•  
  •  
 
University of Chicago Law Review

Start Page

393

Abstract

Should legal rules be designed exclusively based on efficiency considerations, or should they also attempt to promote an equitable distribution of social resources? The answer traditionally associated with scholarship in law and economics is that they should focus only on efficiency. Even for a society that cares about achieving an equitable distribution of resources by income, the argument goes, it is generally better to adopt legal rules based exclusively on efficiency considerations while relying on the income tax and transfer system to promote distributional goals.

However, even proponents of the claim that social welfare is best promoted through the adoption of efficient legal rules agree that there are certain conditions under which it does not apply. In particular, the principle of efficient legal design emerges from a theoretical model that relies on specific assumptions. When those assumptions do not hold, the best policy may be to design legal rules that deviate from efficiency in order to promote distributional goals.

In this Essay, we consider when legal rules should be efficient and when they should not. We focus on conditions that can cause the socially optimal legal rule to diverge from the efficient legal rule—i.e., the legal rule that would be optimal absent distributional considerations. These conditions include preferences or behaviors that vary over the income distribution, imperfect salience of the incentives generated by legal rules, income tax evasion or avoidance, and regulated activities that generate income. Like the general argument for efficient legal rules, all of these exceptions draw on existing results from the economics literature on optimal taxation. Our goal is to translate these arguments to settings where the question of interest relates to the design of a legal rule rather than, say, the design of a commodity tax. In particular, we seek to clarify the types of arguments that can support the adoption of inefficient legal rules when income taxation is available as a policy tool.

In addition to canvassing conditions that can invalidate the conclusion that legal rules should be efficient when all policy tools are available, we also highlight several real-world institutional and political factors that can make redistribution through legal rules less or more desirable,

Download

Included in

Law Commons

COinS