Abstract

This dissertation examines the consequences for economic theory of relaxing the assumption that actors are motivated exclusively by self interest. Chapter One examines the problem of institutional design with responsible agents. Responsible behavior is defined and contrasted with self interested behavior, and results concerning the optimal design of institutions are presented. The fundamental result is that optimal institutional design may depend on what assumption is made concerning the motivation of actors. Specifically, it is shown that small departures from self interested behavior can lead to important changes in the optimal design of institutions. This is so because institutions that are designed to give self interested actors an incentive to behave in a socially desirable way may create strong conflicts between responsibility and self interest and lead to worse outcomes than institutions that are explicitly designed to rely on responsible behavior. This result is illustrated with an application to the employment relation. The remainder of the dissertation assesses the new economic theory of tort law by comparing it to a traditional theory of law. The theories differ most fundamentally in the views of human motivation that they rely upon. The economic theory presupposes that individuals are narrowly self interested. The traditional theory assumes that individuals are motivated to live with others on mutually acceptable terms and have a limited willingness to regulate their behavior according to mutually acceptable rules for the general regulation of conduct. The theories are shown to give different answers to three fundamental questions about law: What values should judges attempt to promote when they assign liability for accidents and pollution?, What values have guided the law making of judges in the past and thus help to explain the pattern of liability in the law today?, and What is the social function of law and the relationship between individuals and the laws to which they are subject? The traditional theory of law is argued to provide more satisfactory answers to all three questions about law than the economic theory.