Michael B. Dorff and Kimberly Kessler Ferzan (Southwestern University School of Law and Rutgers, The State University of New Jersey – School of Law – Camden) have posted Miscalculating Welfare on SSRN. Here is the abstract:
In their quest to maximize efficiency, law and economics scholars often produce novel, creative, and counterintuitive legal rules. Indeed, legal economists have argued for baby selling, against anti-discrimination laws in the workplace, and for insider trading.
In this essay, we discuss some concerns about this form of legal scholarship that privileges the creative and counterintuitive over the fair, mundane, and intuitive. Drawing on a range of empirical evidence, this essay argues that the failure to include, and to give sufficient weight to, fairness preferences undermines legal economists’ policy recommendations.
Specifically, after setting forth three examples of this phenomenon, in the second part of our essay, we turn to the empirical evidence that legal economists should take fairness concerns seriously. This evidence ranges from the recent happiness research that calls into question the correlation between wealth and happiness, to studies of the capuchin monkey who rejects unequal pay, to cross-cultural results of the ultimatum game. We argue that given the growing body of research revealing that individuals value fairness over their own rational self-interests, it is incumbent on legal economists to take preferences for fairness into account.
From here, we discuss several perils of ignoring fairness. We illustrate that unfair rules may upset reasonable expectations or instigate resistance. Either of these effects would undermine whether the specific legal rule was itself wealth or welfare maximizing. We then turn to two ways in which an unfair legal rule might adversely impact the legal system as a whole. Drawing on the work of Tom Tyler and others, we argue that unfair rules may create general disrespect for the legal system thus undermining the force of law. We also argue that unfair legal rules may undermine more general social norms, thus upending the rule-utilitarian benefits of rules over standards.
Finally, we speculate a bit about the perverse incentives of current legal scholarship. The three proposals at the beginning were published by a University press, a peer-review journal, and a top student-edited journal. Innovative and creative solutions to legal problems may get widespread publicity and may be highly valued over and above realistic solutions to legal problems. In the final section, we sketch out what we believe are the pitfalls and the benefits of our rewarding this sort of scholarship.
And some more from the body of the essay:
Kaplow and Shavell argue that social norms themselves should not provide an independent basis for making legal policy decisions. They claim that social norms serve as rules of thumb for advancing social welfare and have evolved or were indoctrinated for this purpose; hence, because welfare economics can calculate social welfare directly, reliance on these social norm proxies is unnecessary.92
There are two problems with this argument. First, a causal explanation of a belief does not undermine the truth of that belief. As Jules Coleman noted, “the view that the existence of a causal explanation of the facts that someone holds or asserts a particular claim undermines the truth of the claim asserted simply cannot be sustained.”93 Indeed, as Coleman notes, even if evolution selected for beliefs, why would it select for false beliefs over true ones?94 Second, Kaplow and Shavell’s move from the observation that social norms enhance welfare to the claim that they were inculated for this purpose is a non sequitur.95 There are other alternative explanations for why fairness beliefs may often be welfare enhancing. Fairness beliefs and social norms may be linked by a common morality, and, even if not aimed at maximizing welfare, it would be a very shortlived morality that did not somehow enhance it.
One more excerpt:
Peer attitudes towards compliance with the law . . . may tend to undermine obedience of rules that are surprising or seem unfair. Tom Tyler’s seminal Chicago study of legal adherence demonstrated that people distinguish among different laws when asked whether their peers would disapprove if they were arrested for committing one of a series of crimes.114 While only about half of respondents felt that their peers would disapprove if they were arrested for making too much noise, littering, speeding, or parking illegally, the vast majority of respondents predicted their peers would disapprove if they were arrested for drunk driving (86%) or shoplifting (89%).115 Tyler’s study demonstrated that anticipated peer attitudes vary with the seriousness or moral blameworthiness of the crime. Crimes that appear less blameworthy, either because they cause less harm or do not violate a core moral precept, garner less peer censure than those likely to cause great harm (such as drunk driving) or which do violate fundamental moral principles (such as the prohibition against theft). Laws that outlaw conduct that appears harmless or innocent are unlikely to provoke much peer criticism when they are violated. These rules are consequently less likely to be obeyed.
Supercool paper from Dorff & Ferzan. Highly recommended.