THE EVOLUTION OF THE COMMON LAW
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THE EVOLUTION OF THE COMMON LAW
The Evolution of the Common LawRichard o. Zerbe, Jr.“The first and chief design of every system of government is to maintain justice; to prevent the m THE EVOLUTION OF THE COMMON LAWmembers of a society from encroaching on one another’s property, or seizingwhat is not their own. The design here is to give each one the secure and peaceable possession of is own property. — When this end. which we may call internal peace ... is secured, the government will next be desirous of prom THE EVOLUTION OF THE COMMON LAWoting the opulence of the state.(Adam Smith. Dec. 23. 1762, “Of Jurisprudence”)I.IntroductionEmpirical evidence shows, and theory suggests, that the cTHE EVOLUTION OF THE COMMON LAW
ommon law tends toward economic efficiency.1 2 While many theories attempt to explain this phenomenon, no single one is well accepted. This article atThe Evolution of the Common LawRichard o. Zerbe, Jr.“The first and chief design of every system of government is to maintain justice; to prevent the m THE EVOLUTION OF THE COMMON LAWtioning force. The requirement of justice and hence efficiency arise most powerfully from experience, and experience is the life of the common law. When social conditions change rapidly, experience is in shorter supply and changes in the common law are less likely to be efficient.3II.Economic Effici THE EVOLUTION OF THE COMMON LAWencyThe evidence is too extensive to cite. Some of It is summarized In two textbooks. Cooter and Ulen (1997), and Posner (1992). Skepticism is evidencTHE EVOLUTION OF THE COMMON LAW
ed in a series of articles by Mark Kelman, who sees the proposition as ideologically based. See Kelman (1988). The first attempt to provide an explanaThe Evolution of the Common LawRichard o. Zerbe, Jr.“The first and chief design of every system of government is to maintain justice; to prevent the m THE EVOLUTION OF THE COMMON LAWsed the view also captured here that social norms explain common law efficiency (1990). This view is also expressed in Zerbe (2001a). The authors have arrived at this view independently.3It follows that societies without a social norm of justice are less likely to have common law efficiency.1If just THE EVOLUTION OF THE COMMON LAWice is sought, efficiency will be achieved only if justice and efficiency tend to correspond. Mainstream efficiency is represented by Kaldor-Hicks (KHTHE EVOLUTION OF THE COMMON LAW
), which, by definition, eschews issues of equity and arguably moral sentiments generally so that its perfect correspondence with justice is not to beThe Evolution of the Common LawRichard o. Zerbe, Jr.“The first and chief design of every system of government is to maintain justice; to prevent the m THE EVOLUTION OF THE COMMON LAWency as measured by wealth maximization. Wealth maximization appears to add to KH an accommodation for equity insofar as there is a willingness to pay for it. A further expansion of the definition of efficiency to include moral sentiments generally has been proposed by Zerbe (2001a, 2004) under the THE EVOLUTION OF THE COMMON LAWrubric of Kaldor-Hicks-Coase-Zerbe (KHCZ).4 5 6 7 As this definition is more inclusive of sentiments generally, it will better correspond with the reqTHE EVOLUTION OF THE COMMON LAW
uirements of justice and thus is more likely to be consistent with the common law.KHCZ builds on KH.- Its characteristics are: (1) the use of the willThe Evolution of the Common LawRichard o. Zerbe, Jr.“The first and chief design of every system of government is to maintain justice; to prevent the m THE EVOLUTION OF THE COMMON LAWf gains or losses that are legally illegitimate, as with goods held by the thief, or that violate well-accepted moral principles (benefit-cost rationale is provided for this); (4) a recognition and inclusion of non-pecuniary effects; (5) an efficiency test that is passed when and only when the aggre THE EVOLUTION OF THE COMMON LAWgate benefits exceed aggregate losses (no use of the potential compensation test); (6) the inclusion of all goods, including moral sentiments, as econTHE EVOLUTION OF THE COMMON LAW
omic goods as long as there is a WTP from them; (7) an assumption of equal marginal utility of income so that each person is treated the same; (8) theThe Evolution of the Common LawRichard o. Zerbe, Jr.“The first and chief design of every system of government is to maintain justice; to prevent the m THE EVOLUTION OF THE COMMON LAWing a project; and (10) an understanding that the role of benefit-cost analysis is to provide information to the decision process and not to provide the answer. We are concerned here with these ten characteristics only to the extent to which they concern our exploration of common law efficiency.'4Fo THE EVOLUTION OF THE COMMON LAWr examples see Zerbe (2004).Ill the 2001 work, the term “KHZ” represents Kaldor-Hicks-Zerbe. In the 2004 work, the term "KHCZ" stands for Kaldor-HicksTHE EVOLUTION OF THE COMMON LAW
