The Chronicles of a Capitalist Lawyer: Law and Economics

Showing posts with label Law and Economics. Show all posts

Sebenarnya sudah cukup lama saya berpikir menulis dalam Bahasa Indonesia, tetapi karena sejak awal blog saya ditulis dalam Bahasa Inggris, saya sering kali mengalami dilema kalau harus menulis dalam Bahasa Indonesia. Namun demikian, setelah saya pikir-pikir lagi dari analisis untung rugi, saya melihat kalau tulisannya difokuskan untuk kasus atau masalah khusus di Indonesia, sebaiknya memang ditulis dalam Bahasa Indonesia agar bisa menarik lebih banyak Pembaca.

When I left Chicago in 2012, I promised myself that I will do 2 two things once I return there in September 2014. First, I'll attend an event of Ronald Coase and ask him for an autograph. Second, I'll attend Gary Becker's class, Price Theory, since I was not able to take the class in 2012 due to conflicting schedules. I spectacularly failed to do both because both of Coase and Becker have passed away. I'm grateful that I had the chance to attend one of Becker's seminar when he debated Francois Ewald on Foucault thoughts on Becker. But of course that was not enough, it will never be enough. So for me, this is a profound loss.

In honor of Gary Becker, I think it would be proper to write a piece of article on his impact to the development of Law and Economics. If Ronald Coase introduces the idea of transaction costs, persuading lawyers to think not only from liability perspective but also transactional perspective in designing regulations, Gary Becker introduces the idea that economics can be used as a tool to analyze almost every aspect of everyday life. This is a very important contribution to economic analysis of law where previously the scope of economic analysis is limited to specific areas of law such as antitrust.

Furthermore, before the formal existence of Law and Economics, lawyers are mainly divided in two groups: (i) the natural lawyers who believe that law is derived from higher morality principles (can be God's wisdom, morality of the society, etc), and (ii) the positivist lawyers who believe that law is derived from social facts in which lawyers can know and find valid sources of legal authority (not to be confused with legal formalists).

For natural lawyers, contents of the law matter and they believe that immoral laws cannot be considered as laws. While their approach creates inconsistencies in practice (immoral laws can actually exists and be enforced), at least they have some criteria for a good law. The problem is reversed for positivist lawyers (including me) that mainly focus with sources and not contents. Since legal positivism is basically a descriptive theory of law, it can describe the requirements for a rule to be considered as a law but it lacks a proper theory in determining the characteristics of a good law.

Law and Economics (especially the normative one) fills such gap. It provides an alternative theory in analyzing the requirements of a good law. Instead of relying on vague moral principles, we rely instead on cost & benefit analysis, and efficiency and welfare maximization principles. Such idea is foreign to classically trained lawyers. But once they know the gist of it, their view of the world will be significantly changed, hopefully, for the better.

Let me give an example from one of Becker's most famous article on the economic approach toward crime and punishment. When dealing with criminal laws, classical lawyers tend to think from simple retributive or distributive justice point of view. It's about making a fair punishment, a just desert for the villain. Sometimes, the lawyers would also think about humane sanctions or possible reconciliation between victims and criminals. Unfortunately, to be honest, all of these things are obscure and it is difficult to recommend a satisfying policy because when speaking about morality principles, people tend to disagree based on personal values or preferences.

With Becker's paper, lawyers are reminded that criminal activities are generally activities that are costly to the society. Furthermore, criminal enforcements also involve costs. Nothing is free and there would always be a trade off. From such a simple idea, one can think of many implications as follows: what activities should be criminalized? What are the most efficient way of imposing sanctions? How to reduce the costs of law enforcement? Should we focus the enforcement on specific criminal actions only? How to introduce sanctions that can improve the welfare of the society? Is prison effective? Any preventive mechanism that can be used to reduce crime other than using traditional criminal laws?

The last question is very important. Although most criminal lawyers understand that criminal law is ultimum remedium, the last resort to be taken for dealing with harmful activities, in general, common people think that the criminal law is the solution of all ill problems in the society. If you don't like act X, you should criminalize act X, and so on. Of course that does not make any sense from Law and Economics perspective because again, legal enforcement needs money. And who will pay for that? Maybe the public will be more careful in supporting criminalization of acts once they know that they also share the costs instead of maintaining a false sense of justice.

Now, Becker's analysis can be extended outside the realm of criminal law. That's the beauty of his theory, it can be used for virtually any areas of law, such as: contract law, administrative law, constitutional law, torts, and family law. It can even be used to support the use of cost and benefit analysis in designing and promulgating regulations. In the modern world, a regulation should not be enacted if it cannot pass a strict cost and benefit analysis. The reality is, a regulation can have a significant impact on the economy. To name a few, the list would include regulations on foreign investment, capital market, banking, environment, and safety. It is simply preposterous if the government or the legislative imposes new laws without considering the above cost and benefit analysis, only relying on petty concepts such as nationalism or self-supporting taglines.

I believe that thinking using the economic approach is beneficial for lawyers. It trains you to focus on things that really matter, namely, whether the law's provisions are actually good for the society or not, transforming a lawyer from a mere spokesman of the law to become an educated policy maker. The economic approach also allows the lawyers to rationally analyze the provision of a law and provides a basic set of criteria (though not perfect) to assess the quality of such law.

I always dream that lawyers can collaborate more with economists in Indonesia. I've seen the great results from such cooperation at the University of Chicago Law School and I think Indonesian lawyers and economists will also benefit from such cooperation. This is now the era where multidisciplinary cooperation among scholars are really needed (not arrogance and exclusivity among scholars). Gary Becker was an excellent example for being a supporter of such cooperation (he also held a position at the Chicago Law School). He will be deeply missed, but the show will go on, and thanks to him, we still have a lot of many exciting issues to be studied and analyzed. Long live Law and Economics!

A couple of months ago, the West Jakarta District Court annulled a contract between an Indonesian party and a foreign party made entirely in English on the ground that it contravenes the provisions of Law No. 24 of 2009. You can read the Court's decision here. The Court said that based on Article 31 (1) of Law No. 24 of 2009, the use of Indonesian language is mandatory in contracts involving an Indonesian party and therefore, the failure of having an Indonesian version of the contract caused the contract to be annulled by operation of law based on Article 1335 of the Indonesian Civil Code.

I won't discuss in this article whether the Court's decision was correct since I have already made my analysis here. What I would like to analyze now is the practical issues relating to the case and my prediction on whether we will see a lot of similar cases in the future.

First of all, this is generally a case about a debtor that was getting caught by a loan shark. If you read the case carefully, the interests attached to the debt was very huge. No wonder the debtor tried to annul the contract using various cheap tactics, including arguing that the failure of using Indonesian language in the contract can be used as a valid reason to annul such contract.

But should we treat this case as a disaster? That parties will no longer be able to enter into foreign language contracts? I don't think so. The issue can be mitigated easily if only the parties entered into a dual language contract. The Court only said that the main problem in this case is the fact that the Indonesian version of the contract was not available.

