This column is to appear in the Augusta Business Chronicle (January 2001). Law and Economics What do economics and law have to do with each other? A lot, actually. There is law, and there are law-breakers. People break laws because the benefit to them is greater than the cost which, on average, is the probability of being caught times the size of the punishment. If the probability of being caught is zero, the cost of law-breaking is zero and we would expect a corresponding rise in lawlessness, which is costly to the victims. But if the probability of being caught is 100 percent then that is costly, too, because society needs to pay for a policeman at every street corner to catch every possible speeder. It follows that the probability of being caught cannot be either extreme; it also follows that there must therefore be some optimal level of law-breaking. Zero law-breaking means we are spending too much money on policemen, and one hundred percent law-breaking means we are seeing too many speeders and the accidents they cause. Car accidents. The one causing the accident must pay the cost. But who causes the accident when I run you over? That I will run you down depends not only on my precautions while driving but also on yours while walking. If I am strictly liable to pay the cost of the accident (to "make you whole" again), then you have no incentive to be cautious, thereby increasing the likelihood of an accident, and it seems wrong for me to be liable for your lack of precaution.. Economics thus teaches us that strict liability is not a good rule of law to follow in this case. What would be a good rule to follow? One is the rule of negligence. I am liable only if I am negligent. This will induce me, the driver, to take all cost-justified precautions but it will also induce you, the pedestrian, to take all cost-justified precautions since you now cannot be sure that you will collect damages from me if you are found negligent. The problem with this solution is that a court must now decide as to what constitutes cost-justified precautions and what constitutes negligence. It must also decide how to observe whether or not you and I took all precautions, an obvious impossibility. The story continues but would carry us too far here. The point is that economics -- thinking about behavior in terms of incentives, of benefits and costs -- encourages us to ask useful questions. Speaking of precautions. David Friedman, an economist and law professor, from whom the examples are taken, once lived in New York City. He had an argument with a friend about how to prevent muggers from mugging pedestrians. Friedman was in the habit of taking a four-foot walking stick with him on every outing. The friend argued that this would only attract macho muggers wanting to show off. But Friedman argued that even muggers are "rational," understanding that it is easier to mug a little old lady at zero cost of resistence than to mug someone with a four-foot stick. Even muggers want to minimize costs and maximize their loot. That is, the risk of being resisted, and of being injured, by the resisting pedestrian is greater than the risk involved with the proverbial little old lady. Hence, muggers go for easy targets, just as lion tend to hunt zebras, not leopards. This reasoning applies to protecting your home as well. A little protection is better than none. On average, thieves are more likely to scout and pick the easy homes first. Leaving a large dog-food dish and waterbowl and a large rubber bone lying around in the backyard are cheap ways of signalling to scouts that your home is protected. On average, Friedman argues, a thief is likely to move on to a less ominous place. Still, I am glad I have two real dogs in my yard and home. Dr. J. Brauer is Professor of Economics at Augusta State University's College of Business Administration. He can best be reached via his web site (http://www.aug.edu/~sbajmb).