Economic Analysis and Distributive Justice

We propose an approach to Paretian jurisprudence which is intermediate in its distributive consequences between the perfectly risk-neutral, consumer surplus-maximizing approach of Richard Posner and the perfectly risk-averse, leximin approach of John Rawls. Instead of consumer surplus, we focus on the marginal costs of increased labor; the dollar-weighted formula of Posner is replaced by an hourweighted alternative. This alternative replaces the traditional assumption of economic analysis that dollars have equal value for everyone in a society. While drawing on literature from public finance, public choice, and cost-benefit theory, this paper develops an ethical argument based on a labor theory of value and several arguments from simplicity. We also describe a majoritarian or median voter argument; a social contract argument; and an efficiency argument which construes judicial support of a constitutional efficiency measure as a cooperative strategy in a multi-sided political process. We then present brief applications to negligence and liability; to "unconscionable" contracts; and to warranties of habitability. These arguments have possible applications in other cases of normative economic analysis in which the government is unable to reach an ideal income distribution by means of taxes and transfers alone. Resea'rch in Law and Economics, Volume 18, pages 15-64. Copyright © 1997 by JAI Press Inc. All rights of reproduction in any form reserved. ISBN: 0-7623-0121-X