs of staying out or leaving PJA-PAA-network is higher than for other networks Comp: Mac Os X Leopard vs Windows; first survives; smaller networks and standalones PJA : threat of confrontation/submission Conclusion :dominance of one PJA-PAA-network is very likely Section 5 : From ordered anarchy back to the state Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  37. 2. Collusion within network is likely Section 5 : From ordered anarchy back to the state $ Producers’ surplus of collusion (A,B,Pc,Pm) will be divided among members of network=benefit A Pm S B Pc Q Qm Qc Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  38. Transaction costs of collusion: important variable is number of independent firms in the network; this is related to economics of scale Enforcement : economics of scale are rather high; firms often need big arms to use only sporadically; outsourcing is no option because of thread to be overrun Litigation: also here important economics of scale (specialisation of judges, precedent-production) Section 5 : From ordered anarchy back to the state Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  39. Monitoring Costs Rather high : litigation and enforcement is complex business; standardization is difficult; easy to cheat on tariffs Section 5 : From ordered anarchy back to the state Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  40. Choices of firms within network 1. Comply with collusion: benefit = share of producers’surplus; more efficient firms miss opportunity to expand market share 2. Leaving the network: temporary increase of market share by price competition, but in longer range excluded from network 3. Staying but cheating: enjoy benefits of collusion and expand market share through cheating; risk of being caught and expulsed Section 5 : From ordered anarchy back to the state Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  41. Most likely : combination of 1+3 = probably not a threat to network-monopoly Result : anarchy is probably not stable and will move back to kind of territorial state Section 5 : From ordered anarchy back to the state Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  42. 1. Hobbesian anarchy is unlikely to last long 2. Ordered anarchy either, because costs of operating outside network are very high,while collusion costs will be rather low due to limited number of firms 3. Breaking up state would lead to other state, but with very costly intermezzo 4. Ordered anarchy will only last by exogenous ideological input; not by sponteneous order Conclusion section 5 Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  43. Somalia : History 1884-1885: whole world becomes ruels by ‘state archies’-conference of Berlin Somalia: north: British colony; South :Italian 1969-1991 : totalitarian regime Siab Barre North : Somaliland = state; middle Punt land: state; South: no established government Rule of warlords and then Islamic courts: 1991-2007 2007: reconquest by provisional federal governmet ( =Ethiopia backed by US) Section 6 Lessons from Somalia Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  44. Somalia = Hobbesian anarchy? Lot of violence due to exogenous violence to install government Killed by violence: 4% of total; in Mexico 3,6 %! Predatory ? Fee by militias at 5 % Courts dealt with conflicts on bease of Xeer-customs and Dya-law Section 6 Lessons from Somalia Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  45. Somalia : relapse into autarchy? Table 1. Key development Indicators before and after Statelessness 1985-1990 2000-2005 Welfare change ________________________________________________________________________ GDP (PPP constant $) 836 600 ?  Life expectancy (years) 46.0 48.47 Improved  One year olds fully immunized against measles (%) 30 40 Improved  One year olds fully immunized against TB (%) 31 50 Improved  Physicians (per 100,000) 3.4 4 Improved  Infants with low birth weight (%) 16 0.3 Improved  Infant mortality rate (per 1,000) 152 114.89 Section 6 Lessons from Somalia Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  46. Infant mortality rate (per 1,000) 152 114.89 Improved Maternal mortality rate per (100,000) 1,600 1,100 Improved Pop. With access to water (%) 29 29 Same Pop. With access to sanitation (%) 18 26 Improved Pop. With access to at least one health facility (%) 28 54.8 Improved Extreme Poverty (%< $1 per day) 60 43.2 Improved Radios (per 1,000) 4.0 98.5 Improved Telephones (per 1,000) 1.92 14.9 Improved TVs (per 1,000) 1.2 3.7 Improved Fatality due to measles 8,000 5,598 Improved Adult Literacy rate (%) 24 19.2 Worse Combined school enrolment (%) 12.9 7.5 Worse Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  47. - economic success : large scale livestock trade : doubled; dilaal fees did not rise currency: remained stable; in 1999 transitiponal national government brought 30 billion Sosh into circulation; still inflation much less than under Siad Barre; Rise of financial sector :’haliwaad’-banks Section 6 Lessons from Somalia Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  48. Islamic courts :evolution towards a state? ( the Cowen prediction) Yes : Executive Committee and Advisory Board: single network NO: no control by central institutions Ideological factor Clan allegiance Section 6 Lessons from Somalia Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  49. Western anarchic thought :relying on presumption of general solidarity( Proudhonite-Kropotkine) or respect for the rule of law (Spooner-libertarians) Somalia := anarchy without anarchists; no definite proof of viability of anarchy; but proof that anarchy is not worse than anay government; many governments are much worse Conclusions Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

  50. Privatization of Justice- Boudewijn Bouckaert-CASLE-Ghent“PRIVATIZATION OF JUSTICE”

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