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Louis Kaplow on Legal Policy - Dictionary of Arguments

Parisi I 12
Legal policy/Kaplow/Shavell/Miceli: Kaplow and Shavell (2002)(1) have argued that social welfare, which they define as the aggregation of some index of the well-being of all members of society, should be the sole basis for evaluating legal policy.
According to this view, fairness matters for legal rule-making, but only insofar as it affects people’s well-being (that is, to the extent that they care about fairness).
Wealth as measure: At the same time, narrow concepts of efficiency like pure wealth maximization (or Kaldor–Hicks efficiency) are inappropriate because they exclude factors (like fairness) that people value. It is nevertheless the case that most law and economic analysis focuses on wealth maximization as the objective.
Distribution: Although changes in legal rules will often affect the distribution of income, it will usually be quite difficult to ascertain these effects, and in any case, tinkering with legal rules will not generally be the best means of achieving a more equitable distribution of wealth, or will entail a trade-off between fairness and efficiency. For example, the assignment of liability for product-related damages will likely affect both the distribution of wealth between businesses and consumers, and their incentives to avoid accidents.
The fact that there exist alternative mechanisms for redistributing wealth that have no relation to products liability (such as the income tax and welfare systems) suggests that the liability system should be used solely for creating incentives to minimize accident costs.*
Thus, the mainstream approach to law and economics, most often associated with the “Chicago school,” has for the most part employed the wealth-maximization approach to the development of economic models of law.

* See the discussion in Shavell (2004(2), ch. 28). For a contrary view, see Sanchirico (2000(3)).

1. Kaplow, Louis and Steven Shavell (2002). Fairness versus Welfare. Cambridge, MA: Harvard University Press.
2. Shavell, Steven (2004). Foundations of Economic Analysis of Law. Cambridge, MA: Belknap Press.
3. Sanchirico, Chris (2000). “Taxes versus Legal Rules as Instruments for Equity: A More Equitable View.” Journal of Legal Studies 29: 797–820.


Miceli, Thomas J. „Economic Models of Law“. In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University Press.


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Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments
The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.

EconKapl I
Louis Kaplow
The optimal supply of public goods and the distortionary cost of taxation 1996

Parisi I
Francesco Parisi (Ed)
The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017


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