-Coase-Zerbe.6This view Is essentially identical to the view that has been presented elsewhere (Zerbe 2001) as the KHZ view.7This list of characteristThe Evolution of the Common LawRichard o. Zerbe, Jr.“The first and chief design of every system of government is to maintain justice; to prevent the m THE EVOLUTION OF THE COMMON LAWits inclusion of all sentiments for which there is a willingness to pay (assumptions 5 and 6); its reliance on transactions costs rather than market failure to determine where to apply benefit-cost analysis (assumption 8): by its inclusion of transactions costs of operating a project, by including t THE EVOLUTION OF THE COMMON LAWransactions costs (assumption 9); and by its view of efficiency as a technique to provide information relevant to the answer, not to provide the answeTHE EVOLUTION OF THE COMMON LAW
r (assumption 10).K11CZ differs from tautological efficiency, a concept introduced by Zcrbc (1991) and Barzel (2000).R Barzel (p. 241) explains tautolThe Evolution of the Common LawRichard o. Zerbe, Jr.“The first and chief design of every system of government is to maintain justice; to prevent the m THE EVOLUTION OF THE COMMON LAWtial. Suppose that after taking ac count of these costs, some of these activities are still found profitable but some are not. The former will be eliminated whereas the latter will he allowed to stand. The latter ones, however, are not worth eliminating .... it is tautological that ... given profit THE EVOLUTION OF THE COMMON LAWmaximization efficiency will prevail." To this explanation I add dial spending on discovery' is itself assumed to be at the efficient level.KHCZ diffeTHE EVOLUTION OF THE COMMON LAW
rs from tautological efficiency as it excludes of the costs of moving to a new state of the world. The discovery' of a new' rule that would be efficieThe Evolution of the Common LawRichard o. Zerbe, Jr.“The first and chief design of every system of government is to maintain justice; to prevent the m THE EVOLUTION OF THE COMMON LAWre be tautologically efficient, though it would be KHCZ-efficicnt. Under the K11CZ measurement, a Rile change occurs when there is a shift in laws and regulations.111KHCZ Efficiency and Legal RightsA. Measurement or Benefits and CostsBenefits and costs are measured, respectively, by the WTP and by t THE EVOLUTION OF THE COMMON LAWhe WTA under KHC.Z as well as under KH.3 The WTP represents the amount that someone who does not own a good would be willing to pay to buy it: it is dTHE EVOLUTION OF THE COMMON LAW
ie maximum amount of money one would give up to buy some good or service, or would pay to avoid harm.* * 10 rhe WTA representsH In most cases, or certThe Evolution of the Common LawRichard o. Zerbe, Jr.“The first and chief design of every system of government is to maintain justice; to prevent the m THE EVOLUTION OF THE COMMON LAWs such, are not wholly accurate. Hie compensating variation3the amount that someone who owns a good would accept to sell it; it is the minimum amount of money one would accept to forgo some good, or to bear some harm. The benefits from a project may be either gains (WTP) or losses restored (WTA). Th THE EVOLUTION OF THE COMMON LAWe costs of a project may be either a loss (WTA) or a gain forgone (WTP). Both the benefits and the costs are the sum of the appropriate WTP and WTA meTHE EVOLUTION OF THE COMMON LAW
asures. Thus, the relation of benefits and costs to the WTP and the WTA may be measured in the following manner:Benefits: The sum of the WTPs for chanThe Evolution of the Common LawRichard o. Zerbe, Jr.“The first and chief design of every system of government is to maintain justice; to prevent the m THE EVOLUTION OF THE COMMON LAW losses and of the HTPs for changes that are seen as foregone gains.The justification for adopting these methods of measurement is that they correspond with the psychological sense of gains and losses.11 The measurements are summarized in table 3.1 below-.12 Note that whether a change is a benefit o THE EVOLUTION OF THE COMMON LAWr cost is a different question from whether it is a gain or a loss. The point here is that benefits are not measured exclusively by rhe WTP, nor costsTHE EVOLUTION OF THE COMMON LAW
exclusively by the WTA. Benefits are measured by the WTA, where benefits include losses restored, and costs are measured by the WTP. where they incluThe Evolution of the Common LawRichard o. Zerbe, Jr.“The first and chief design of every system of government is to maintain justice; to prevent the mGọi ngay
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