Law and Virtue: An Economic Analysis

Classical virtue theory has received limited attention in economics. The paper demonstrates its fruitfulness for economic and legal analysis by linking the traditional ethical literature with modern law and economics. Virtues are interpreted as a theory of moral psychology, and applied to economic theory, with comparisons against other behavioral models in economics. It is found that the virtue factor has major significance in economic life.

The paper also outlines a general framework for the analysis of law from a virtue-based perspective, showing how optimal legal design depends on the level of virtue of the citizens. Six general principles are identified: (1) virtue goes together with more freedom, while lack of virtue calls for more legal and regulatory constraints; (2) virtue goes together with more demanding law, while lack of virtue calls for less demanding law; (3) virtue goes together with more precise laws, while lack of virtue calls for less legal precision; (4) virtue goes together with broad standards, while lack of virtue calls for narrow rules; (5) virtue goes together with lighter enforcement and sanctions, while lack of virtue calls for harsher punishments; and (6) virtue goes together with more participation in law-making and law-enforcement, while lack of virtue implies less participation.

It is shown that there are several ways of gathering information about the level of virtue in society, and that laws and regulations may be designed in ways that account for the moral heterogeneity of the citizens. Finally, it is found the law plays a significant role in promoting and safeguarding virtues, but legal perfectionism may be counterproductive.