33 Pages Posted: 12 Feb 2019 Last revised: 3 Sep 2019
Date Written: August 29, 2019
The underpinning of economic analysis of the law has long been the goal of efficiency. At the same time, it has long been argued that efficient policies tend to provide larger legal entitlements to the rich than to the poor. This Article shows how efficient legal rules can become even more skewed against the poor over time by sowing the seeds of their own vicious cycles. Repeated application over time of statically efficient legal rules can lead to rules that become increasingly adverse to the poor, which the Article calls "policy snowballing." Policy snowballing can occur where efficient legal rules distribute more legal entitlements to the rich than to the poor.
Consider a set of polluters choosing between locating in places with rich versus poor people and facing a strict liability rule for damage to wages. Polluters will disproportionately locate in the poor area, where they face lower damages. That disproportionate share of polluters in the poor area drives down the wages of the poor further, making subsequent polluters locate yet more disproportionately in poor neighborhoods, driving down the poor’s wages yet further.
In the model, policy snowballing occurs regardless of the amount of compensation received by the poor. When compensation for the harm is incomplete, policy snowballing can lead to spiraling income inequality. As a result, if there are government taxes and transfers to the poor, those would be inadequate if calculated in a static way that ignores the snowballing. The Article raises the intriguing prospect that efficient policymaking could be a contributing factor to increasing inequality over time.
Keywords: economic inequality; torts; dynamics; efficiency
Suggested Citation: Suggested Citation