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

Law & Efficiency: 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. 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: