Of distributive justice and economic efficiency: An integrated theory of the common law

Published date06 September 2000
Date06 September 2000
AuthorBrian N Wasankari,Richard O Zerbe,Steven Vinyard
Brian N. Wasankari, Richard O. Zerbe Jr., and
Steven Vinyard
Zerbe has elsewhere developed a concept of economic efficiency that has
implications for common law efficiency. Here we explore aspects of this
concept of efficiency for the relationship between common law efficiency
and considerations of distributive justice. In particular, we consider
examples from criminal law - the law of rape, from contract law-
exculpatory clauses, and from tort law-contribution. We find that
including considerations of distributive justice better explains common
law efficiency than traditional Kaldor-Hicks effficiency.
Recently, Richard O. Zerbe, Jr. (due to be published 2001) developed an
axiomatic system to provide grounding for the application of efficiency
analysis to normative issues. This paper is an application of several of those
axioms. The application primarily involves the concept, created by Zerbe, of
Research in Law and Economics, Volume 19, pages 139-222.
2000 JAI/Elsevter Inc.
ISBN: 0-7623-0308-5
the regard for others, which refers to the value people place on projects that do
not directly effect them but which do effect others whom they care about.
Microeconomic analysis ~ relies on the formulation of models to analyze its
subject phenomena (Mansfield, 1994). Thus, microeconomic analysts of the
common law 2 have constructed models, or more precisiely theories, 3 of the
common law itself, by which, ultimately, they hope to explain its doctrine in
terms of a 'handful of equations' (Landes & Posner, 1987, pp. 312-13). 4 The
most successful economic theory extant is that which will here be termed the
traditional Kaldor-Hicks efficiency theory of the common law: That theory
holds that the common law is best described as a system designed to promote
the traditional notion of Kaldor-Hicks efficiency (Posner, 1992,
p. 23). 6 Although the traditional theory has met with significant
descriptive success (Bruce, 1984), it has also 'aroused considerable antago-
nism' (Posner, 1992,
Economic Analysis,
p. 25). Yet despite suffering such
'slings and arrows', (Shakespeare
Act 3, Sc. 1) its underlying validity
remains (Posner, 1992,
Economic Analysis
p. 26). 7
That validity is vulnerable, however, since it may be invalidated through the
introduction of an alternative theory that better explains common-law reality
(Kuhn, 1970; Posner, 1992,
Economic Analysis,
pp. 17-18; Beutel, 1957). s Two
facts make the possibility of such invalidation particularly likely. First, the
conception of Kaldor-Hicks efficiency, upon which the traditional theory is
built, can be improved (Zerbe, 1998, 'Three Rules' and Zerbe, 2001, Chapter
2). Indeed, Zerbe (2001, Chapter 8) claims that the analysis he develops
explains the conditions under which the common law will be efficient, as well
as the conditions under which it is likely to be inefficient. The traditional
analysis erroneously mandates that the economic efficiency of an allocative
change be measured independently of the effect of that change on the
distribution of wealth and the fact of compensation (Zerbe, 1998, 'Three
Rules', p. 426f; 2001, Chapter
3). 9 This,
in turn, results in either the neglect or
abrogation of distributive justice concerns) ° The second fact is that judges seek
not only an efficient, but a just result, where justice is both corrective and
distributive. 11 Taken together, these facts suggest that an efficiency theory
which properly considers not only traditional efficiency, but also distributive
justice, will provide a better description of the common law than does the
traditional theory.
Indeed, that is the premise of this paper, which first proposes an alternative
efficiency theory of the common law, deemed the integrated or KHZ theory,
and then tests the descriptive capacity of that theory against that of the
traditional theory.
Of Distributive Justice and Economic Efficiency 141
Section II provides the starting point by describing and logically evaluating
both the traditional KH theory and KHZ, and suggesting that, because only the
latter considers distributive justice, it will produce a better description of the
common law than does the former, a2
Section III tests this suggestion in two steps. First, it sets forth 'descriptive
capacity' as the basis for the evaluation of theory. Second, it attempts to
measure the descriptive capacity of both theories through a three-part survey of
problematic common-law doctrine, which broaches the fields of crimes,
contracts, and torts. That survey begins with criminal law, and, specifically, the
law of rape. It finds that although certain rapes should be legal under the
traditional KH theory, all should be illegal under KHZ given modem social
norms. Since all rapes are actually illegal today, rape law is better described by
Next, contract law, and particularly the law of exculpatory clauses, is
considered. Again, it is found that the integrated theory provides a better
description than does its traditional counterpart, for although exculpatory
clauses seeking to exclude liability for negligence are efficient under the latter,
they are inefficient under the former.
Last, the tort law movement toward contribution among negligent joint
tortfeasors is analyzed. That movement is found to be inefficient under the
traditional theory, but efficient under the integrated theory, and therefore better
described by the latter.
Given that the law of rape, exculpatory clauses, and contribution are better
described by KHZ than by the traditional efficiency theory, it is cautiously
concluded that, ceteris paribus, the former provides a better description of the
common law than does the latter. If a sufficient quantum of future research
should confirm or expand this result, we argue that the traditional theory must
be supplanted by the integrated theory. 13
A. Introduction
Before theory can be analyzed, however, it must be enunciated (Byms & Stone,
1992, p. 15). Accordingly, this section will provide a basic description, and
some theoretical analysis, of both the traditional KH efficiency theory and
KHZ. First, KHZ will be described as stating that the common law, in the
aggregate, is best explained as a system designed to promote traditional
Kaldor-Hicks efficiency. Second, it will be noted that this theory has elicited
considerable criticism. Although much of this criticisim is easily dismissed,

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