In general, there are no prohibitions for Indonesian parties to enter into foreign language contracts, they just need to prepare the Indonesian version to be safe. Moreover, there are no clear rules on the governing language of contracts, so I will stick to my old opinion that parties are free to choose foreign language as the governing language of their contracts.

The issue here is that having dual language contracts tends to be costly. Although it is good for the lawyers' business, it imposes unnecessary costs in contract drafting. I need to admit that in drafting contracts, I also prefer the use of English over Indonesian language. This was not caused by lack of nationalism. It was simply because English can capture more terms needed in our contracts compared to Indonesian language. In addition, we have a lot of precedents in English, making it more efficient to draft the contracts in English compared to Indonesian language.

If you think that I am wrong, try to translate the Indenture (the document generally used for issuing bonds under New York Law) into Indonesian language and see by yourself whether you can be satisfied with the result when you compare the Indonesian version with the English version. Monstrous.

Finally, I do not think that we will see a lot of similar cases. In practice, creditors are very prepared nowadays. When dealing with first time debtors, they will insist on having the Indonesian version at the same time with the English version of the contract. With repeated debtors or debtors that have good reputation, the Indonesian version will be provided later on but as soon as possible.

More importantly, no sane debtors will ever try to do the same thing with the debtor in our case above. You will simply be blacklisted by most of the creditors and you will never receive credits unless you replace all of your management and change your name. The stain stays with you forever.

To give you an example: Indonesia was famous among investment bankers as a country where an ordinary SPV structure for global bonds issuance was annulled by the Supreme Court because it was deemed to breach the public policy of Indonesia. The case involved a US$500 million bonds and the debtor successfully run away from its obligations. Since 2006 until today, there are only two cases have ever reached the Supreme Court, both are from the same group company, and both have different results (one was annulled and one was enforced).

I always describe the above case in the risk factors section of my client's offering documents but I have never seen similar case to occur despite the fact that Indonesian issuers are quite aggressive in getting foreign financing. Why? Because we all know what happen to the executives of the company described above. The company cannot get any new financing (at least from foreign banks) and even if the executives have moved to another company, if the banks know about this, they will simply cancel or break the deal so that the new company cannot get any financing.

In conclusion, this crazy move to annul debts based on frivolous reasons can only be done by debtors rich enough so that they can sustain themselves without ever getting new financing or desperate enough so that they choose to abruptly end their adventure in the financing world. Apparently, most debtors are sane enough not to choose the above way.

2013 was a really bad year for my blogging activities. In fact, it is my worst year of blogging within the last 5 years and I am committed to ensure that this will not happen again. Let's start the 2014's first article by analyzing a misleading story.

A couple of days ago I read the following short story: a child asked her/his mom whether the mother would ever leave her precious jewelries and purses full with money with the maid. The mother's answer was no, explaining further that she does not trust the maid. Then the child replied: why do you leave me with the maid then? End of story.

I hate this kind of story, simply because it tends to be misleading most of the time. The quick reaction on the mother would be: how could you leave your child with the maid when you actually don't trust her? Are you saying that the jewelries and money are more valuable than your own child? Typical. But this quick reaction is completely wrong. If you read it further, you will realize that making a comparison between the child and the jewelry is misleading in the first place. Why?

First, from the mother's perspective, when she said that she does not trust the maid, she wasn't talking about the maid's capability to take care of the child. She was basically saying that the probability of the maid to escape the house with her jewelries and money are higher than the probability of the maid to stay at the house, guarding the jewelries.

Second, from the maid perspective, the costs of badly treating the child are generally higher than stealing the jewelries and money. If you treat the child badly, you can be held liable and you may lose your job and salary, or even go to the prison (if it turns out to be a criminal activity). Meanwhile, if you steal the jewelries, although there is also a probability of going to the prison for stealing, at least you gain something to compensate the costs, i.e. jewelries and monies. Ultimately, the maid will need to do cost-benefit analysis: will getting the jewelries and monies be more beneficial compared to the costs of penal sanction multiplied with the probability of getting caught?

Given the above incentives of the maid, it would really make sense for the mother to trust the child to the maid but not her jewelries. So yes, that's the answer to the child question. If you think that this answer is too long, I have prepared a shorter answer for the child: "nak, pertanyaanmu gak nyambung."

There is a fundamental problem when I read this paper titled: Islamic Commercial Law and Social Justice: Shari'ah Compliant Companies, Worker's Rights and the Living Wage (written by Susan C. Hascall), namely, the fact that she argues that some of the Prophet's Hadiths can be used to support the existence of minimum wage for employees and the notion that a company cannot claim itself to be Shari'a compliant without complying with minimum wage requirement.

Why? Let us read first the Hadiths used by Ms. Hascall below:

"Give a servant his fee before his sweat dries"

"God Most High said: I shall be the opponent of three people on the day of judgment: the man to whom I gave generously but then he cheated; the man the man who sold a freeman into slavery and ate up its price, and the man who hired a worker and took his due measure from him but did not pay him for his (fair) wages"

The word "fair" that I underline above is an additional language used by her. I have to disagree with Ms. Hascall because from the very beginning, these Hadiths do not deal with the fair amount of wages to be given to a worker. It is true that some Islamic scholars tried to argue in such a way, but I do no think that their interpretation is correct.

In my view, these Hadiths deal with the obligation of an employer to honor his contract with his worker, i.e. to pay his employee's salary/fee for the work that has been done and that he should not postpone such payment without a valid reason. No words on fair amount. Therefore, this is about the sanctity of contract not minimum wages.

As I have argued several times in my blog and in my paper here, Islamic Law (as a concept and not in the context of Legal Positivism) separates moral and legal issues and also puts efficiency and the general welfare maximization as the main principles in building its legal system. This is why Islamic Law does not prohibit or even condemn pre-existing slavery, condemns riba but does not provide any sanction even though God says that the sin of committing riba is equal to murdering a man or having an incestual relationship with our own mother. When dealing with economic/commercial issues, we have to admit that Islamic Law is very flexible, namely it does not criminalize the violation of provisions relating to commercial issues.

This is also in line with the fact that God does not prescribe an absolute value of minimum wage and cannot be expected to do so. Once we deal with fairness issue, there is no single clear answer. Saying that Islamic Law compliance can only be done once you pay your worker with a fair amount of salary creates too much ambiguity. It also transforms a moral issue into a complicated legal issue. As an example: if an employer pays his worker too small, does it mean that he violates the law? Would that mean that the contract is invalid? What would be the consequences?

Of course you can always say that it would be good if employers pay attention to the overall well being of his employees and should pay good salaries to them. But that should stay as a moral issue rather than a legal issue with all of its consequences. Because payment of salary is also subject to many factors and the law of supply and demand. As there is a fairness aspect relating to the employee, there is also a fairness aspect relating to the employer.

I think that is why Islamic Law focuses more on the enforcement of the contract to protect the rights of the worker and the Hadiths are more consistent with this approach. As I argued here, I believe that the best way of promoting the interest of the workers is by making policies that are correlating with the supply and demand of manpower.

