Are All Legal Probabilities Created Equal?

Yuval Feldman & Doron Teichman

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Legal payments are in many cases probabilistic. For example, in the criminal context, a fine is levied against a criminal only after a series of sequential probabilistic events occur: He must be caught by the police, charged by the prosecution, and convicted by a court in accordance with the procedural rules of the legal system. Traditional deterrence theory assumes that decisionmakers treat these probabilities as fungible, simply multiplying them in order to derive the expected sanction. We, on the other hand, hypothesize that different social and psychological forces might cause people to treat different legal probabilities distinctly. In order to test this hypothesis, we designed a series of between-subjects experimental surveys that measured and compared participants’ attitudes toward compliance in conditions of uncertainty. In the scenarios given to participants, their chances of being sanctioned were identical, but we manipulated whether the source of uncertainty was in the legality of the behavior or in the likelihood of enforcement. Overall, these studies demonstrated that people comply less when the source of uncertainty is in the law itself compared to situations where the source of uncertainty is in its enforcement.

 
I.
Background

At the core of the economic analysis of law lies the concept of expected sanctions, which are calculated by multiplying the severity of the sanction that is applied to wrongdoers by the probability that it will be applied. This probability is the

product of several sequential probabilities involving the different actors responsible for sanctioning wrongdoers (e.g., police, prosecutors, judges, jurors, etc.). Generally, legal economists assume that the different legal probabilities can be treated as fungible, simply multiplying them much like any other sequential probabilistic situation. Several bodies of literature, however, raise doubts as to the validity of this assumption.

 
A.     The Expressive Function of the Law

In the context of regulation and sanctioning, the basic claim of expressive theories is that the legal prohibition of an act in itself causes people to refrain from committing it. Thus, even a legal rule that is not backed by a sanction is expected to affect people’s behavior because of the law’s expressive power.

The approach which focuses on the expressive function of law suggests two ways in which uncertainty in law and uncertainty in enforcement can affect behavior. First, focusing on enforcement, the expressive power of the law is less affected by the likelihood of enforcement, so it is less sensitive to the expected level of the sanctions than to the deterrence power of the law. Therefore, we expected uncertainty with respect to enforcement to have a relatively small effect on the regulated behavior. Second, focusing on legal clarity, the expressive function of law is more sensitive to the clarity of the law, since part of its influence on behavior stems from the clear message the law can convey regarding morality, social norms, or scientific truth. The more vague a legal norm, the less its expressive power; thus, legal uncertainty can be expected to have a relatively high effect on the regulated behavior.

 
B.     Shame and Guilt

Shame and guilt are two emotions that explain much of the observed compliance with the law. Shame relates to external sanctioning inflicted by fellow members of the community. Guilt, on the other hand, relates to an internal process through which the individual feels negative emotions as a result of disobeying the law. Because feelings of guilt are built upon a process of internalization, we expected them to be less sensitive to the probability of detection than feelings of shame. Thus, when motivation to comply stems from feelings of guilt, we expect to find greater willingness to disobey the law when the uncertainty is created by the law rather than by enforcement problems.

 
C.     Motivated Reasoning

Psychologists have demonstrated the desire of decisionmakers to avoid a dissonance between how they behave and how they think they ought to behave. We conjecture that the existence of a self-serving bias toward interpreting behavior as moral could explain the different behavioral effects of enforcement uncertainty and legal uncertainty. Uncertainty about the content of the law allows people to discount their internal fear of behaving in an inappropriate fashion, since they can justify their behavior to themselves as an honest mistake about the nature of the act rather than an immoral decision to engage in an illegal activity. Uncertainty about enforcement, on the other hand, relates to the explicit costs of engaging in the regulated activity and, therefore, is less susceptible to a self-serving bias. Thus, we again hypothesize that people will tend to be more willing to commit a potentially illegal act when uncertainty originates from the content of the law itself.

 
II.
Methodology1

 
A.     Participants and Design

To test our hypotheses, we conducted an experimental survey study, using situational vignettes in a between-subject design on a population of 422 law students in the United States and Israel.

