Economic Efficiency in Law and Economics

Economic Efficiency in Law and Economics

New Horizons in Law and Economics series

Richard O. Zerbe Jr.

In this path-breaking book, Richard Zerbe introduces a new way to think about the concept of economic efficiency that is both consistent with its historical derivation and more useful than concepts currently used. He establishes an expanded version of Kaldor–Hicks efficiency as an axiomatic system that performs the following tasks: the new approach obviates certain technical and ethical criticisms that have been made of economic efficiency; it answers critics of efficiency; it allows an expanded range for efficiency analysis; it establishes the conditions under which economists can reasonably say that some state of the world is inefficient. He then applies the new analysis to a number of hard and fascinating cases, including the economics of duelling, cannibalism and rape. He develops a new theory of common law efficiency and indicates the circumstances under which the common law will be inefficient.

Chapter 9: The Efficiency of the Common Law: An Economic Analysis of Dueling, Cannibalism, the Gold Rush, Racism, and Antitrust Law

Richard O. Zerbe Jr.


9. The efficiency of the common law: An economic analysis of dueling, cannibalism, the gold rush, racism, and antitrust law 9.1 INTRODUCTION Chapters 2 and 3 introduced a concept of economic efficiency that rests on the axioms. In particular, my definition of efficiency requires (1) a recognition that benefits and costs are psychological and subjective, (2) a recognition that one must point to a superior rule or practice in order to say that some existing practice or rule is inefficient, (3) the inclusion of the transactions costs of operating the rule or practice as a part of the determination of efficiency, and (4) the inclusion of the value of all goods for which there is a WTP or WTA in determining inefficiency. This chapter applies these concepts to perhaps the major puzzle in law and economics, the efficiency of the common law. The common law1 has been found to tend toward economic efficiency2 in important instances (Posner 1986, p. 19f).3 This is an important claim, for it is not only a broadly descriptive assertion but a predictive one about the nature of common law. If this claim is true, why is it true? Though various evolutionary models have been offered to explain it (Rubin 1977; Priest 1977; Goodman 1978) none of these explanations is wholly satisfactory (Cooter and Ulen 1988, pp. 492f; Posner 1990, p. 372). Although I agree with those who have said that the common law tends...

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