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

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Nicholas Kaldor

An economic efficiency legal theorist's philosophy centres around the word efficiency[1]. The theory relies on a presumption that everyone behaves in a rational way, making decisions in their best interests. Efficiency is the pinnacle that courts and legislators are trying to get to, in a common law system each judgment is attempting to create a more efficient legal system. Therefore, the key question when analyzing economic efficiency is what is efficiency? Simply put, efficiency is the maximization of social wealth[2]. Thus, ideally, the law facilitates the maximization of social wealth with each passing judgment.


The Granovsky decision can clearly reconcile with the idea of economic efficiency. Granovsky buys into the CPP originally because he sees the possibility of obtaining a benefit and rationally believes that it is a good idea. However, he then hits hard times and it becomes impossible for him to contribute every year, this causes him to be subject to a 'drop-out' provision that leaves him without compensation.

In analyzing the legislation it is clear that it was drafted with efficiency in mind. The CPP is in place to give people the option to benefit from it. This helps social wealth as if one does not wish to be a part of it they do not have to contribute. However, for those that do, they can rest assured that they will have funds available in the future. Social wealth is maximized by allowing benefits to any contributing member, but not aggressively forcing people into the scheme that do not wish to participate.

The drop-out provision is in place to better allocate funds to those that sufficiently contributed. Again, this coincides with wealth maximization as it would be unrealistic to allocate funds to those that do not contribute enough in comparison to others. People are all buying into the CPP and the disability benefit cannot apply when you have not been able to contribute sufficiently. The individual is not giving the required input and there are limited funds to allocate. The drop out provision maximize social wealth by ensuring that people who contribute get some of the limited funds.

Section 15 of the Charter can also be characterized as efficient as it is in place to ensure equality and prohibit mistreatment of every Canadian citizen. Economic efficiency theorists make a point of noting that 'wealth' does not simply mean money, but refers to all forms of 'measurable satisfaction'. It is certainly reasonable to view one's rights of equality as belonging to a 'measurable satisfaction' thus meeting the criteria of wealth.

Therefore, since the legislation can all be attributed to the theory of economic efficiency, it is not surprising that the court did not really have any issue with it and upheld the decision that Granovsky should not be awarded any compensation. Essentially the court held that the legislation, and more specifically the 'drop-out' provision, were in place to better utilize the CPP. In essence striking down, or taking away the provision would diminish the effectiveness of the legislation as a whole as it would fail to maximize the social wealth. If it were taken out people who had a better interest in the CPP funds (because they contributed more) would be entitled to less, as there would simply be less funding to go around.

Comparison to Natural Law

To a certain extent, economic efficiency is reconcilable with Saint Thomas Aquinas' Natural Law theory. Paying particular attention to the first requirement of a valid law, the requirement that the law be for the common good, it is relatively easy to see efficiency related undertones. The 'common good' could arguably be characterized as maximizing social wealth. In some instances certain individuals will fall through the cracks and the law will not serve them, but this is a necessary evil as laws are communally oriented. The same can be said for the maximization of social wealth, sometimes the interests of an individual will have to be sacrificed in order to heighten a law's efficiency. One issue arising with the comparison to natural law is that St. Thomas Aquinas would have characterized law as being moral creation, whereas approaching law from an efficiency standpoint, morality plays no part. All law-makers and people are rational thinkers, and thus they attempt to create the laws with the most efficient results. Morality does not really play a role, and instead is arguably replaced by efficiency.

'Pareto' Superiority

Pareto-Superior Exchanges consist of transactions wherein both parties are better off than where they started

'Pareto' superiority usually occurs in a transaction when one situation is better than another because at least one person benefits from that particular situation[3]. Pareto-superiority can occur in any type of situation, however in some instances it is necessary that one party will 'lose' the transaction. The loss can be rectified to Pareto-superiority by compensating the losing party for their loss.

In this case it could be said that Granovsky entered into a transaction to purchase his right to the CPP funds. Like millions of other Canadians, when he 'bought in' to the plan he was agreeing to abide by the rules and make the necessary payments. When he did not do this, it is no surprise that he ends up 'losing' the transaction. Thus at first glance this transaction is not 'Pareto' superiority. This is furthered by the courts decision not to grant him any compensation.

However, the Kaldor-Hicks Test said that transactions are 'efficient' if overall benefits outweigh the loss to one party[4]. There can be no doubt that a legal economic theorist would view this transaction as having higher overall benefits than the loss to Granovsky. Granovsky only really lost the few payments that he made, and this was due to his condition. In contrast, the benefit is that those who are more deserving (because they made more payments) will have access to a larger pool of funding. Denying people in Granovsky's situation compensation is a necessary evil as if the courts allowed them to be compensated the wealth of the other, arguably more deserving, parties would be depleted.

Case as a Contract

Another approach to take from economic efficiency standpoint is recognizing the relationship as a contract. Contract law encourages the use of formal and written contracts with specific terms and stipulations. In this sense contracts maintain efficiency as they are meant to be clear and contain standards upholding the basic rules of the contract[5]. In Granovsky it could be argued that he expected to be in a contract with the CPP, however, the legislation (or contract) can be approached as stating specific terms that are necessary in order to benefit from the contract - i.e. the drop-out provision for those that do not contribute enough. In this case, Granovsky failed to uphold his end of the contract by not giving sufficient funds over the required years. Therefore, it was not efficient for the CPP to continue the relationship with Granovsky and provide compensation for him. The damages in this case was the effective 'termination' of the contract and the appropriate damage was the expectation measure of damages[6]. In these situations the person, or in this case entity, who did not breach gets exactly what they would have received had there been no breach. The fact that Granovsky elected to stop contributing meant that the contract was in effect always voidable by his volition. By not making the contract payments, he voided the contract and thus he did not owe anything more to the CPP, however, he was in no way entitled to the benefits as his performance of the contract was incomplete. Therefore, this case can be said to have no loser as it was the election of Granovsky that terminated the contract, and thus efficiency is maintained.[7].


  1. Susan Dimock, ed, Classic Readings and Canadian Cases in the Philosophy of Law (Toronto: Pearson Education Canada, 2002) at 117.
  2. Ibid.
  3. Ibid at 118-119.
  4. Ibid at 119-120.
  5. Ibid at 127.
  6. Ibid at 128.
  7. Ibid at 129.

Table of Contents

Created by Cole Rodocker,Tajinder Rathor,Nick Rogic,Toby Davis
Legal Perspectives Legal Philosophers
1 Natural Law Thomas Aquinas
2 Legal Positivism [John Austin,HLA Hart, Jeremy Bentham,Joseph Raz]
3 Separation Theory [HLA Hart & Lon Fuller]
4 System of Rights Ronald Dworkin
5 Liberty and Paternalism [John Stuart Mill & Gerald Dworkin]
6 Law as Efficiency Susan Dimock
7 Feminist Jurisprudence Patricia Smith & Catharine A. Mackinnon
[Professor Margaret Hall]