believed, especially if non-political alternatives could work.Complaints five and six, which doubt that market enforcement could ever win the loyalty and trust of most people, are more difficult to answer. Even in areas where markets are perfectly workable, voters routinely prefer government ownership and control. They have more confidence in the legitimacy of the government than they do in the legitimacy of the market. Perhaps imperfect information is the problem. If people understood the relative pluses and minuses of the two systems, but still selected government supply, economists would have nothing to say. But if people base their preferences on mistaken economic theories, economists have a professional responsibility to at least explain their errors to them so that they may make informed choices.This section is not intended to be a conclusive proof of the superiority of competitive enforcement outlined in section 4.8. It merely discusses the common arguments against competitive enforcement, and argues that they are not as persuasive as they initially appear. Most criticisms compare perfectly functioning governments to real-world markets; this biases the whole analysis. The appropriate economic comparisons are between perfect governments and perfect markets, and between real-world governments and real-world markets. When we keep this in mind, the choice between the two systems is hard to make.Policy analysis for this section is less determinate than earlier sections’. The lesson to draw is that we have everything to gain from gradual experimentation. Market enforcement has overlooked potential. How much potential? It is difficult to know a priori. What we can know is that if we permit experimentation, we can gradually get a realistic picture of its potential. If problems arise, experimentation can halt; but there is no harm in incrementally opening up alternatives to the status quo.5. ConclusionAlmost all scholars regard the supply of law as a pure public good that simply must be supplied by the government. Yet there are many present-day and historical counterexamples: arbitration, the law merchant, trade associations, ostracism and boycott, security guard companies, and so on. Puzzled by these counter-examples, scholars such as Posner, Landes, Becker, and Stigler investigated the theory behind the private supply of law, distinguishing three aspects of law: dispute resolution, rule formation, and enforcement. This thesis considered non-state provision of each of these conceptual legal branches. Corresponding to each branch is a theory that describes how the system would work in the absence of market failures; a description of the most obvious market failures from which each branch suffers; and a discussion of the severity of the failures.The overall conclusion of this paper is that, while each branch — dispute resolution, rule formation, and enforcement — has flaws, the problems are rarely overwhelming. Scholars are usually too quick to dismiss them on the grounds of market failure, without first considering the magnitude of the market failure, or whether the government could realistically do any better.Most scholars find much to praise and little to criticize in private dispute resolution. It reduces transaction costs, gives parties greater flexibility, and helps ease the case burden of the public courts. It would not be difficult to open up a wide range of disputes to private resolution. As the public courts grow more clogged, we can expect alternative dispute resolution to expand. If the public courts give arbitrators sufficient autonomy and enforce their decisions as a matter of policy, the expansion might startle us.In contrast, there is considerable skepticism about private rule formation. Posner and Landes point out that the production of precedents is a public good. Since a patent system for precedents is not feasible (parties could use precedents without citing them, as Posner suggests), it is difficult to see where the incentive to supply rules and procedures comes from. While there is something to this complaint, Posner and Landes overstate its importance. The externality problem did not stop whole private legal