It's been a while since the last time I wrote in this blog. I admit, I have sinned. But enough with the excuses. I've just finished two papers having completely different themes. The first one is titled: "Special Purpose Vehicles in Law and Economics Perspective". You can download the paper here. The second one is titled: "Legal Positivism and Law & Economics: A Defense". You can download the second paper here.

The first paper will be published in the Journal of Indonesia Corruption Watch to be published this year. In this paper, I discuss the nature of Special Purpose Vehicles (SPV) in the form of corporation, their function and benefits, their potentials for misuse, and also the techniques to solve or prevent such issue. I believe that for a developing country like Indonesia, relying on legal doctrine such as piercing the corporate veil to chase the ultimate shareholders of SPVs who conduct illegal acts would be too costly. They are just too cunning and some countries specialized in the formation of SPVs have all the incentives to assist these crimes.

So, the other solution is to ensure that those SPVs established in Indonesia will be here to stay, namely, we need to put some of their capitals as hostages in Indonesia by way of mandating minimum capital requirement or bank guarantee/insurance requirements. I also discuss the costs and benefits of these solutions as there is no such thing as a perfect solution. The rest can be read in the paper.

The second paper will be presented in the third Indonesian national conference of legal philosophy to be held at Surabaya on 28 August 2013. I always enjoy legal philosophy, particularly Legal Positivism and I think that most Indonesian scholars misunderstand the nature of Legal Positivism by equalizing Legal Positivism with Legal Formalism or even worse, strict textual method of legal interpretation.

Of course this is wrong. Legal Philosophy is a theory of law while Legal Formalism is a theory of adjudication. But the mistake is so persistent that Legal Positivism is often blamed for many issues in Indonesian legal system! I think the conference would be a good place to present a defense on Legal Positivism so I decided to write this paper.

The paper will discuss the main thesis of Legal Positivism, i.e., the Source Thesis (that law is a social fact and can only be derived from social sources) and the Separability Thesis (that the content of the law does not have any necessary connection with its validity). People usually connect Separability Thesis with the relationship between law and morality. But I believe that the issue is wider than that, it can include religion, local custom and other type of norms.

I certainly believe that Legal Positivism (if applied correctly), is a democratic thought that will allow various legal theory to compete for domination within a legal system. I argue this by showing how Law and Economics (which is obviously not a pure theory of law) can survive in the framework of Legal Positivism but will be kicked out from the game in the framework of Natural Law (because by nature, Natural Law which supports only one absolute value will not be tolerant to other type of thoughts). As usual, the rest can be read in the paper itself.

Happy reading and hope it is useful.

One of my favorite legal issues is the existence of victimless crime, usually defined as non-forceful actions whose participants are not complaining for their participation and no direct injuries are inflicted to non-participants of such actions.

Victimless crimes are traditionally associated with actions performed by consenting adults which harm the society's moral foundations but not the society directly. These include drugs use, prostitution or non-marital sex and gambling, to name a few.

Some economists would argue that rather than criminalizing the above acts, it would be better to instead legalize them. Not only that those acts can provide additional income to the government in the form of tax, it can also minimize the costs of legal enforcement. A good example would be the war on drugs which has caused a significant costs in the form of money and lives.

Contrary to the above opinion, I, on the other hand, argue that victimless crime does not exist. If we are calculating the general welfare of the society, the costs imposed to each member of the society, even if they don't directly affect other members, would still matter.

There are costs involved associated with drugs usage, health costs of the user. There are also costs associated with prostitution, costs related to sexually transmitted disease and possible costs to marriage relationship because yes, marriage too is a form of investment between the parties.

And how about gambling? It is a form of property transfer which may easily fall into an inefficient form of resources allocation. Why? Because the game is usually designed to ensure that the bookie will always win.

A simple example: most gamblers' chance of winning is very slim in many types of games, while the winning chance of the bookie depends on the probability of the gamblers losing the game, i.e. 1 – whatever the probability of the gambler to win. If the gambler only has a chance of 1 percent or 0.01, the bookie will have 99 percent chance to win the game. A really easy way to gain money.

Sure, we always have the usual argument: those adults have already given their consent and they must take the responsibility for themselves. And it is also true that the regulations are not always consistent.

Take the cigarette industry as an example. The business is legal and they pay a considerable amount of taxes to the government each year in order to maintain the business.

So why don't we do the same for other type of "victimless crimes"? Let us view this not from moral point of view, but from economics point of view. Usually most people forget that when we legalize certain acts, it does not necessarily mean that the enforcement costs will disappear into thin air.

You still need to spend money to ensure that the "legalized" business will comply with the rules set out by the government.

As an example. If you criminalize drugs sale, you will need to allocate funds to enforce the law and punish the violators. If you legalize drugs sale, you will spend funds to also supervise the business, ensuring that these "business men" will play in accordance with the rules on drug sale. And if they don't? You will simply penalize them again.

How about income from tax? Well, you don’t need to legalize an act in order to gain additional income via tax, you can simply change the rule so that instead spending times in the prison, the criminals are required to pay all of their profits to the government. The effect will be similar to a tax and the government will receive money too.

How about prostitution? Legalizing the prostitution might reduce the costs of supervision because legalizing the business is usually associated with its localization. This will reduce the possibility of sexual diseases transmission and improve the protection of the sex workers.

But it is also not without additional costs. Localization may also increase the costs of the prostitution business. The procurer will need to pay taxes and the building lease fee, not to mention that there will be additional costs for moving the business place. With increasing costs, the service fee will also increase.

Who will guarantee that it will not create incentives for a black market with cheaper services for consumers who don't have enough money to go to the valid prostitution area? This will again impose another costs for legal enforcement, i.e., eradicating the illegal prostitution outside the legalized area.

Through these examples, I would like to show that thinking about victimless crime is not as easy as imposing tax and reducing legal enforcement costs. Instead, for every action, there would be economic consequences and if we want to make a proper policy, we need to carefully calculate the costs and benefits of such policy.

Recently, I found an excellent paper from Ronald Coase which summarizes the basic concept of Adam Smith on human nature. I would urge my readers to read the whole paper (first published in The University of Chicago's Journal of Law and Economics) as I think it provides a correct summary and a strong insight on how economists and also lawyers should think about human nature.

The final paragraph of Coase's paper is very important that I will just copy it here for ease of reading. Enjoy!

"It is wrong to believe, as is commonly done, that Adam Smith had as his view of man an abstraction, an “economic man,” rationally pursuing his self-interest in a single-minded way. Adam Smith would not have thought it sensible to treat man as a rational utility-maximizer. He thinks of man as he actually is-dominated, it is true, by self-love but not without some concern for others, able to reason but not necessarily in such a way as to reach the right conclusion, seeing the outcomes of his actions but through a veil of self-delusion. No doubt modern psychologists have added a great deal, some of it correct, to this eighteenth century view of human nature. But if one is willing to accept Adam Smith’s view of man as containing, if not the whole truth, at least a large part of it, realization that his thought has a much broader foundation than is commonly assumed makes his argument for economic freedom more powerful and his conclusions more persuasive"

I attended a national conference on the rule of law last week. At the conference, I presented my paper on the application of public choice theory into legislation system in Indonesia.

