Wealth Maximization Redux: A Defense of Posner's Economic Approach to Law

Abstract

This article examines the wealth maximization principle, as developed by Richard Posner, and aims to clarify misunderstandings, address criticism, and contextualize its evolution within legal and philosophical analysis. The paper first delineates the distinction between the concepts of experienced utility and decision utility, elucidating how the latter is fundamental to wealth maximization. Next, the paper engages with criticisms of wealth maximization, including issues relating to interpersonal value comparison, the Kaldor-Hicks criterion, and the Pareto criterion, offering rebuttals and arguing that individual rights and distributive justice can be understood as emergent properties of efficiency. The article then presents affirmative arguments for wealth maximization by connecting it to social contract theory and demonstrating its consistency with the tenets of liberal democracy. By analyzing the concept from both Hobbesian and Rawlsian perspectives, the paper illustrates the wealth maximization principle’s merits in relation to the choice of maximand and aggregation method. In conclusion, the article argues that wealth maximization serves as a robust and justifiable framework for legal and philosophical analysis, ultimately offering a better fit with the principles of liberal democracy than competing normative theories.

Keywords: Wealth maximization, maximand, social welfare functions, intellectual history

JEL Classification: K00, B0, B5, B25, B41