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

LAW AND ECONOMICS

INTRODUCTION

The law and economics theory is one that is relatively different from the other legal theories. The law and economic theory makes the claim that laws are created in order to serve the purpose of economic efficiency, even when there is a claim that laws are created for other reasons. Efficiency becomes the measurement in order to evaluate laws as being either good or bad laws; an efficient law will be a good law. The idea of morality, which was prevalent with legal positivists, has thereby been replaced by efficiency. Efficiency, in this sense, means wealth maximization. Wealth maximization is not limited just to money, but also looks at ‘social wealth’ and other measurable satisfactions as a measuring tool. Social wealth is the total wealth of the combined society. So, transactions that occur will be considered efficient if the result is a net increase in wealth maximization. Richard Posner, a law and economic theorist, states that in order for this to work, the theory assumes that people are rational thinkers, which means they put their self-interest above others. In essence, the point of law, according to the law and economics theory, is to maximize this social wealth, by facilitating these types of transactions.

The law and economics theory presents different ways of measuring efficiency, of which the first is Pareto-Superiority. This is when one state of affairs (s2) is better than another (s1) because at least one person is better off in s2 than s1, and no one is worse off, or one person prefers s2 and no one prefers s1. Every pareto-superior transaction increases net utility for both parties to the transaction because there are no losers, just one winner. The problem is that the Pareto-Superiority analysis is not really applied by real legislatures. Almost all government action will benefit one party at the expense of the other. The reason for this is because legislators are also rational actors who are looking out for their own interests. They will make decisions which will get them re-elected, and are usually influenced by external factors like interest groups. The second way of measuring efficiency is called Pareto-optimality. This occurs when no further pareto-superior moves are possible, meaning that no one is pareto-superior to one another. In this situation, any move that will benefit one party will come at the expense of the other party. In a Kaldor-Hicks test situation, if one party were to make a move, they would have to compensate the other for any loss they might have.

Application to Trinity Western University v British Columbia College of Teachers

So, the question lawmakers will have when adopting new laws is whether it will achieve efficiency in society. As stated above, a law that maximizes social wealth will be a good law and will thus achieve efficiency. In this case, the argument can be made that it is much more efficient to have the entire teaching program within one school, rather than asking the students to complete the last year of the program at a different university. Requiring the students to transfer comes with extra costs that come with switching schools, which will increase the overall cost to conduct the transaction. The transaction costs of asking students to commit to a school for four years and then ask them to complete the program at a different can be significant. The goal in the law and economics theory is to minimize these transaction costs, which will allow the transaction to be more efficient. Costs like commuting, housing are the monetary costs attached. However, there are social costs faced by the students who now have to adapt to a new environment. Furthermore, it would be beneficial for Simon Fraser University as well because the burden and extra costs of accepting transfer students just for one year will be removed. This would allow Simon Fraser University to focus solely on their own program and would potentially allow them to accept more students into the program. SFU will definitely lose out on the tuition they would have gained within that one year. Simon Fraser University does not gain any recognition from accepting these students for one year, as the students will be awarded with a degree from Trinity Western University. So the law and economics theory suggests to analyze the costs and benefits to each party and come to a conclusion that would be most efficient. In this case, both parties are better off if Trinity Western University gets the program; there is no loser. Ultimately, this law will be considered good law as it maximizes social wealth and will therefore be efficient.

As stated above, money is not the only consideration when calculating ‘social’ wealth. In this case, we also have to look at the costs and benefits of the infringement of the rights. In terms of freedom of religion, there is a loss to those who want to go to Trinity Western University but cannot because they want to practice their own religion and believe that would not be possible if they were to sign the Community Standards contract. The dissent focuses on this point but takes a different approach. The dissent states that there is cost, in terms of lost potential exposure to the diversity within the community, if the teachers do not finish the last year of their program at SFU. On the other hand, there is benefit to those who believe in the principles behind the Community Standards and going to Trinity Western University gives them an opportunity to freely practice their religion and be around those who share the same beliefs. Looking both at the monetary and social aspects of wealth maximization, judges must balance the costs and benefits and must come out with the most efficient outcome. Although the courts do not explicitly take a law and economics approach to solve the case, they still come to an outcome that can be seen as maximizing social wealth and therefore is efficient.