systems from blossoming, from the international law merchant to the customary law of primitive tribes. As my treatment explained, modern patent law fails to protect a whole range of innovations; but innovation in unprotected sectors continues. This is mainly because firms can capture much of the gain just by being the first firm in an industry to adopt an innovation, even if there isn’t any legal protection. A second source of customary law, I suggested, is cultural evolution — the piecemeal accumulation of minute innovations. This is the process that gives us language, custom, and frequently the foundations of our legal system. The basic common law categories of property, contract, tort, and crime sprang up long before there were formal governments or even professional judges, as Posner himself shows in The Economics of Justice. What conclusion can we draw from this? Mainly, Posner and Landes see a genuine problem for private rule formation, but the problem has been sufficiently mild to permit substantial private rule creation throughout history. There is a sound reason to at least remove legal barriers to private rule formation and see what happens. Private rule creation, like non- patentable innovation in general, could prove quite workable.The most controversial area is private enforcement of law. Most people see something subversive and scary about this, though such eminent economists as Becker and Stigler see that it has great potential. Whatever one’s views on this matter, private law enforcement is already a respected part of our society and economy. Professional boycott and ostracism is a common sanction for breach of contract, fraud, and other unscrupulous business practices. Security guards and private police give us at least as much protection as public police (probably more, since public police spend so much of their time and money on victimless crimes). There is no reason at all to be frightened of these forms of private law enforcement. Boycott and ostracism are mild but effective ways to enforce decent behavior at very low cost. Since the security guard and private police industries are highly unconcentrated, they pose no realistic political danger to anyone. There is a strong argument for greater reliance on and legal recognition of these sorts of private enforcement.Yet there is a less conservative side to private law enforcement. Some historical legal systems permitted competing private bodies to take over the most basic function of government: the use of violence against criminals. In section 4.8, I discussed the workings and incentives of such a system, and argued that, at least so far as economic theory is concerned, such a system could, contra Hobbes, operate peacefully, fairly, and efficiently. This is a rather radical conclusion; but I intend it mainly to be a model of a polar case, the polar case in which all enforcement is private. Section 4.9 brought up six economic and political criticisms of purely private enforcement. After probing each of these arguments, I found them less than fully convincing. Public choice theory’s most important discovery, I think, is that every market failure has an analogue in the public sector. The critics of purely private enforcement probably make an unfair comparison because they only point out private sector failures without asking if public sector failures are worse. For this reason, as radical as the idea of purely private enforcement is, economic analysis cannot dismiss it out of hand. A great deal of work in this area is necessary before scholars can make an intelligent judgment.In Foundations of the Metaphysics of Morals, Immanuel Kant writes that, “Reason, therefore, relates every maxim of the will as giving universal laws to every other will and also to every action toward itself; it does so not for the sake of any other practical motive or future advantages but rather from the idea of the dignity of a rational being, which obeys no law except that which he himself also gives.”87 (emphasis added) In one sense, expanding the role of the private sector in our legal system fulfills Kant’s ideal by permitting parties to opt out of the public court system and set up their