Econ 522 Economics of Law Logistics Monday, we…
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Econ 522
Economics of Law
Logistics
Monday, we…
Today:
efficiency
First concept: Pareto improvement
Pareto superiority is not that useful a measure for evaluating a legal system
Next concept:
Kaldor-Hicks improvement
Example
To check if something is a Kaldor-Hicks improvement, we can…
So…
Efficiency
Example: is it efficient for me to drive to work instead of taking the bus?
Some other, similar measures
To see whether something’s efficient…
But what do people actually do?
So
externalities cause inefficiency
A classic example of this:
the Tragedy of the Commons
Tragedy of the Commons – example
What’s going on here?
So
externalities
can lead to inefficiency
Another thing that leads to inefficiency:
barriers to trade
Another thing that leads to inefficiency:
taxes
Another example of
taxes leading to inefficiency
Another thing that leads to inefficiency:
monopoly
But, saying these things lead to
inefficiency
doesn’t automatically mean they’re
bad
Important distinction:
positive
versus
normative
economics
Most of this class will be
positive
analysis
Friedman gives a few arguments
for studying efficiency
But…
Posner gives us one argument why the law should aim to be efficient
Ex-ante consent – simple example
Things are a little more complicated…
Example: new law requiring landlords to pay for their tenants’ heat
Ex-ante consent,
ex-ante compensation
Limitations to Posner’s argument
This highlights some of the things efficiency is
not
A more pragmatic defense of
efficiency as a goal for the
law
Four reasons the tax system is a better way to redistribute wealth than the legal system
So, summing up… is efficiency a good goal for the law?
For Monday…
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