(Those interested to learn more about the subject can go to my website and search for the 'public choice' tags by clicking here)

It was a nice experience and a good chance to see how Indonesian legal scholars perceive the law and its normative values. Having a quick reading on various papers, it seemed that abstract normative analysis still conquers the Indonesian legal scholarship, at least from the conference attendees. In this context, abstract means vague principles or values that are difficult, if not impossible, to quantify.

For instance: the idea that law should promote the interests and happiness of the people, that law should promote justice and national interest etc. There is nothing wrong with promoting such ideas in terms of freedom of expression, but the problem is that abstract values usually stay vague in practice.

In one discussion, a participant raised a question that is addressed to me: "Should we quantify the law?"

I replied, "To some extent, of course, we should."

If we want to speak about normative legal issues, about what should be done through the law for the betterment of the society, quantifying the law is absolutely necessary. This is, after all, the essence of all of my law and economics discussion in this blog.

Normative law and economics uses terms like efficiency, costs and benefits analysis, and welfare maximization as tools to analyze quantitatively whether a law can really make a society better off after the enactment of such law, and whether a law will improve the welfare of the society or only imposing another unnecessary burden.

We all know that the law should be made by the people, of the people and for the people. Not the other way around. But how can we really know that a law is made for the sake of the people if we do not have any standard for measuring a successful law?

Therefore, how can we say that a law is good or bad if we are simply relying on abstract standards? Even worse, have any of you realize that politicians love those abstract standards because they can abuse them as a way of gaining votes or distracting public attention?

Anti-corruption law is a good example. Politicians play with people's moral values when they toss the idea of whether death penalty should be abolished for corruptors. The debates range from the protection of human rights, the moral cruelty of corruption, to deterrence effect of the death penalty (on the basis that death penalty is the ultimate punishment).

The notion of law and economics would criticize the above abstract discussion because frankly there is no way that we can resolve a conflict between those basic principles until the end of time. Some people still think from morality point of view that death penalty against human rights, while others think that it is fine if it is used to punish such a morally reprehensible act.

Instead, law and economics will ask the following questions:

1. Are there sufficient data supporting the claim that death penalty really reduces the rate of crime?

2. Is death penalty an efficient sanction for corruption? Or should we instead focus on something else, such as taking away the corruptors assets and preventing them to take any other official positions?

3. What would be the cost and benefits of having death penalty from procedural perspective? Is our criminal justice system ready to implement the higher standards of imposing death penalty?)

By proposing the above questions, we are, in a sense, quantifying the issues that need to be tackled in order to formulating a good law. We think how the current procedural problems in administering death penalty will affect the people, the innocent and the villains (the costs that will be imposed to them); the impact of solving such problem to our state budget; the incentives that we will create for current and future corruptors, etc.

Of course, quantifying the law might not be a perfect standard, but it would be better to have some concrete measures of success than none at all. And the above is just a really simple explanation. The same way of thinking can be used for analyzing any area of law, from criminal law to family law, and will be effective in analyzing controversial laws such as laws dealing with people's clothes.

Quick question, have we ever heard any of our politicians ask similar questions with the questions presented by law and economics? Most likely no.

Why bother asking the public to think critically about very important issues if nice rhetoric is enough to make the public confused or to vote for the most dramatic act of politicians?

The National Police Deputy Chief Nanan Sukarna on Thursday admits that there are corruption practices in his organization, as quoted by tempo.co. One of the many factors he cited was inadequate salary for police officers.

"How should we ask them to not stay clear of corruption if their salary is not enough to pay for their children's school?" he said.

From an economics perspective, this is an interesting topic. It is widely known by the public that being a police officer who only depends on salary will not make them rich or even survive day-to-day living. But despite such truth, why are there still many people apply to be one? If the job and payment are that bad, why do they pursue such career?

A case like this offers several explanations. First, it might be possible that the majority of people who apply to become a police officer put more value on the authority attached to their position. This means that for these people, the fact that they gain such position is more valuable than getting a civilian job — even with higher salary. Thus, there is a trade-off between authority and money.

Second, it might also be possible that the applicants believe their comparative advantage is to become a police officer and they will not be able to compete with other people in doing their jobs. As a result, receiving low payment is a risk they must bear due to their own limitation.

Third, worst case scenario, the applicants might see a possibility of becoming rich in the future, provided they can use their power for their own benefits. Being underpaid can be considered as an investment that must be sacrificed in order to gain more money in the future.

Last but not least, it is always possible that there are some people out there who pick the career as a temporary job until they find a better job offering. These people might be clueless about their choice of life or simply see the police badge as a stepping stone into something bigger.

Based on the possibilities above, we have two complex issues to be solved if we want to reduce the level of corruption in the police body.

First of all, we don't know to what extent the trade-off between salary and authority will remain useful to control the behavior of the police. Will eventually the basic needs of life defeat the need to obtain power and respect in the society? I'd say yes.

Then, how does one control authority? Without any proper check and balance mechanism, the ability to abuse the authority would increase significantly. Thus, the fact that they can't get much money from their salary would be meaningless since they can get more money from abusing their authority anyway.

In solving the above issues, although its effect is limited, increasing the overall compensation of police officers might be a good start. It must be combined with good indoctrination on the intrinsic value of becoming a police officer and strict sanctions for violation of code of conduct.

Otherwise, increasing the salary would be useless since they can get higher income from doing side jobs and abusing their authority — and they have a lot of incentives to choose that way. In such case, we will end up wasting more money for paying higher compensation, but with worse results.

If we do choose to increase the overall compensation, there is a budgetary problem. Asking the government to simply increase their salary might be problematic if the government does not have enough fund. So, what if we sell certain services of the police to private parties but with different price tag?

Although this might be a good way to raise funds, it will also create discrimination of service. I fear that the costs of such discrimination might outweigh the intended benefits.

Once the police service can be legally bought by certain party with higher price, the police will have more incentives to act for a certain group instead of the society and thus they will no longer be different from private security officers or troops.

It would be nice if they have enough officers to satisfy the entire need of the society and the higher price for special services can be considered as a subsidy from the rich to the poor. But if the supply of police officers is limited, it will be counterproductive.

Another thing to be considered is to let criminals, especially those that are involved in financial crimes and corruption cases, to bear the costs of legal enforcement. This can be in the form of giving a portion of the recovered assets or fines for such crime to the police officers who successfully solve the criminal case.

Of course, the case must be legitimate and any abuse of authority in getting the additional benefits must be strictly punished (including taking back all of the profits made by the officers from such illegitimate case) to avoid any incentives to bring false claim to innocent people.

My final suggestion is to make the resignation process easier within the police corps. Considering the fact that the compensation is not high enough, it might be better to let officers leave as soon as possible once they feel that this is not the right job for them.

This might save a lot of money and reduce the incentives to corrupt from the very beginning. If you realize that being a police is not the right job for you and yet you have no way out, what would you do? Could you stay sane or would you succumb to the temptation of corruption?

Men are weak, so we should not put too much burden on them.

I'll admit it: I have not watched "Innocence of Muslims," the anti-Islam film that has been blamed for causing ruckus around the world. Why? Well, I have more important things to do, one of them involves an amateur cooking competition with my friends.

