Teaching About Economic Efficiency in Law and Economics Courses: Clarifying the Conceptual Problems, Empirical Difficulties, and Normative Biases of the Efficiency Criterion

Abstract

Law and Economics courses taught in law schools are sometimes criticized for inadequately explaining the normative criterion of “economic efficiency” and then applying this criterion throughout the course in a superficial and biased manner that pejoratively labels most governmental market interventions and wealth redistribution measures as inefficient. These criticisms have merit, and in this brief article I point out a significant number of conceptual problems, empirical difficulties and normative shortcomings of the efficiency criterion that one needs to understand in order to be able to effectively counter policy arguments that rest upon efficiency assessments.

The specific shortcomings of the efficiency criterion that I address in this brief essay are the pervasiveness of severe data limitations that render efficiency assessments unreliable, the lack of clarity as to whether willingness to pay should be measured by offer prices or instead by asking prices, the difficulty of obtaining honest and accurate responses as to willingness to pay from the persons surveyed, uncertainty as to the appropriate discount rate that should be used for discounting future policy consequences, the problem posed by endogenous preferences, the problem posed by the often-overlooked “problem of person-altering consequences,” the problematic nature of using willingness to pay as a measure of social value, and finally, the problematic nature of using a normative criterion that does not give special primacy to rights.