Suppose firms could publicly opt out of sexual harassment law.  Would they choose to do so?  The simplistic answer is, “Since sexual harassment laws were forced on firms, they’ll all opt out as soon as they get the chance.”  But status quo bias is a powerful force – and even if it weren’t, social norms have deeply changed since the dawn of sexual harassment law.  Would firms really value immunity to lawsuits over bad publicity and harm to worker morale?

My best guess: Small, for-profit firms would soon opt out, given the chance.  They have little reason to worry about bad publicity, and the laws are quite inefficient: workers rarely value the right to sue their employer for harassment more than their employers value immunity to such lawsuits.  To maintain worker morale, most such firms would loudly declare an internal policy against sexual harassment: “Here at the Widget Corporation, we strongly oppose sexual harassment.  But from now on we’re going to handle the problem internally.” 

Larger firms that fret about their public image, in contrast, would wait and see what happens.  Over the course of 5-10 years, though, they’d probably opt out too – and cry that their callous competitors forced their hand.

The main hold-out, I suspect, would be non-profits – especially universities.  Their main customers, after all, are parents – and few parents want to send their kids to a school that leaps at the chance to evade sexual harassment laws.  Internally, moreover, universities are full of people who are ideologically committed to things as they are.  Pragmatic administrators would be loathe to cross them.

Of course, I could be wrong.  So tell me: What would happen if firms could opt out of sexual harassment law?