Personally, in terms of importance, such movie sits in the category of "absolutely not important that even staring at the wall for 2 hours would still be better." The problem is, not everyone shares the same view. But before we discuss why Muslims are against the film, we should first study why some people are still trying to make a movie like this.

From economics perspective, the reason might be very simple: because with such a minimum cost, the movie can maximize the damages caused to the world, which I assume will also maximize the makers' own pleasure or benefit.

Why are the costs so low? Based on the comments of those who have seen it, "Innocence of Muslims" was a low-budget movie (bad editing, amateur actors, etc). And it is unlikely that the filmmaker - who, according to Wikipedia, resides in California - will face legal penalty in the United States.

The first reason might be the protection of free speech, though this is debatable. The second reason might be the fact that the United States does not want to show any weaknesses toward the demand of the Muslim worlds, including the terror they received in Libya which caused the death of the US ambassador and three other Americans.

On the first reason, the protection of free speech is indeed complicated. People may argue the movie is a hate speech. But what would be the correct standard? I mean, I've seen a lot of movies and jokes harassing Jesus in such a really bad way and yet, I have not heard any case in the United States sanctioning the makers. Should we measure hate speech from objective or subjective requirements?

The second reason is even more problematic. The movie undoubtedly triggers heavy protests from Muslim communities around the world. And within the protesters, some of them may use the event to promote their own idea of violence and war. Perfect timing indeed.

If the United States penalizes the filmmaker, it can be assumed by terrorists and war mongers that the United States is bowing down to their threat and thus, in the future, it would be easier for them to demand things from the United States as long as they kill certain US citizens.

In other words, the United States would also have difficulties in punishing the stupid filmmaker based on political reasons. I borrow this analysis from Prof. Eugene Volokh, a law professor from UCLA, and I agree with the basic premise.

If the filmmaker realizes the above facts (and I assume he was not stupid enough to bring the video online without thinking the consequences), it would be rational for him to actually publish the video since his own personal benefits outweigh his costs.

Unfortunately, this is inefficient and bad to the overall welfare of the society. Currently, triggering protests from the Muslim world using cheap tactics (such as this movie) has a success rate of almost 100 percent - if not 100 percent. And it is most likely that the protest can turn into a riot.

This is completely different if the movie is directed to, say, Christians. As I've said above, there are so many jokes and movies depicting Jesus in such a bad way that I am certain if you change the character into Muhammad, the makers will not live long enough to see another day. Heck, we even have a Jesus parody in Twitter.

Why do Muslims and Christians have such a different approach in handling these kind of issues? Could it be that it has something to do with education and living standards?

But as long as most Muslims continue to retaliate, I believe the cycle would never end. The supply of people similar to the above filmmaker might be endless and they will definitely take the advantages they currently have, i.e. free speech protection and political reasons.

The most efficient solution is of course ignoring these buffoons. After all an ant can't cause harm to a blue whale. The problem is, it will take a long time to reach that stage (if ever).

I can only hope the majority of Muslims will follow the Prophet basic rule in dealing with bad mouthing: Just ignore those people. Good for your health, good for your image, and less trouble for all of us. We still have many urgent matters which are more important than a stupid movie.

Someone said on Twitter that corruption will never be effectively banished if people are still violating traffic regulations, including the three-in-one rule by using the jockeys service.

Three-in-one policy requires vehicles to have at least three passengers on busy roads at peak hours. The jockeys are hitchhikers who are paid to ride in a car when passing the main roads.

I won't discuss whether such rule is valid under the current hierarchy of laws, but or the sake of this discussion, let's just assume the three-in-one rule is legally valid and binding.

What I mainly disagree with the above statement is that using the service of jockeys is a violation of law that will somehow induce the people to corrupt - using a logic that if you can't be trusted for small matters, you can't be trusted for huge and important matters.

First of all, the rule only says that people who want to travel within the restricted roads must have at least 3 passengers inside their car. It doesn't stipulate that the people in the car must come from specific place or go to specific directions. Nor does the rule say that only certain type of people who really intend to use the car for traveling purposes might be considered as a legitimate passenger.

Having such condition would be an enforcement nightmare as finding the proof of violation and checking the overall background of all passengers would be very difficult, if not impossible. Not to mention the vagueness of the rule itself with respect to conditions for being considered a passenger.

Nevertheless, some people still think that the three-in-one rule is enforced in order to reduce the traffic jam, and using the service of jockeys will defeat such purpose. In other words, the use of three-in-one jockeys is a form of legal avoidance and should actually be prohibited.

The concept of legal avoidance is indeed confusing. On the one hand, it seems that you already comply with the prevailing laws. But on the other hand, you are deemed using the law to escape the consequences of your action which may violate the law's purpose or essence. Thus, your action will be deemed invalid.

To be honest, I refuse to admit the existence of legal avoidance concept. It is either you comply with the law or you violate the law. If there is no strict rule saying that you are violating the law, what would be the basis for some people to come and say that you are violating the law when you are still complying with the law? That would be absurd.

To follow the logic of people who support the existence of legal avoidance, take the three-in-one rule as an example. Bringing the jockeys in your car will let you satisfy the three-in-one rule. But because taking such jockeys somehow defeat the purpose of three-in-one rule, i.e. reducing traffic jam, you are already violating the law. The problem is, says who?

In any way, despite your choice of action, the three-in-one rule will most likely reduce the traffic all the time. Why? Because it creates additional costs for drivers to use the road during the three-in-one period. Either you take two more of your friends/colleagues or you pay for the service of jockeys.

The first type requires the costs of maintaining friendship, or maybe time, because you don't always have the same schedule with your friends. The second type requires the costs of paying jockeys or reduced level of security - after all, you are taking strangers into your car.

Thus, you can consider three-in-one rule as another form of tax or levy for the sole purpose of giving less incentives for people to travel within the three-in-one periods. If that's the case, then using jockey is not even a legal avoidance - assuming such concept exist - because you are still complying with the so called purpose of the rule, albeit in a different form.

This kind of act is completely different from mere traffic violation, such as trespassing the traffic lights. There is no doubt that such act is a violation because it directly breaches the rule. Under our criminal law principles, an act of criminal will always be considered as a criminal unless the defendant has a valid excuse - such as in case of force majeure or self defense.

Hopefully, you can see the difference. The key would always be whether there is a direct violation of a rule or not.

Next time, I would like to discuss whether there is a correlation between violating small rules with one's tendency to violate bigger rules, including corruption. Stay tuned.

The verdict for drunk driver Afriani Susanti has been issued earlier this week: 15 years in prison for killing nine pedestrians in an infamous traffic accident. She was deemed guilty not of intentional murder, but of reckless and fatal driving.

I won't discuss the verdict from legal perspective here. 15 years in prison is the maximum sanction she can get if she is deemed guilty of intentional murder. What I am more curious about is the way to find the proper penal sanctions for various criminal activities.

In my January 2012 article about Afriani, I argued she must receive higher penalty — by categorizing her crime as an intentional murder — in order to reduce the incentives for other drivers to drive recklessly.