We instructed participants to imagine that they were managers who needed to decide whether to produce a chemical that might pollute a nearby lake. They were randomly assigned to equal subgroups, each of which was given a different description of the dilemma. After reading the description of the dilemma, participants were asked to fill out a survey regarding their personal evaluation of the dilemma, perceived social norms, and intention to pollute the lake. We used these questions to construct three explanatory variables—Source of Uncertainty, Type of Sanction, and Environmental Context—whose effects on the outcome variables were measured in three different studies.

 
B.     The Explanatory (Independent) Variables

All three studies examined the first explanatory variable—Source of Uncertainty—which had two subtypes: Legal Uncertainty and Enforcement Uncertainty. Participants exposed to enforcement uncertainty were given a scenario where it was clear that the law prohibits pouring the chemical into the lake; however, there was a small chance (ten percent) that the authorities would detect the identity of the polluting factory. Thus, participants were told that the overall likelihood of prosecution was ten percent. Participants exposed to legal uncertainty were given a scenario where it was clear that if the chemical were poured into the lake, it would be detected by the authorities, but it was not clear that pouring the chemical was illegal because the chemical was relatively new and its legal status had not been determined yet. In this situation, too, the participants were told that the overall likelihood of prosecution was ten percent.

The second and third studies, unlike the first, examined two extra explanatory variables, each of which had two levels. The second study, in addition to the source of uncertainty factor, examined the variable Type of Sanction, which had two levels: Criminal Sanction and Civil Sanction. In the criminal sanction group, participants read about a situation in which the state enforced a criminal law against polluting. In the civil sanction group, participants read about a situation in which a private party sued to enforce a civil law, so the sanction was civil damages rather than a fine.

In the third study, the second explanatory variable was whether there was a rationale for the law. In the Damage subgroup, the participants were provided with an explanation for the law that prohibited pollution: the potential death of fish in the lake. In the No Damage subgroup, participants were told that there was no extralegal rationale for the law because no fish in this specific lake were sensitive to the chemical.

 
C.     The Outcome (Dependent) Variables

The outcome variables in the study were self-reported and were measured on a Likert scale (1 to 10). The first two variables related to the social and moral desirability of noncompliance: Social Desirability and Morality. The next two variables related to the perceived prevalence of compliance: Industry-Wide Noncompliance and Managerial Noncompliance. The last three variables related to participants’ hypothetical future behavior: Likelihood of Compliance, Willingness To Pay, and Intention To Violate the Law. Likelihood of Compliance was measured by asking participants about their likely intention. Willingness To Pay for compliance was measured by asking participants about their willingness to forego a high sum of money for not producing the chemical. Finally, participants were asked a yes/no question to measure their intention to violate the law.

 
III.
The Findings

 
A.     Study I: Legal Uncertainty vs. Enforcement Uncertainty

We began with a simple benchmark case in which we compared uncertainty created by probabilistic enforcement and uncertainty created by legal ambiguity (Source of Uncertainty). To examine the effect of the type of legal situation on participants’ attitudes toward the misconduct, we conducted one-way multivariate analyses of variance (MANOVA). We compared the uncertainty-type subgroups with respect to the outcome variables of the study. When we found the uncertainty type to have a significant effect on participants’ attitudes, perceptions, or inclinations, we conducted a series of univariate tests in order to examine the source of the variance.

Overall, participants in this study who were exposed to legal uncertainty were more likely to produce the chemical in comparison to participants who made their decision in the context of uncertain enforcement. Multivariate analysis of variance for the attitudes and reactions toward the misconduct indicated that, overall, the subgroups significantly differed.2 Univariate tests found a significant difference for four of the seven variables: Perceived Morality, Managerial Noncompliance, Likelihood of Compliance, and Intention to Violate the Law. For all of these measures, the means were higher in the enforcement uncertainty subgroup than in the legal uncertainty subgroup. This supports our hypothesis: Participants faced with uncertainty in law were more inclined to pollute than were those faced with uncertainty in enforcement.

