The Distributive Deficit in Law and Economics

77 Pages Posted: 3 Jan 2015 Last revised: 2 Feb 2016

See all articles by Lee Anne Fennell

Lee Anne Fennell

University of Chicago - Law School

Richard H. McAdams

University of Chicago Law School

Date Written: January 1, 2015

Abstract

Welfarist law and economics ignores the distributive consequences of legal rules to focus solely on efficiency, even though distribution unambiguously affects welfare, the normative maximand. The now-conventional justification for disregarding distribution is the claim of tax superiority: that the best means of influencing or correcting distribution is via tax-and-transfer. Critics have observed that optimal redistribution through tax may be politically infeasible, but have generally overlooked the rejoinder that the same political impediments to redistribution through tax will block redistribution through legal rules. This “invariance hypothesis,” as we label it, holds that there is only one distributive equilibrium and that Congress will offset through tax any deviations from it. We highlight the centrality of invariance to the conventional economic wisdom and assert that it is just as relevantly false as the zero transaction cost assumption. In contexts where political impediments to tax-based redistribution exceed the impediments to doctrinal redistribution, it may be possible to increase welfare by redistributing outside of tax. Welfarists should, therefore, devote as much scholarly attention to the “political action costs” of redistribution as they do to transaction costs.

Keywords: redistribution, tax-and-transfer, legal rules, law and economics, welfare economics

Suggested Citation

Fennell, Lee Anne and McAdams, Richard H., The Distributive Deficit in Law and Economics (January 1, 2015). 100 Minnesota Law Review 1051 (2016); University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 713; U of Chicago, Public Law Working Paper No. 498. Available at SSRN: https://ssrn.com/abstract=2544519 or http://dx.doi.org/10.2139/ssrn.2544519

Lee Anne Fennell (Contact Author)

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-702-0603 (Phone)

Richard H. McAdams

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-834-2520 (Phone)

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