What is the optimal level of “protection”?

We have been addressing the following question in our last five blog posts: How does law get started? To sum up our Humean answer in two words, law and legal systems are just protection rackets (nothing more, nothing less), at least in their beginning stages, although we could easily extend this protection-racket logic to modern legal systems; after all, what are taxes but a form of legalized extortion? But our protection-racket conception of law raises a whole new set of troubling questions. To begin with, most, if not all, protection rackets are always compulsory, not voluntary, affairs: people are forced to buy “protection,” even if they don’t want to. (Check out the popular culture depictions of mob bosses and racketeers below.) So, realistically speaking, far from solving the forced rider problem, protection rackets make this problem worse. Is there any way around this problem?

Maybe there is an “optimal” number of protection rackets per territory. When there is a market for protection, would-be racketeers and proto-lawmen will have to compete with one another to attract new clients and maintain old ones, so they will have a built-in incentive to provide services of value and to avoid overcharging for their protection services. (Think again of Mancur Olson’s rational profit-maximizing “stationary bandit.”) On this view, the more racketeers the better! Or perhaps the solution resides in the threat of competition. That is, even if there is only one dominant protection racket, as long as new entrants are free to form their own rival protection agencies, this threat alone should curb the dominant agency’s destructive tendencies.

None of these libertarian or Planglossian responses, however, are entirely satisfactory because there is no meta-protection agency to protect independents and forced riders (persons who don’t want to pay for “protection”) or to resolve disputes among the racketeers themselves and their rival protection rackets. Ultimately, then, there is an inherent tension here. On the one hand, some form of law, however crude, is useful to promote cooperation, but at the same time, any legal system or protection racket will inevitably produce abuses of its own. There is thus an optimal level of “protection”–too much protection is no doubt a bad thing, but so is too little! In short, the optimal level is not zero. Seen this way, law is just a trial-and-error method of finding the optimal level of protection.

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About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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