Essays on Psychology and Morality in Economic Analysis of Law

There is nothing more practical than a good theory. This thesis is a compilation of essays that seek to improve our understanding of law by building on new developments in economic theory, focusing on the role of psychology and morality in economic analysis of law. Essay 1 applies behavioral economics to financial regulation, challenging the notion that bounded rationality of investors implies more regulation. It argues that debiasing regulations need not be intrusive; that faulty market perceptions are best corrected through market-based solutions; that overregulation tends to cause lack of market discipline, pricing inefficiencies and problematic innovations; that regulators are also subject to imperfect rationality; and that regulatory complexity exacerbates the harmful effects of bounded rationality. Essay 2 elaborates the notion of behavioral paternalism in the context of consumer credit regulation. It finds that many aspects of existing regulations in the EU and the US are best understood through the lens of behavioral paternalism, and that there are many possibilities for further regulation along these lines. Essay 3 explores the role of social norms and moral motivation in legal and regulatory policy. It demonstrates that there are several practical ways in which these non-legal norms can be taken into account in order to improve the quality and effectiveness of lawmaking. Essay 4 develops a novel theory of economics based on the classical theory of virtues. It finds that virtues play a major role in the functioning of economic systems, and that optimal legal design depends on the level of virtue of the citizens.