Essays on legal and extra-legal ordering

This dissertation contains two essays that examine the interaction of legal and extra-legal means of governance. The first essay uses the term "contingent harms" to describe a special type of externality. Contingent harms impose external costs on some groups but not on others. This difference between groups creates the opportunity for segmenting behavior. By creating conditions where those who engage in a contingently harmful behavior only do so in the company of those who do not experience external harm from the activity there is an efficiency gain. This essay argues that unenforced laws can create the conditions necessary to segment the behavior by promoting extra-legal enforcement by private actors. Using an unenforced law can promote efficiency by eliminating external costs related to the activity and by imposing minimal enforcement burdens on the state. The most prominent example of a contingent harm is smoking in bars in restaurants. The empirical portion of the essay describes the California experience with underenforced anti-smoking laws, and presents quantitative evidence that unenforcing the law promotes efficiency.; The second essay examines the variety of interpretive methods available to transactors deciding how to best govern their transactions. The essay develops a model of contractual investment that illuminates the tradeoff between extra-legal governance of others and the use of contracts to manage the risk in transactions. Building on a transactional attribute model developed by Oliver Williamson this essay attempts to explain interpretive preferences based on the attributes of transactions. The conclusion that emerges is that high frequency, low uncertainty contracts will favor formal interpretive approaches while low frequency, high uncertainty lend themselves to contextual interpretive approaches. Moreover, where transactors operate in an insular environment they will substitute extra-legal governance mechanisms such as ostracism, gossip, and exclusion for reliance on written contracts to govern transactions.