Truth or Economics: On the Definition, Prediction, and Relevance of Economic Efficiency

Abstract:     
The book has three parts. Part I articulates the criteria for evaluating definitions of such concepts as the impact of a choice on economic efficiency, delineates the definition of this concept that best satisfies these criteria, and explains why the four alternative definitions that economists claim to be using are incorrect and why two of them are biased against the economic efficiency of choices.

Part II focuses on the economically efficient way to predict the economic efficiency of a choice. It begins by stating the central insight of a relevant theorem that economists call The General Theory of Second Best: since the individual imperfections that will cause economic inefficiency on their own are in general as likely to counteract as to compound each other, one cannot assume that policies that reduce the number or magnitude of the relevant imperfections in the economy without eliminating all such imperfections will even tend on that account to increase economic efficiency. Part II then provides evidence for its claim that virtually all extant economic-efficiency analyses ignore the preceding conclusion by showing that a wide variety of canonical economic-efficiency analyses proceed on the assumption that any policy that reduces the (Pareto-) imperfectness of the economy will increase economic efficiency on that account, develops an approach to economic efficiency analysis that responds appropriately to The General Theory of Second Best, uses that approach to analyze a variety of economic-efficiency issues, and states and criticizes the various arguments economists use to justify their ignoring Second-Best Theory.

Part III focuses on the relevance of the economic efficiency of a choice for its justness and moral desirability, moral-rights considerations aside, and the relevance of the economic efficiency of an interpretation or application of the law for its correctness as a matter of law. Part III argues that, although economic-efficiency conclusions are contingently relevant to utilitarian evaluations, the liberal evaluation of certain types of choices, and the evaluation of a limited number of legal issues, they are far less morally and legally relevant than economists claim. Part III discusses various attributes of economic-efficiency analysis, prescriptive-moral analysis, and legal analysis that account for this disjuncture and criticizes various arguments that economists have made about the coherence or moral defensibility of a number of alleged moral norms and the relevance of economic-efficiency conclusions for prescriptive-moral and legal analysis.

Interstitially, the book presents various types of evidence to support its claim that the economists and Law & Economics scholars who are making the mistakes it demonstrates they are making know or should know they are committing these errors. The book's Conclusion reviews this evidence and suggests possible explanations for this pattern.

From this abstract page, you can download the introductory chapter of the book. The full book is available from Yale University Press.

Working Paper Series