Inequality and Uncertainty: Theory and Legal Applications
Matthew D. Adler
Duke University School of Law
Chris William Sanchirico
University of Pennsylvania Law School; University of Pennsylvania Wharton School - Business Economics and Public Policy Department
University of Pennsylvania Law Review, Vol. 155, p. 279, 2006
U of Penn Law School, Public Law Working Paper No. 06-02
U of Penn, Inst for Law & Econ Research Paper No. 06-05
"Welfarism" is the principle that social policy should be based solely on individual well-being with no reference to "fairness" or "rights." The propriety of this approach has recently been the subject of extensive debate within legal scholarship. Rather than contributing (directly) to this debate, we identify and analyze a problem within welfarism that has received far too little attention. Call this the "ex ante/ex post" problem. The problem arises from the combination of uncertainty - an inevitable feature of real policy choice - and a social preference for equality. If the policymaker is not a utilitarian, but rather has a "social welfare function" that is equity-regarding to some degree, then she faces the following choice: Should she care about the equalization of expected well-being (the ex ante approach), or should she care about the expected equalization of actual well-being (the ex post approach)? Should she focus on the equality of prospects or the prospects for equality?
In this Article, we bring the ex ante/ex post problem to the attention of legal academics, provide novel insight into when and why the problem arises, and highlight legal applications where the problem figures prominently. We ultimately conclude that welfarism requires an ex post approach. This is a counterintuitive conclusion because the ex post approach can conflict with ex ante Pareto superiority. Indeed, the Article demonstrates that the ex post application of every equity-regarding social welfare function - whatever its particular form - must conflict with ex ante Pareto superiority in some choice situations. Among other things, then, the Article shows that legal academics must abandon either their commitment to welfarism or their commitment to ex ante Pareto superiority.
Number of Pages in PDF File: 99
Keywords: Social Welfare, Welfarism, Fairness, Utilitarianism, Consequentialism, Inequality, Equity, Uncertainty, Ex Post Social Welfare, Ex Ante Social Welfare, Cost Benefit Analysis, Pigou-Dalton Principle, Sure Thing Principle, Time Inconsistency, Compensation, Insurance
JEL Classification: K1, K2, K3, D3, D63, H23, I3
Date posted: February 24, 2006 ; Last revised: December 21, 2014