When should laws be enforced by private actors and when should society rely on law enforcement by public authorities? This question has been analyzed in great detail in law & economics scholarship. This article surveys the literature and outlines a framework of criteria for deciding whether private or public enforcement of laws is preferable. To exemplify the criteria, the framework is then applied to some “real-life” enforcement issues. As there are several contributions on specific areas of law such as antitrust, securities regulation, consumer protection and so forth in this book, this exemplification is limited to two rather obvious cases – the enforcement of contract law and criminal law. (Klöhn, supra, at 1).
First, the incentives of private enforcers might be set at the right level if the state provides them with some monetary compensation. . . . Second, setting compensation at the right level involves a valuation problem. Regulators would have to determine the money value of evading prison to the average perpetrator. . . Third, the above mentioned argument assumes that private parties will be driven to enforce the law only for monetary rewards. Therefore, the problem of under-enforcement might not be as severe if we assume that people are driven by some desire for fairness, as is clearly the case in some areas of law such as environmental law. (Id., at 9-10).
Assuming that private actors bring more suits to court than public agencies, the judiciary will have more opportunities to refine vague and general standards contained in the law. This can create a public good and might well be worth the litigation costs not internalized by the plaintiffs. Of course, this is a consideration which can be taken into account by public enforcement agencies when exercising discretion not to enforce a law. However, some scholars argue that private parties are more likely than agencies to develop novel legal theories, creative approaches to dispute settlement and new techniques of investigation and proof. (Id., at 13).
The result, of course, is mixed. Private enforcement regimes appear to be most efficient in contract law (id., at 14). It is least efficient in criminal law (id.). For everything else, mixed regimes may serve society best. But the construction and regulation of that mixture will remain contentious. This conclusion is both sensible and a reminder that ideology, either of private or public enforcement, taken to its limits, can produce a disconnect between theory and practice that is likely to produce disaster.
This might be well illustrated by the assumptions and tensions inherent in the notions of efficiency. Klöhn correctly notes the connection, in the private enforcement context, between the amount of litigation and efficiency concerns (and also effectiveness concerns as a second order consequence). The notion of litigation optimality becomes a central concern of law and economics approaches to the management of enforcement and the distribution of enforcement power among individuals, non-governmental organizations, and the state.
But "excessiveness" becomes a curious concept in this case. The principal reason is the underlying assumption that efficiency requires that law is not always to be enforced. One of the most interesting consequences of a law and economics approach, when grounded in the efficiency of the state as the managers of the collective welfare of a political society, is that the law is not meant to be uniformly applied.
Another disadvantage of private enforcement is that it renders it almost impossible to exercise discretion not to enforce the law when non-enforcement is beneficial to society. This point assumes that laws are usually overinclusive. Taken literally, they cover cases which the legislator would have chosen not to cover if it had known the particular case in advance. . . . Such tailoring is left to ex-post adjudication of individual cases by the courts. Private enforcers have no incentive to exercise discretion with regard to overinclusive laws. Profit-driven private enforcers will seize the opportunity to enforce the law any time a positive return on the investment of enforcement costs can be expected. In contrast, a public enforcement agency can choose not to enforce the law in cases in which the social costs of enforcing the law exceed its benefits. (Klöhn, supra, at 12).The principal problem, of course, is that in the face of regimes of individual legal rights, individual action to vindicate those rights cannot be efficiently coordinated or managed by the state (except perhaps in the most clumsy way). In common law states, like the United States, this inefficiency used to be understood as structurally efficient, in the sense that it preserved the connection between customary law practices and the state apparatus. This consideration, though, may trouble civil law states less. But this management suggests a tension between law and economics' focus on welfare maximization and the ideological constraints of "rule of law" that is worth further study. "Rule of law" objectives may be maximized only at the cost social welfare maximization. Jesús Alfaro Aguila-Real suggested this in his own reflections on Klöhn's essay. He notes in a recent consideration of Klöhn's essay: "¿Recuerdan eso que dicen nuestros tribunales continuamente acerca de que no hay igualdad fuera de la Ley? Pues eso. Que hay que permitir a los public enforcers un cierto grado de discrecionalidad en la persecución de las infracciones. Curiosamente, en ese punto, el control de los tribunales europeos sobre la decisión de la Comisión Europea de iniciar o no un procedimiento es bastante intenso" Jesús Alfaro Aguila-Rea, Public vs. Private Enforcement, Derecho Mercantil, Dec. 24, 2010 (translation: "Recall that our courts continuously remind us that equality does not exist outside the law? That's it, then. One must enable public enforcers a degree of discretion in the prosecution of infringements. Curiously, on this point, the control by the European courts of the European Commission's determination on whether or not to initiate proceedings is quite intense" Id.). And that may be the ultimate lesson of the exercise of law and economics approaches to issues--law and economics insights will invariably lead its practitioners astray as and to the extent that its utility as a tool of analysis is transformed into an ideology the imposition of which can be, itself, inefficient.