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Economic Efficiency in Law and Economics

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.
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Chapter 8: Of Distributive Justice and Economic Efficiency: An Integrated Theory of the Common Law

Richard O. Zerbe Jr.


8. Of distributive justice and economic efficiency: An integrated theory of the common law 8.1 GENERAL INTRODUCTION This chapter primarily applies two parts of axiom 5, the subsection defining a good which requires that all values be included which can conceptually be measured by a WTP or a WTA (5a) and the concept of the regard for others (5c). Here I consider issues of common law efficiency. Recall that the regard for others refers to the value people place on projects that do not directly affect them but whose effects they care about, either because they care about those affected or because they care about the principles used in determining the project outcome. They may care about the principle or rule because it may affect them or others in the future. One of the more prominent theories of the common law is the theory that the common law is KH efficient.1 That theory holds that the common law is best described as a system designed to promote the traditional notion of KH efficiency (Posner 1992b, p. 23).2 Although the traditional theory offers a persuasive explanation of how many common law rules have arisen (Bruce 1984), it has also ‘aroused considerable antagonism’ from critics who feel that the law should not be viewed as a product of economic forces (Posner 1992b, pp. 25–26). Yet its underlying validity remains.3 That validity is vulnerable, however, since the theory may be invalidated through the introduction of an...

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