Private Law Theory

ABSTRACT
Welfare Economics is the branch of economics that focuses on economic efficiency. Much Law & Economics research (1) analyzes the economic efficiency of particular common-law or constitutional-law holdings or decisions or of particular judicial interpretations and/or applications of statutes or administrative regulations and (2) makes explicit claims or proceeds on implicit assumptions about the predictive power or legal and moral relevance of the economic-efficiency conclusions the research generates.

This Article states and criticizes various economic-efficiency-related positions that the Law & Economics literature and economics more generally take and articulates the alternative positions I believe are correct. Inter alia, the Article (1) argues that the various definitions of ‘the impact of a choice on economic efficiency’ that are currently used are all ‘incorrect’ and articulates an ‘equivalent-variation’-oriented definition that is correct, (2) explains that the standard protocol that is used to generate economic-efficiency conclusions is incorrect in that it (A) ignores many of the categories of economic inefficiency whose magnitudes choices can affect, (B) disregards the fact that the individual Pareto imperfections that would tend to cause economic inefficiency in an otherwise-Pareto-perfect economy are (roughly speaking) as likely to counteract as to compound each other’s misallocative tendencies, (C) fails to recognize that poverty causes economic inefficiency in a variety of ways, and (D) does not instruct the analyst to take account of the fact that relevant theoretical and empirical research is allocative-costly both to execute and to publicly finance, and (3) points out that economic efficiency is not a moral value, articulates and criticizes various arguments that economists have made for the moral relevance or decisiveness of a choice’s impact on economic efficiency, delineates the liberal conception of justice and various egalitarian conceptions of the moral good, and explores the relevance of a choice’s economic efficiency or an actor’s perception of its choice’s economic efficiency for the choice’s moral desirability from the perspective of the liberal conception of justice and various morally-defensible egalitarian conceptions of the moral good.

Markovits, Richard, What’s the Matter With Welfare Economics? (May 6, 2024).