At that time however, I did not think deeply about the most efficient sanction for her crime. I only followed standard Law and Economics doctrine that a sanction of multiple crimes should always be clearly differentiated with a single crime, simply because we want to give less incentive for criminals to commit more crimes.

As an example, if the sanction for rape plus murder is equal to the sanction for rape only, a rapist will have more incentives to kill his victim because he will receive the same sanction. But the costs of him to hide his crime would be lower.

In reality, however, differentiating the sanctions for multiple crimes is difficult. And the case would be even harder for differentiating sanctions for various types of crimes, especially when we focus our sanctions in the form of prison and fines.

What would be the proper sanction for thievery, corruption, rape, murder, fraud, violence, genocide, etc? How would we properly differentiate the sanction of a killer of one person and a mass murderer?

Judges often become the victim of this absurdity. On the one hand, our legislators are not that creative in designing penal sanctions. On the other hand, the general public often have obscure ideas about justice and how justice should be served for these criminals. In the end, judges will be blamed for making the "wrong" decision.

What I would like to propose is to analyze each type of crime, to study the incentives of each criminal in conducting the relevant crime, and to design a sanction which will defeat the purpose of doing such crime and maximize the welfare of the society.

Further consideration should also be given to the cost of law enforcement, the compensation to be given to the victim as a result of the crime (if any), and the probability to prevent the same crime from occurring again (recidivism).

In Afriani case, she drove while she was being intoxicated. It is a very dangerous behavior, indeed. But would 15 years in prison serve her (and any other person committing the same act) right? How about we give her a sanction in the form of a lifetime ban from driving, a huge fine as a compensation for the victim, and countless hours of social service?

Then when she fails to obey the above sanctions and commits similar crime in the future, we send her to prison for a lifetime simply because she is too dangerous to exist in the society.

Why do I design the sanction in the above form? First, we know she is a very reckless driver. I doubt putting her in prison will fix that. And maybe 15 years after, she will still do the same thing. What is really necessary is to ban her from driving infinitely.

Second, putting her in prison is another costs to be paid by us taxpayers (not to mention that the costs of prison will include all reckless drivers involved in similar cases, albeit having different degree of crime). Why not focusing on giving compensation to the victim instead of wasting taxpayers' money?

Third, forcing her to do social service might be more useful than putting her in the prison. At least we can expect her to give more contribution to the society rather than paying her cost of life in jail.

And if all fails and she breaches her obligations above, we can justify the decision to put her behind the bars indefinitely, i.e. she is dangerous to the society.

Of course, if we know that Afriani intentionally kills those victims because she likes it, we can directly put her in prison or send her to the death penalty squad. In other words, incentives of the criminals matter.

As you can see, discussing the proper sanction for a single criminal act like reckless driving is already quite complicated, but this is necessary. If our government and legislators really care about legal enforcement, they should think carefully before they criminalize an act.

A single law can have a great impact to the overall society. So let us ensure such great impact does not affect us in a negative way.

Here is my latest post (in Indonesian language) at ILUNI-FHUI site: Revisiting the Function of Penal Sanctions. The post discusses the use of Law and Economics tool in analyzing the role and use of penal sanctions and how we can shape our penal sanctions to meet their primary purposes.

For a couple of weeks, we have been bombarded by news on the use — or misuse — of religion as a part of Jakarta's gubernatorial election campaign. Even the Islamic Council of Ulema's (MUI) Jakarta branch joined the fray by issuing a fatwa that people have the obligation to choose their leaders based on their religion.

This, of course, attracts a lot of comments. Some view such attempt as stupid or hypocrite, others view it as acceptable and necessary in accordance with their religious practice.

From political and economics point of view, using this strategy seems rational. Like it or not, this is a sensitive issue where opinions might be fairly distributed between the pros and cons. If you can use it to gain more voters from certain side, why not?

But, from legal point of view, should we prohibit the use of this strategy? I don't think so. Not only that it would be a very paternalistic policy, there are hundreds of other reasons that can be used by a candidate to attack other candidates. Why should we pay more attention to religion?

I don't think it would be efficient for governmental authorities to prohibit issues that can be discussed and used in a political campaign. It would be costly and we would have difficulties in justifying the reasons. Do we have a rational reason to do so or is it merely a problem of taste?

If we can say to other people that they should not vote for stupid people, why couldn't we do the same for religion?

What I think that is most important in a political campaign is candidates must speak the truth and only the truth. This is to ensure that there is no misleading information in the campaign and the democratic process can work smoothly.

This means that political candidates can say and encourage people to vote solely based on religion or ideology or ethnicity. That would be acceptable as long as they don't commit fraud or hide material information. An example: Spreading bad rumors about the other candidate who has a different religion or ideology that he is planning to destroy the voters once elected without any solid evidence.

I understand that looking at such a shallow political campaign might shock some of us. How could people blatantly accept that kind of campaign? But this is a part of democracy and freedom of speech. It is an inherent risk in a society whose people are not mature enough to focus on political programs instead of trivial things.

But don't be disappointed too much, because we can still find this joke even in a country like United States. I know that some people there — albeit minority — believe that Barack Obama is actually an Islamic agent with a mission to destroy the United States.

While the rumor is of course laughable and wrong, it shows that religious sentiments still hold certain power in a first world country. Honestly speaking, I don’t think that United States citizens would be ready to accept a Muslim as their president.

In a case like this, my recommendation would always be: fight idea with idea. If some political candidates say that religious aspect should be considered as the decisive factor in voting, other candidates must show that such idea is bad and encourage voters to do otherwise.

Later on, the market of information will eventually determine the winner of the election. And from such information we can also see whether Indonesian people still take religion issues seriously or not.

If we still want to punish these political candidates, punish those who spread false information because they might cause baseless distortion in the market which would create losses to all of us. However, how they want to shape the language of their own campaign, including choosing the ideas to discuss, should not be our concern.

The recent Olympics badminton scandal is very interesting. From a legal perspective, the answer is quite clear. The players deliberately tried to lose against each other, so they breached the Olympic rule of doing their best in each competition. Case closed.

But surely we can’t stop there. Why should we have that kind of rule in the first place? Why should we prohibit the players from choosing a rational strategy when the competition rules allow that possibility?

Is this all about sportsmanship? Like in that various martial arts stories where the fighters are always trying to fight fair and square in order to gain the sweetest victory? Or is it something else?

As a spectator, I don’t mind if the players deliberately tried to lose in order to gain victory later. The problem is, it seems that I am in the minority group. Like it or not, the idea that sport competitions should be held in accordance with the highest moral principles still lives on until today.

And the case is even stronger for the Olympic which serves as the ultimate symbol of fair competition. People want their symbol to be incorruptible. If even the players in such important event cannot meet such requirement, where else should the people look for virtue?

In this case, the rational act of the players seem to be irrational. While it is true that each player has the right incentive to win the game (including trying to lose first), they seem to forget that they are not alone in the competition.

Olympic is a big business. Sure people need a huge symbol of fairness and virtue but they would be crazy if they conduct the Olympic solely for such reason. In other words, the Olympic is conducted in that way because it is profitable for the organizer — or at least they think that it would be profitable for them.

