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

Law & Economy: Law as Efficiency


The Theory:

Law as efficiency describes how legal rules work and why laws tend to develop as they do. Laws develop towards efficiency even when claimed that a law is adopted for subsequent reasons. Under this theory, in order to be a valid law the underlying point of it should be the maximization of social wealth(this could be seen as true to Thomas Aquinas as well as long as the maximization of social wealth is for the common good). Law can be seen as a tool that human beings use to facilitate this outcome. Another role of law is to minimize distortions in the economy so that human beings can operate in an efficient manner. Good legal rules under this theory are measured by their efficiency, not morality. “Efficient” laws will maximize social wealth, and the result will be a net increase in this wealth. “Wealth” is a term that does not always mean money but all “measurable satisfactions” that are created by the law. This theory evolves from the model that human beings will be rational. They will always make decisions during transactions that are in their best interests as determined by net increases in wealth. The economic model of “Pareto” superiority states that in economic transactions there will be at least one winner and no losers. One party will not lose anything and will be left in the same position as before the interaction and the other party comes out better off.

Application to Criminal law: When evaluating whether an issue should be criminal one can ask the threshold question of what is the harm/cost, and is it worth it? The criminal law system is expensive; harms that are identified as being sufficiently valuable to society are the only ones that will be classified as “worth it.” In order to achieve a desired end, the investment in the public criminal law system should be less than the monetary “wealth” created by protection of valued interests/rights.

The Application:

According to the theory of Law as Efficiency, laws will only be acceptable in situations where there is “no loser,” or where the gains of one party outweighs the losses of the other enough to provide compensation to the “loser.” Justice La Forest states that “the state can properly intervene in situations where parental conduct falls below the socially acceptable threshold, but in doing so it is limiting the constitutional rights of parents rather than vindicating the constitutional rights of children.” This is an example of a situation where a law would not be efficient as per pareto superiority. The gain the parents receive from having their right to choose what is best for their child is not large enough to compensate the child for their losses and still come out ahead. Therefore the right is inefficient and should not be recognized.

The freedom to religion is protected by s. 2 of the Charter. This right allows for individuals to express their religion in the manner they choose. Through the Child Welfare Act the parents freedom of religion is infringed by allowing state interference with children whose protection falls below the acceptable threshold level. The court proceeds to conduct a section 1 analysis in order to justify the infringement of section 2, which is the equivalent to the criminal law application of the economic theory. Here the theory states that society must weigh the harm and the cost to determine whether or not it is worth it to recognize and enforce that right. Justice La Forest determines that the infringement of s. 2 is justified based on the pressing and substantial need to protect children. With respect to the economic theory, this is the court’s way of recognizing that the protection of children is sufficiently valuable in comparison to the cost of limiting the right of the parents (freedom of religion).

By creating a new scenario where the “winner” is the child, and the “loser” is the parents, the gain by the child receiving proper medical treatment is large enough to compensate the loss the parents incur due to the limitation of their freedom of religion. This scenario is the most efficient way to apply the law, and creates a maximization of social wealth for the future of children.