own rules and procedures. Private legal systems let parties create the very law that governs them, since they may contract with each other to select an arbitrator, procedures, rules, and sanctions. But the other feature of Kant’s ideal, that parties act not “for the sake of any other practical motive or future advantages” is entirely absent. The chief reason why parties opt out of the system is precisely to win “practical motives and future advantages” — to reduce dispute resolution costs, select efficient rules, and swiftly and painlessly enforce rulings. The conclusion to draw is that, contra Kant, non-state legal systems both let parties create law that governs them and enhance their well-being. Autonomy and efficiency are not in tension; each requires and implies the other.Notes1: Richard Posner, The Economics of Justice (Cambridge, Mass: Harvard University Press, 1981), p.178.2: Harold Berman, Law and Revolution (Cambridge, Mass: Harvard University Press, 1983), p.52.a: Jerold Auerbach, Justice Without Law? (Oxford: Oxford University Press, 1983), p.113.b: For a brief overview, see Robert Cooter and Thomas Ulen, Law and Economics (no city, HarperCollins, 1988), p.480.3: Richard Posner and William Landes, “Adjudication as a Private Good,” Journal of Legal Studies, vol.8., p. 236.4: Berman, op. cit., pp.348-354.5: Gary Becker and George Stigler, “Law Enforcement, Malfeasance, and Compensation of Enforcers,” Journal of Legal Studies vol.2, p.6.c: Thomas Hobbes, Leviathan (New York: Collier Books, 1963), p.132.6: On this, see Bryan Caplan, “Archical Fallacies: Hobbes vs. Locke on the State of Nature,” unpub. ms., available on request.7: Richard Neely, Why Courts Don’t Work (New York: McGraw-Hill Book Co., 1982), p.165.8: ibid, p.166.9: Posner and Landes, loc. cit., p.252.10: See Robert Cooter and Thomas Ulen, op. cit., p.486.11: Posner and Landes, loc. cit., p.252.12: Richard Posner, Economic Analysis of Law (Boston and Toronto: Little, Brown, and co., 1977), pp.433-434.13: Neely, op. cit., p.185.14: Ronald Coase, “The Nature of the Firm,” in George Stigler and Kenneth Boulding, eds., Readings in Price Theory (Chicago: R.D. Irwin, 1952), pp.331-351.16: See F.A. Hayek, “The Use of Knowledge in Society,” in F.A. Hayek, Individualism and Economic Order (London: Routledge and Kegan Paul, Ltd., 1948), pp.77-91.d: See Posner, Economic Analysis of Law, op. cit., pp.450-453.17: Posner and Landes, loc. cit., p.247.18: Nathan Isaacs, Review of Wesley Stuges, Treatise on Commercial Arbitration, 40 Yale Law Journal, pp.149-151, quoted in Auerbach, op. cit., p.111.19: Posner and Landes, loc. cit., p.248.20: ibid, p.239.21: Bruce Benson, The Enterprise of Law: Justice Without the State (San Francisco: Pacific Research Insititute for Public Policy, 1990), p.300.22: See Posner, Economic Analysis of Law, op. cit., pp.419-421, 426-427.23: Richard Epstein, “The Static Conception of the Common Law” Journal of Legal Studies, vol.9, p. 254.24: Benson, op. cit., 225-227.25: Posner and Landes, loc. cit., pp.257-258.26: Benson, op. cit., p.278.27: Richard C. Levin, Alvin Klevorick, Richard R. Nelson, and Sidney G. Winter, “Appropriating the Returns from Industrial Research and Development,” Brookings Papers on Economic Activity (1987, no.3), pp.803, quoted in F.M. Scherer and David Ross, Industrial Market Structure and Economic Performance (Boston: Houghton Mifflin Company, 1990), p.628.28: F.M. Sherer, Industrial Market Structure and Economic Performance (Chicago: Rand McNally College publishing co., 1980), p.444.29: ibid.e: Sherer and Ross, op. cit., p.626.30: See for example Robert Bork, The Antitrust Paradox: A Policy at War with Itself (New York: Basic Books, 1978), esp. pp.163-197; and Harold Demsetz, “Two Systems of Belief About Monopoly,” in Harvey Goldschmid, H. Michael Mann, and J. Fred Weston, eds., Industrial Concenctration: the New Learning (Boston: Little, Brown, and co., 1974), pp.164-184.f: See F.A. Hayek, Law, Legislation, and Liberty, vol.1: Rules and Order (Chicago: University of Chicago Press, 1973), p.37.28: Richard Posner, The Economics of Justice, op. cit., p.177.29: On cultural evolution, see F.A. Hayek, The Fatal Conceit: The