The Economists' New Arguments

Abstract:     
This paper is a review and critique, in dialogue form, of Fairness versus Welfare, by Louis Kaplow and Steven Shavell. It raises a number of concerns about the book. Kaplow and Shavell argue that all normative legal policymaking arguments should be grounded in a welfarist approach, that is, they should focus only on how different policies will affect human welfare. They produce a formal argument that any fairness theory (which they define as a theory which does not rely exclusively on welfare) will under some circumstances prefer a policy which makes everyone worse off, and hence we should reject all fairness theories.

The book's argument is tautological and convincing only to those whose intuitions already favor welfare over fairness; indeed, Kaplow and Shavell's formal proof of the inconsistency between fairness and welfare can equally validly be used to argue that one should follow a fairness approach rather than the welfarist approach which Kaplow and Shavell prefer. Kaplow and Shavell argue that consistency requires that if one rejects fairness in favor of welfare in the examples they present, then one is committed to rejecting fairness in favor of welfare in all instances. However, there are other, well-known examples where utilitarian and welfarist approaches lead to objectionable results - Kaplow and Shavell's notion of consistency suggests that we should therefore reject welfarism in all instances. Kaplow and Shavell try to explain away intuitions favoring fairness as having an evolutionary origin - in most instances, fairness intuitions and norms advance efficiency. Kaplow and Shavell suggest that therefore when the fairness norms and efficiency conflict, efficiency should triumph. The paper argues that such evolutionary explanations are not always right, and even when they are, we may have other reasons to follow fairness norms anyway. Moreover, the link between fairness norms and efficiency suggests reasons why universal adoption of a welfare approach may reduce welfare.

Keywords: Fairness, welfare, utilitarianism, Pareto efficiency

JEL Classifications: A13, K10

Working Paper Series