Corporate & Securities Law

The Economics of Friendship

Here is an excerpt from Eric Posner’s review of Ethan Leib’s book on regulating friendship, Friend v. Friend:

We should require an affirmative reason to regulate. Leib says that friendship is important, that it is central to human identity, that?since friends enter economic relationships with each other?it may lubricate economic growth. But surely none of these facts provides a basis for the promotion of friendship by the state. As our University of Chicago economist would say, show me the negative externality?that is, the harm to others that results from the failure to regulate friendship. People are free to enter friendships in order to obtain the benefits of that relationship. Is there any reason to believe that people enter fewer than the socially optimal number of friendships? If a friendship may turn out to benefit others because of its third-party economic effects, it may also turn out to harm others. Cronyism is a significant problem in politics and business, and impartiality is an essential virtue in a bureaucratized society that rests on the rule of law.There are certainly lonely people out there who would derive emotional and economic benefits from having more friends. But if others search them out and befriend them in order to obtain tax advantages or regulatory privileges, then is this the type of friendship that enhances well-being? At a minimum, we would need to take account of the possible alternative uses of the friend-prospectors? time, lest we encourage them to neglect their families in the hunt for friendships. From the standpoint of public policy, it is impossible to say that there is ?too much? or ?too little? friendship.

Leib’s response is available here.

Full post as published by Truth on the Market on February 25, 2011 (boomark / email).