Law as a Private Good

Law as a Private Good por David D. Friedman:

One attractive feature of such a system is that the usual economic arguments for the efficiency of market outcomes apply to the legal system and the rules it generates. To see why, imagine that there is some change in the legal rules currently prevailing between two enforcement agencies which would yield net benefits to their customers. If it benefits both sets of customers, then it is in the interest of the protection agencies either to persuade their arbitration agency to make the change or to shift to one that follows the superior set of rules. If it benefits the customers of one agency but imposes costs on the customers of the other, with net costs smaller then net benefits, then it is in the interest of the two agencies to agree to make the change, with the loser compensated either directly or by some other change elsewhere in the legal rules. In practice, since it is the arbitration agencies that specialize in legal rules, we would expect them to try to develop superior legal codes in the process of competing for customers. The result should be a set of legal codes that are economically efficient in the conventional sense.