Thus, images hold a very important position in the competition. If the organizer can’t maintain the image that the game is fair and all the players are doing their best, it will be difficult to maintain the credibility of the competition and it would affect the number of viewers.

The players — and their coaches — should put this in mind when they choose their strategy. What I see now is a foolish act, not because it was irrational, but because it was executed poorly.

Had these players realize the reality of the game and how people perceive them, they might try to lose the game elegantly. Unfortunately, trying to lose is a little bit too difficult for them.

I read in the news that people were already booing them and the referee has warned the players that if they continued to play like that, they might be disqualified. So yes, the way they executed their plan was too obvious.

So, the punishment is well deserved. Not because they fail to maintain sportsmanship, but rather because they fail to entertain the spectators and risk the overall image of the Olympic game.

Another interesting thing is the fact that some of the coaches asked the Olympic organizer to change the rule of the game to prevent such cases happening again in the future.

If the rule does not permit any possibility to pick your future competitor, the players might fully engage their true power from the beginning since nothing could be done anyway.

But once they see a slight chance to choose their future competitor, their strategy significantly changes. The question is: Is it the mistake of the organizer for making a rule that induce the players and coaches to pick such strategy?

I don’t think so. The rule of the game is clear: How players cope with the rule is their own business and if they are really smart, they should choose a strategy that will benefit them the most while minimizing the cost.

Clearly the players fail to study the costs and benefits of their action and they have to pay dearly for that. I can only hope that this could serve a good lesson for them, especially the Indonesian contingent. Better luck next time.

This is an era where people can spread information anonymously and are able to gain trust from a lot of other people. The million dollar question is: Is this a good thing or a bad thing?

I know that some people do not like the fact that these anonymous informants can get many viewers in such an easy way and fear that these viewers will be fooled by distribution of false information. This, however, is an exaggeration.

Like it or not, having anonymous informants is a normal thing in the modern market of information, especially with our telecommunication technological advances.

And in such market, there will be high quality information and low quality information. Trying to have a paternalistic central body to analyze and differentiate each type of information would be very costly. So it would be better to let the people themselves decide whether the information is worth to know or not.

Furthermore, it would also be too late to say that anonymous informants are unreliable and should be censored at this stage. Similar to anything that falls under the category of free speech, censorship would always be costly and difficult to do (unless you are the government of China).

Rather than spending our times thinking how to prevent these anonymous informants from getting more and more viewers, we should do what every rational man would do: ignore them.

Why? It’s simple. If the unreliable information hurts the interest of certain people or entity, they would be the ones who naturally have the biggest incentive to fight back and spend their resources for such fight. We’ve seen these cases happen in the real world.

There would be no need for bystanders like us to join the fight and spend our precious time and resources to deal with informants that we think are unreliable in the first place.

Or might it be that you are enraged by the fact that there are so many foolish people who blatantly believe or follow what these anonymous informants say? And as a result, you want to declare a war on the informants?

Better think about it again. First of all, you don’t really know whether these so called “foolish” people really think that they are getting the truth. They might just see it as a form of entertainment. Everyone loves gossips and conspiracy theories after all.

Second, unless the informants are trying to persuade their readers to conduct a bloody revolution, why we should care about the mumbo jumbo that other people believe? As I said, those who are being harmed by the false information will move by their own, quicker than we can ever thought.

Another thing that makes me believe that these anonymous “informants” (especially those from social media) do not give us reliable information is because no one is truly anonymous in this modern age.

Anonymity is usually used when you want to talk about some sensitive issues and you are concerned about your safety, although in certain case it is used simply because you want to talk anything without any responsibility. Thus, such anonymity would be used carefully.

But I don’t see this carefulness coming from the informants that we often see and hear in the social media. They just share information as they wish through a media that can be easily accessed by other people to know their whereabouts.

If the information that they distribute is very sensitive and true, and all of such information is related to powerful people, these informants must already hit the coffin long time ago. But apparently, that’s not the case. Not even any serious report to the police for defamation. In other words, the information should be unreliable and they exist just for fun.

Word of advice: don’t think too much about these informants. As for the people who think that these informants bring the truth, well, there is still a good side of it.

If you are an employer, you would now have a good arsenal to test new employee. Ask them whether they believe what these informants say and let their answer help you to decide whether they are qualified for the job or not.

Look, you just get a cheap IQ test out of it. So, who says that having these informants are bad for the society?

We all know the familiar phrase “may the best candidate win” in an election process. Obviously, we really hope that we can get the best leader through such process. Yet in reality, we often fall into a situation where the entire candidates suck and we are forced to vote for the best among the worst, which is still bad.

Have you ever wondered why most of the time, getting the best from the bests as our leader is very difficult? Is it actually possible for us to use a meritocratic system where leaders are chosen solely based on their capabilities? The answer might be disappointing.

The main problem? We tend to forget that in the modern world, leadership is neither simply a right nor a privilege; it is a job with certain responsibilities. There are costs and benefits involved. Thus, the law of supply and demand will govern the process.

Those who want to be leaders do not necessarily have the needed capabilities. Most of them, if not all, are people who believe that the overall benefits of being a leader are higher than the total costs.

Of course, the hopeful leaders might have been wrong in projecting their victory. We’ve seen cases where unelected officials went berserk due to the stress caused by their failure. But that does not matter.

The most important thing is that when they chose the path of leadership in the first place, they were convinced that it would be good for them. Whether it would also be good for other people is a bonus. It would only matter when there is a strong connection between the leader’s performance and his future electability or the security of his current position.

This is the primary cause for our difficulties in finding the best leaders. We can’t simply assume that these leaders would be purely motivated by altruism or that they will serve the people just for the sake of being a good leader.

Even worse, the problem would be amplified when the requirements of getting as many votes as possible are significantly different with the requirements for becoming a leader itself. The differences may vary around the world but they do exist.

That would mean that each candidate will need two different set of skills: the skills to be elected and the skills to lead. In practice, these two set of skills are different. Thus, we see people who become politicians and those who become technocrats.

Not everyone, unfortunately, is blessed with both skills. There are many situations which may affect the possibility of a candidate to become a leader and give one set of skills a better advantage over the other.

Track record of leadership is one example. No one knows exactly how a person can be an effective leader without first knowing his track record of past performances. However, in a situation where the track record is unclear or hard to know, the skills for attracting voters would be more important than the skills to lead.

In countries where information about candidates is not widely distributed - unless you have a lot of money - the costs for candidates with good leadership skills but less vote gaining skills would be too high.

In case these people - who are actually fit to be the best leaders- believe that joining the election race does not worth their time because they don’t have enough skills to be elected, we are doomed.

With less good people, the market of leaders will be oversupplied with bad candidates who know how to attract votes. While at first people might vote for them, sooner or later people will know their leaders true quality.

The problem is, if these bad leaders create a cartel to maintain their position - since they are in power anyway - the chances of having new good candidates would decrease. This will trigger more apathy from rational voters to participate in the election and we will end up in a vicious circle until God knows when.