 
B.     Study II: Legal Probabilities in Civil and Criminal Settings

After confirming our basic hypothesis in the first study, we examined whether participants’ reactions to legal or enforcement uncertainty varied depending on whether the sanction for violating the law was civil or criminal. A large body of theoretical literature has dealt with the unique social meaning of criminal sanctions and their distinct power to cause people to internalize norms. In addition, empirical studies have shown that individuals are less willing to engage in simple cost-benefit analysis once a legal sanction is labeled as criminal. Given these characteristics of criminal sanctions, one would expect that the content of the law plays a larger role in the criminal context. Thus, we hypothesized that the effect of legal uncertainty will be greater in a criminal setting than in a similar civil setting.

To examine the effects of the type of the sanction and the type of legal uncertainty on the dependant variables, we conducted two-way multivariate analyses of covariance (MANCOVA) between the type of sanction (Criminal Sanction/Civil Sanction) and the legal probability (Legal Uncertainty/Enforcement Uncertainty). We also conducted separate one-way ANCOVAs for each of the sanction types, comparing the means of the legal situation subgroups.

The findings in this study suggest that the gap between legal uncertainty and enforcement uncertainty is much greater in the criminal rather than civil context. Overall, the Legal Uncertainty subgroup significantly differed from the Enforcement Uncertainty subgroup. However, the type of sanction did not have a statistically significant effect on the outcome variables as a whole. Finally, the MANCOVA showed a significant interaction effect between the sanction type and the legal situation.

Looking at the variables individually presents a more nuanced picture. The univariate tests indicated a significant difference between the legal situation subgroups for four of the seven variables: Perceived Morality, Social Desirability, Willingness To Pay, and Intention To Violate Law. For all of these variables, there was greater inclination to violate the law in the Enforcement Uncertainty subgroup than in the Legal Uncertainty subgroup. Most importantly, the univariate tests also indicated a significant interaction effect for three of the seven variables: Likelihood of Compliance, Willingness To Pay, and Intention To Violate Law. That is, the differences that were found between the categories were moderated by the type of uncertainty.

 
C.     Study III: Legal Probabilities and the Causation of Harm

In our third study we turned to explore how altering the facts of the situation can affect the way in which people perceive legal probabilities. More specifically, we explored whether the causation of harm to others affects the way in which people perceive legal probabilities. Exploring this question is a more complex and challenging task because one can present two competing hypotheses as to the role of legal uncertainty in this regard.

The first hypothesis stems from the process of motivated reasoning. If people have a clear judgment of the wrongfulness of an act notwithstanding the law, then they are less likely to engage in motivated reasoning regarding that act, and the effect of legal uncertainty is expected to be diminished. If, on the other hand, people do not view the regulated act as inherently wrong, then they will be more likely to engage in motivated reasoning once legal uncertainty is introduced.

The competing hypothesis stems from the vast literature on instrumental motivations for legal compliance. As this literature suggests, people do not obey the law merely because they fear sanctions. Rather, the view of law as a moral authority causes people willfully to obey it. Thus, if the law deals with a morally charged situation (e.g., stealing money from a friend), then uncertainty about its content is expected to affect the decisions of individuals significantly because people may infer moral vagueness from legal uncertainty. In contrast, if the law contains technical prohibitions that seem to lack specific moral value, then the role of legal uncertainty is expected to be diminished, because people do not view the content of law in such situations as a guide for their behavior.

A two-way MANCOVA indicated that overall, the Legal Uncertainty subgroup significantly differed from the Enforcement Uncertainty subgroup. It also indicated that the No Damage subgroup significantly differed from the Damage subgroup. However, there was no significant interaction effect between the variables. The univariate tests indicated that a significant difference between the legal situation subgroups was detected for two of the variables: Social Desirability and Managerial Noncompliance. A marginally significant effect was detected for the Industry-Wide Noncompliance variable. These tests reveal that for these three variables, the means were significantly higher in the Enforcement Uncertainty subgroup than in the Legal Uncertainty subgroup. As expected, noncompliance was found to be higher for the group faced with legal uncertainty than for the group faced with enforcement uncertainty.

The univariate tests also indicated a significant difference between the environmental context subgroups for five variables: Morality, Social Desirability, Attempt To Comply, Willingness To Pay, and Intention To Violate Law. These tests reveal that for all of these variables, means were significantly higher in the Environmental Damage subgroup than in the No Environmental Damage subgroup.

