Adam Smith on Bankruptcy Law: “New” Law and Economics in the Glasgow Lectures?

Abstract

Since the publication of Gary Becker's pathbreaking paper on economics of crime and punishment in 1968', criminal law has become one of the main fields of research in law and economics. From a law and economics standpoint, the function of criminal law is to impose additional costs on unlawful conduct to limit criminal behaviour to the efficient level. Let us consider Becker's well known supply of offenses function: Oj= Oj(Pj, fj, uj) where Oj is the number of offenses that a criminal would commit during a particular period, pj his probability of conviction per offense, fj his punishment per offense and UJ a variable representing other influences. The greater pj and fj, the lower the number of offenses Oj. The main problem discussed in this literature is how many resources and how much punishment should be used to enforce different kinds of legislation to minimize the losses in social welfare caused by criminal offenses. If criminals were risk neutral, the most efficient system would require a higher sanction combined with a very low probability of conviction of the criminals, making the cost to the legal system also very low. Becker offers in his paper a posssible rational explanation of the tendency during the eighteenth and nineteenth centuries to punish those convicted of criminal offenses rather severely since the probability of capture and conviction was at rather low values. He argues that an increase of the probability of conviction would absorb more public and private resources. The rationality for these high sanctions was also discussed by Adam Smith two hundred years ago in his Glasgow lectures. This paper shows that Smith's arguments are not very different from those used by the modern law and economics school.