Of course, I do not want to write an entirely gloomy article. A single tiebreaker can actually end the above vicious circle. The case of the latest regional election in Jakarta might be a great example.

I believe that the existence of independent candidates who have some vote attracting skills - though have no chances of winning - opened the possibilities for Jakarta politicians to break up their cartel and pursue a chance to win the election for themselves, which give opportunities to the citizens to choose other candidates.

At this stage, I do not know whether the election result would be beneficial for the citizens, but I am happy to see that there is a practical solution to break the vicious circle without having to conduct a revolution.

Let me start this post with the claim that I am a legal positivist, meaning that philosophically, I believe that the existence of law is based solely on social facts and that a legal system can validly exist without any moral basis. Note this, it doesn’t mean that the law cannot contain any moral values, it simply means that law can be separated from morality issues in order to exist.

This separation is crucial to understand why I take the position that pure moral enforcement would be an impossible attempt. I will also use the concept of separation of moral and legal issues in Islamic law to support my argument in this post.

As you may be aware, this world is full with people who believe that the morality of a society must be upheld and enforced even when there is no legal rules relating to such matter. Take the example of Lady Gaga’s concert in Jakarta.

I am not talking about the thugs who demand the concert to be cancelled since based on the facts on their usual practices, I don’t think that they are motivated by morality issues. It would be more accurate if we explain their motivation from pure economics issues.

What I am talking here are people who take the issue at face value and believe from an internal point of view that Lady Gaga’s concert adversely affects the morality of our nation and thus encourage the legal authorities to conduct morality enforcement by prohibiting the concert even when the legal basis is ambiguous or even non existent.

Suppose that no legal rules exist concerning such matter. Can morality be simply enforced within such condition? The answer would be no.

First, different with legal rules which are usually accessible to the public and have more certainties with respect to their contents, moral rules do not have clear standards and authorities to which one can ask for a final judgment.

Second, legal rules exist in order to coordinate the behavior of the people. They exist as a response to social net loss caused by certain actions. While morality rules deal with decencies, things that are good to be followed by a person, where breaching such rules might cause disagreement from other people but not strong enough to justify enforcement (which would always involve costs).

Here are some examples from Islamic law provisions. Eating pork and drinking alcoholic drinks are both prohibited, yet penal sanctions exist only for being drunk. Why?

A simplified explanation would be: Because the net social loss of eating pork is questionable and might only affect people in a personal level while drinking problem creates social loss, especially in terms of accidents. Even the United States admits that drinking is indeed a social problem.

Another example would be the law on adultery. To accuse someone for adultery, you must provide 4 male witnesses with the highest standard of human being. Failure to do this would cause the other witnesses to be deemed of giving false testimony and there is a harsh penalty for that action.

Interestingly, the privacy rule in Islamic law is also very tight. Not only that you are forbidden to enter into someone’s private property, you are also forbidden to even spying at someone’s house. Breaching such rule will allow the home owner to hit you in the eyes.

In other words, the entire legal rules on adultery is structured to deal with adultery cases practiced in the public and those that fall under the scope of privacy will be considered as a moral issue. Notice this: Islamic morality will never deem adultery as a permissible act (you are still responsible to God for your personal action), but legal enforcement will only be conducted when clear social loss is established, say due to the public act.

This brings us to the third issue. It is possible that moral enforcers might still argue that although breach of moral rules do not cause clear social losses, it still causes losses, at least to the people whose moral values are being harassed by such act.

I agree, this can be considered as a loss. But since the losses are pretty much subjective and solely related to the moral enforcer’s taste of decency, it is absolutely necessary that these moral enforcers adhere to the strictest standards of good human being. Why?

You can’t claim that you experience losses because some people are breaching the values that you perceive so highly when you don’t take such values seriously either. So this is a completely different issue with legal enforcement where such standard is not necessary as I argued in my previous article.

Now the final question for these moral enforcers is: Can you really adhere to your own principles?

Remember, God hates hypocrites more than people who consciously breach moral rules and admit that they are wrong.

A recent blog post has caught my attention. It describes another usual day in Jakarta, complete with major traffic jams and motorcycle drivers using the curb lane. The writer, a pedestrian, says he was in a fight with a motorcycle driver who wanted to pass him and kept asking him to step aside.

Of course, the request was ridiculous. The lane has always been reserved for pedestrians, and they don’t have any legal obligation to let motorcycle drivers use it. Just when the fight was about to turn physical, a police officer came to break things up.

At first the officer scolded the driver, saying he was violating the law and could be fined. The driver simply replied that he would accept the punishment as long as the officer also fined other motorcycle drivers using the curb lane, and there are many of them.

Upon hearing that, the officer turned and instead scolded the pedestrian for his refusal to let the driver use the lane. It was a perverse result, showing that the officer was regrettably taken by the driver’s misleading argument.

We hear this kind of argument for fairness all the time. If you want to punish me, you should also punish the other people who are involved in the same crime. Or if you want to punish me, you should show that you’ve never done the same thing yourself. Is this argument valid when we’re talking about law enforcement?

The answer is no. From a legal perspective, I’ve never seen any serious legal philosophers who support the idea that in order to make a valid legal enforcement, legal enforcers must be saints and ensure that all people who commit the same crime will be punished at the same time.

From an economics point of view, it would simply be inefficient to have that kind of rule. Imagine the costs if we had to ensure that all legal enforcers possessed the moral capacities of a prophet, being a perfect person who absolutely adheres to the highest standard of moral and religious principles. Where can we find such a great person?

Pakistan would be good case study. Pakistani legal officials, who believe they act in accordance with the correct version of Islamic law (unfortunately, it’s not correct), have established a strict rule for becoming a witness in homicide cases. People can only be witnesses if they have certain moral qualities, which include, among others, praying five times a day, never lying and maintaining good hygiene.

The result? No one has ever been punished for murder under Pakistani Islamic law. Thankfully, that does not mean murderers can run away from their liabilities, because Pakistani legal officials still use the witness standards established under the English law, which is also applicable in Pakistan. But you see the point.

When police officers are dealing with cases like the one I describe above, they should realize that they can in fact punish a motorcycle driver even if they don’t do the same to other violators. By punishing one driver, they can set an example that they’re going to enforce the law, even if it’s in a random or selective way.

And such enforcement would be efficient. There are costs for law enforcement, and the optimum crime level might not actually be zero because at certain point, the cost for law enforcement might outweigh the benefits that we expect from reduced crime. This is called diminishing marginal returns.

Of course, there are situations where we might be required to increase the law enforcement costs for specific crimes (say, corruption). But for traffic violations? Having random or selective enforcement in this case would be sufficient to give the correct signal to violators.

Sometimes, uncertainty is effective to deter crimes. If you don’t enforce the law at all for traffic violators, they’ll think it’s fine to commit a violation as long as everyone else does, too. But if they know they might be punished, even if it’s just a possibility and not 100 percent guaranteed, they will think again.

Such uncertain law enforcement will increase the costs of violation and make people more likely to comply with the rules. That’s why law enforcement is still necessary, even when the process is random or selective. So next time a police officer faces a similar case, he should just fine the guy and say to him: “Well, tough luck, sir!”