Errors of Socialism (Chicago: University of Chicago Press, 1988), pp.11-28 and passim.30: For a overview of the harmful effects of social experiments in this century, see Paul Johnson, Modern Times: The World from the Twenties to the Eighties (New York: Harper and Row, 1983).31: See Berman, op. cit., pp.49-84.32: Robert Ellickson, Order without Law: How Neighbors Settle Disputes (Cambridge, MA: Harvard University Press, 1991).33: ibid, p.185.34: ibid, p.188.35: ibid, pp.213-219.36: ibid, p.227.37: Quoted in ibid, p.251.38: ibid, p.250-252.39: Richard Posner, The Economics of Justice, op. cit., pp.178-179.40: Richard Epstein, Simple Rules for a Complex Society, forthcoming – call Sheldon41: Ellickson, op. cit., p.254.42: For example, in his Economic Analysis of Law, op. cit.43: Benson, op. cit., p.279.44: ibid, p.280.45: Harold Demsetz, “Information and Efficiency: Another Viewpoint,” Journal of Law and Economics, vol.12, pp.1-3.46: Posner, Economic Analysis of Law, pp.422-423.47: Neely, op. cit., p.35.48: Bruno Leoni, Freedom and the Law (3rd edition; Indianapolis: Liberty Fund, 1991), p.23.49: ibid, p.22.50: ibid, p.24.51: Posner, Economic Analysis of Law, pp.404-405.52: Posner and Landes, loc. cit., pp.259-284.53: Becker and Stigler, loc. cit., p.12.54: ibid, p.11.55: See William Dickens, Lawrence Katz, Kevin Lang, and Lawrence Summers, “Employee Crime and the Monitoring Puzzle, ” Journal of Labor Economics, July 1989, pp.331-347.56: On the problem of “liquidated damages,” see Cooter and Ulen, op. cit., pp.293-296.57: Becker and Stigler, loc. cit., p.14.58: ibid, p.14.59: ibid, p.15.60: Posner, Economic Analysis of Law, p.167.64: Posner and Landes, loc. cit., p.235.65: From lecture notes from Prof. Olney, visiting professor at UC Berkeley.66: Roger Ransom and Richard Sutch, One Kind of Freedom (Cambridge: Cambridge University Press, 1977), p.3.67: See for example Richard Steckel, “A Peculiar Population: The Nutrition, Health, and Mortality of American Slaves from Childhood to Maturity,” Journal of Economic History, Vol.66, no.3, Sept. 1986, pp.721-741.68: For this highly entertaining story, see Jeffrey Shedd, “Making Good[s] Behind Bars,” Reason 13, March 1982, pp.23-32.69: Posner, Economic Analysis of Law, p.468.70: See Cooter and Ulen, op. cit., p.479.71: See for example Edward Banfield, The Unheavenly City, (Boston: Little, Brown and co., 1970), pp.158-184; Edward Banfield, “Present-Orientedness and Crime,” in Randy E. Barnett and John Hagel, Assessing the Criminal (Cambridge, Mass: Ballinger Publishing Co., 1977), pp.143-162; and Samuel Samenow, “The Challenge of Habilitation,” in ibid, pp.121-132.72: See for example Randy E. Barnett, “Restitution: A New Paradigm of Criminal Justice,” in ibid, pp.349-383.73: Posner, Economic Analysis of Law, pp.433-434.74: ibid, p.468.75: Benson, op. cit., p.148.76: ibid, p.3.77: ibid, pp.137-140.78: Anectode told to me by Prof. Grossman, UC Berkeley Economics Dep’t.79: David Friedman, “Private Creation and Enforcement of Law: A Historical Case,” Journal of Legal Studies, vol. 8, p.406.61: See Benson, op. cit., pp.128, 211. Unfortunately, it is difficult to get same-year figures; high inflation during the 1979-1982 period somewhat overstates the difference. With approximately 14% inflation in 1980, 11% in 1981, and 7% in 1982, the 1982 aggregate security personnel payroll in 1979 dollars was about $16.0 billion.62: ibid, p.212.g: See Harold Demsetz, “Why Regulate Utilities?,” Journal of Law and Economics, vol. 12., pp.55-65.63: ibid.80: Friedman, loc. cit., p.410.81: Posner, Economics of Justice, op. cit., p.119.82: ibid, p.175.83: Friedman, loc. cit., p.413; Berman, op. cit., pp.53-55.84: Benson, op. cit., p.212.85: Murray Rothbard, For a New Liberty (New York: Libertarian Review Foundation, 1978), pp.235-236.86: ibid, p.236.87: Immanuel Kant, Foundations of the Metaphysics of Morals, in A.I. Melden, Ethical Theories (Englewood Cliffs, NJ: Prentice-Hall, 1967), p.348.BibliographyJerold Auerbeck, Justice Without Law? (Oxford: Oxford University Press, 1983).Edward Banfield, The Unheavenly City, (Boston: Little, Brown and co., 1970).Randy E. 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