26 Pages Posted: 7 Jul 2005
Date Written: June 2005
Many legal scholars believe that equity concerns should be taken into consideration in designing legal rules. Kaplow and Shavell (1994) seriously challenged this approach. This paper revisits their "double distortion" claim, presenting two main arguments. The first questions the ex-ante framework for evaluating redistribution, which implies that society pays attention to the ex-post (actual) rather than the expected redistribution only, in which case, Kaplow and Shavell's ex-ante framework would be inappropriate. Secondly, it is shown that in principle tort rules can easily be designed to circumvent "double distortion" effects. Thus, the tort system is not inherently less efficient than the tax-transfer system for accomplishing redistribution. The paper generally concludes that although there are often no good reasons for redistribution within the legal system, theoretically it is not an inferior distribution mechanism.
Keywords: Equity, Legal Design
JEL Classification: D01, D32, D63, H3, K13, K34
Suggested Citation: Suggested Citation