Course:Law3020/2014WT1/Group I/Law As Efficiency

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Law and Economics

Law and Economics Theory

Vilfredo Pareto

The underlying concept of law and economics is that law develops towards efficiency. Laws are created or die in regards to the efficiency they achieve; therefore, we measure laws with reference to efficiency. This is distinguishable from the Legal Positivists who measured laws with reference towards morality.

Maximization of Social Wealth

The goal of efficiency is the maximization of the social wealth. Law is seen as a tool to do this. For this to work human beings need to be rational and always need to make decisions that are objectively in societies and their best interests. However, we are not rational beings and quite often we do not make decisions from a rational perspective. This aspect of the theory ignores social context and human behaviour.

Pareto Superiority

Pareto superiority theory was created by the Italian economist Vilfredo Pareto. It is a comparison theory that assesses the state of affairs in one group to being superior to another. This is measured through seeing that at least one person is better off in one state (S1) than another (S2), and that no one in S1 is worse off than someone is S2. There is at least one winner and there are no losers. This can also be achieved if a winner compensates a loser for their loss, but they still win.


Externalities are problems that involve third parties outside of a transaction. Costs arise to the third parties when really the cost should be fixed within the relationship of the transaction. The Kaldor-Hicks test measures if a transaction’s overall benefits outweigh the cost to third parties and if they leave profit for those within the transaction.

Applied to Mrs. E v Eve



The theory of Law and Economics is difficult to apply to the case of Mrs. E v Eve as the prevalent issue in the case is one of morality. This theory, viewed in a strict sense, would critique the judgement, rather than affirm the findings of the Supreme Court. Although this is a controversial topic we will examine the issue of whether parens patriae can authorize a non-therapeutic hysterectomy through the lens of Law and Economics.

The Case

In the early 20th century the eugenics movements promoted the use of sterilization. Canadian provinces, Alberta and British Columbia, enacted Sterilization legislation; society wanted to control the evolution of the human race and there was a belief that “degenerate” individuals would contaminate the population. By the 1970s this legislation was repealed.

The economic movement of the 20th century can be seen as one of the proponents of regulations like the Sterilization Acts and the eugenics movement. Eugenics was a movement to make the human race more efficient, and many casualties of the Sterilization Acts were people with mental disabilities, like Eve. In a strict interpretation of the theory it is efficient to have people like Eve sterilized. Eve costs society without adding to the maximization of social wealth, and if she were to have a child it would greatly burden her mother and society. To pursue the maximization of social wealth all humans need to be viewed as rational people who makes decisions based off the value to society. Unfortunately Eve would not fit this narrow definition.

However the "Kaldor-Hicks" theory could be applied in an abstract way. "Kaldor-Hicks" deals with the effects of externalities of a transaction to third parties. In this case the Court of Appeal and Mrs E made a transaction to invoke "Parens Patriae" to sterilize Eve, however the externalities of this transaction are incalculable. Eve, the third party, is greatly effected by this transaction and she does not have the ability to communicate her opinion on the matter. Her right to her body should be held higher than the potential inconvenience of child to her mother and the state. Therefore the externalities of the transaction greatly outweigh the benefits and should render the transaction void.

It’s important to note that this theory does not work perfectly with this case and with some areas of law like liberties. Although efficiency is a good standard to measure many laws and judgements by it is not always appropriate to use it. The court decided that the sterilization could not occur because they could not invoke of the doctrine of parens patriae for the benefit of a third party (Mrs. E). Moreover, there was a trend in the jurisprudence, with the recent enactment of the "Charter of Rights and Freedoms", to consider life, liberty, and freedom of person (Section 7). The case that truly developed the jurisprudence in regards to section 7 was Morgentaler, which was decided two years after Mrs E v Eve.

Mrs E v. Eve was not an issue that was decided on Charter Rights, moreover it was decided on "parens patriae". This case illustrates how a law and economic theory does not work for every case. There are areas of law where morality needs to guide the interpretation of the law. Efficiency doesn’t need to be the end goal, rather things like justice and equity need to be balanced with efficiency in our law making process.