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Huang: Shallow Signals


Bert I. Huang (Columbia Law School ;Harvard Law School) has posted “Shallow Signals”, 126 Harvard Law Review (2013).

The abstract is as follows:

Whether in dodging taxes, violating copyrights, misstating corporate earnings, or just jaywalking, we often follow the lead of others in our choices to obey or to flout the law. Seeing others act illegally, we gather that a rule is weakly enforced or that its penalty is not serious. But we may be imitating by mistake: what others are doing might not be illegal — for them.

Whenever the law quietly permits some actors to act in a way that is usually forbidden, copycat misconduct may be erroneously inspired by the false appearance that “others are doing it too.” The use of loopholes or exemptions can cause such illusions of misconduct. So can unseen licenses, cures, or private releases from liability. Selective enforcement, nonharmonization of laws, and legal transitions can also create similar misimpressions. The imitator sees others’ actions but not the crucial fact — of legal permission or tolerance — that distinguishes them. These behavior signals are “shallow,” missing a key dimension. The spread of misconduct can thus be accelerated by a peculiar, avoidable form of information failure.

For a regulator confronting this class of errors, it does little good to express the law in the conventional sense. What needs to be made more salient is not the law’s prohibition, but the fact of permission. This Essay offers an exploratory look at potential solutions, which vary by context and by whether actors are sophisticated or naive. Simple disclosures can sometimes do the job, but they can also be self-defeating due to what we might call an “ignorance externality.” Designing policies to work around such perverse effects may be possible, however, by drawing on heuristics introduced here.

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