Many analyses of law take an unsentimental, perhaps even cynical view of regulated actors. On this view, law is a necessity borne of people’s selfish and conflicting interests. We take a charitable view of regulated actors by assuming they have empathy, meaning they care for one another, and we study whether this affects the need for law. The basic answer is no. Law shifts costs to the injurer, forcing her to internalize the effects of her choices. Empathy creates costs, as when an empathetic driver feels bad about injuring a pedestrian. Without shifting costs, even empathetic people will make socially harmful choices, and correcting their incentives requires law—usually the same law we would need if people were selfish. In some cases, empathy makes law more demanding. By increasing costs through the creation of psychological harms, empathy can increase optimal damages and heighten the optimal standard of care. Empathy substitutes for law only when the parties have perfect mutual empathy, meaning they place the same weight on each other as on themselves. Outside of close familial relationships, this condition seems impossible to satisfy.

Citation
Michael D. Gilbert & Andrew Hayashi, Law and Economics for Empaths (2024).