Solutions to the Intractability of Distributional Concerns

Abstract

Law and Economics has been attacked for ignoring distributional concerns, despite that utilitarianism has strong redistributional implications. Recently, the disregard of some scholars to distribution has been defended with the claim that only the tax system aught to provide redistribution. This essay challenges both claims. The utilitarian foundation of Law and Economics does argue for redistribution. Moreover, the wastefulness of redistributional rules is a truism, rather than an objection. Redistributional rules cannot be rejected against the current suboptimal income tax, because even if they wastefully deter work, the current tax may deter work more. Redistributional rules can even be superior to optimal income taxation. Redistributional rules can be superior because they can redistribute welfare, rather than money, avoiding any tax disincentive; because they can induce the revelation of skill and avoid the distortions of even an optimal income tax; because they can improve the incentives of even an optimal tax by burdening leisure activities and reducing the taxes' deterrence of work; and because they may produce distortions that are synergistic with the redistributional goal.

Several potentially advantageous redistributive rules are identified, such as the right to abortion, emissions trading, bottle laws, the homeownership bias, public housing, and excessive tort liability from accidents in leisure activities. Their superiority to an equivalently redistributive, optimal, tax substitute is shown. Law and Economic scholarship is uniquely poised to design such rules, as several existing proposals show, such as the proposal for "blind" political contributions, for random Lojack installations in high-crime appliances, or for "shall-issue" firearm permits. Further proposals are discussed: intellectual property fees, redistributive Coasean bargains, missed pre-natal care vouchers, and school licenses for standardized scores.

[Note the paper and abstract were replaced on April 9, 2002. The 24 downloads before that date should refer to the new version.]

Note: Previously titled "The Intractability of Distributional Concerns"

Keywords: Redistribution, tax policy, traded licenses

JEL Classification: K00