In the third study, when the law was associated with morality, the gap between uncertainty in law and uncertainty in enforcement was larger than when the law was not associated with morality. Following the same approach used in Study II, we conducted a separate ANCOVA for each of the environmental contexts. The split file analysis indicated that for the Damage subgroup, significant differences were detected between the Legal Situation subgroups for two of the variables: Social Desirability and Managerial Noncompliance. A marginal significant effect for the Legal Situation variable was found for Industry-Wide Noncompliance. In the No Damage subgroup, no significant differences were detected between the Legal Situation subgroups for any of the variables tested in the study.

 
D.     Summary of Findings

In sum, we produced two main findings. First, people treat uncertain enforcement and uncertain law differently. Unlike uncertain enforcement that simply reflects a reduction in the expected sanction, uncertainty in the law carries a deeper meaning for people, offering them a justification for behaving in a way that fits their self-interest. Second, the behavioral effects of legal probabilities depend to a large degree on both the legal and factual settings in which they are situated. Circumstances such as the type of legal regime in place or the nature of the activity being regulated may factor into how different legal probabilities influence behavior.

 
IV.
Discussion and Policy Implications

There are several ways in which the behavioral patterns we documented can be interpreted. One interpretation is that we have presented empirical evidence of the expressive power of the law: Subjects in the different experiments did not view legal sanctions as a mere price they must pay in order to engage in harmful activities. A second interpretation of our findings is that the law lends itself to a process of motivated reasoning by the people subject to it. Ex ante legal uncertainty creates a path through which people can justify their choices in their own eyes by focusing their attention on the possibility that their acts might be legal.

Aside from these general insights, our findings also inform several concrete policy debates. The first, and perhaps most obvious, is the discussion of the tradeoff between uncertain law and uncertain enforcement as policy tools aimed at enhancing compliance. In the context of tax policy, for instance, economists have suggested that the optimal tax regime might be designed to have relatively high legal uncertainty. Our findings, however, suggest that these claims should be reexamined. Much of the observed tax compliance is a result of the willingness of people to contribute to the society in which they live once required to do so by law. Legal uncertainty might erode some of these nonlegal incentives to pay taxes. As a result, the use of legal uncertainty as a revenue-enhancing policy tool might turn out to be counterproductive, driving people to report lower incomes because they will be able to justify this act to themselves.

Our results also offer new insights into several other legal issues, such as the principle of legality in criminal law, the use of rules versus standards, and the incentives of decisionmakers to purchase legal advice. Generally, we argue that existing models of these issues have not accounted for the unique role of legal uncertainty. Thus, we suggest that some of the findings of the existing models with respect to these issues be revisited.

 
V.
Concluding Remarks

We began this paper with a question: Are all legal probabilities created equal? We end it with an answer: No, they are not. As we have seen, an array of factors relating to the source of uncertainty and the setting in which it is located cause people to treat different legal probabilities distinctly. These distinctions, in turn, generate behavioral predictions that differ from traditional deterrence models, shedding new light on an array of policy debates.

Yet before concluding, we would like to point out some of the limitations of this study. First, one should recognize the general limitations of the methodology used in this study. Responses were measured according to attitude scales, and respondents did not face real monetary incentives. Second, the transformation of both legal and enforcement uncertainties into the specific numbers used in our study limits our ability to argue for a general difference between legal uncertainty and enforcement uncertainty since with different probabilities, these two uncertainties might behave differently. Finally, there are many more sources of legal uncertainty that we did not explore in this study. Dealing with the limitations of this study in future projects will hopefully help build a richer model of the way law affects human behavior.

 

Acknowledgments:

Copyright © 2010 New York University Law Review.

Yuval Feldman is Senior Lecturer at Bar-Ilan University.
Doron Teichman is The Joseph H. and Belle R. Braun Senior Lectureship in Law at Hebrew University of Jerusalem.

This Legal Workshop Editorial is based on the following Law Review Article: Yuval Feldman & Doron Teichman, Are All Legal Probabilities Created Equal, 84 N.Y.U. L. REV. 980 (2009).

  1. This Section and the Section that follows include methodological terms that might not be familiar to some of the readers. For brief explanations of these terms, refer to the full text of the Article.
  2. Throughout this Editorial, the term “significant” refers to statistical significance.

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