Efficiency Instead of Justice?

§ 1 Introduction PART ONE: ECONOMIC FOUNDATIONS § 2 Homo economicus A. Introduction B. The economic paradigm I. The scarcity of resources II. Methodological individualism III. The theorem of self-interest IV. The assumption of rationality V. Strict distinction between preferences and constraints VI. Economic man as a heuristic fiction C. Fundamental principles of economics I. The law of demand II. Maximization of utility and profit III. The market takes care of the optimum allocation of resources D. Models of utility and profit maximization I. Household maximization of utility II. Maximization of profit by the business firm 1. Perfect competition 2. Supply monopoly E. Critique I. Unrealistic assumptions II. The static nature of the analysis III. Reductionism F. Summary § 3 Efficiency criteria A. Introduction B. Pareto efficiency I. The concept 1. The Pareto criterion 2. The Pareto optimum II. The Pareto optimum and competitive equilibrium III. Critique 1. The problem of initial endowment 2. External effects 3. The static nature of the analysis 4. The danger of mixing positive and normative theory C. The Kaldor-Hicks criterion I. The concept II. Comparison with the Pareto criterion III. Critique 1. Logical inconsistency 2. The measurement problem 3. The no-compensation problem 4. The accusation of collectivism 5. No guarantee of increased social utility 6. The issue of consensuality D. Summary § 4 Economic Analysis of Law A. Introduction B. Concepts I. Transaction costs II. Propertyrights 1. Property rules 2. Liability rules C. The Coase Theorem I. The concept II. The reciprocal nature of harmful actions III. The absence of transaction costs 1. Negotiations ensure an efficient outcome 2. Negotiation as an alternative to state intervention 3. Critique a) The assumptions are unrealistic b) Wealth and endowment effects influence allocation c) Bargaining is not the same as competition IV. Taking account of transaction costs 1. The choice between different social arrangements 2. The crucial importance of law D. Applications of economic analysis of law I. The incentives of liability rules 1. Introduction 2. A model for minimizing the social costs of accidents 3. Explanation with illustrative example 4. Unilateral precautions by the victim a) No liability b) Strict liability 5. Unilateral precautions by the injurer a) No liability b) Strict liability 6. Implications 7. Bilateral precautions a) Liability for negligence b) The ’Hand rule’ for determining the scale of negligence 8. Critique II. Efficient breach of contract 1. Introduction 2. Breach of contract in a case of double sale a) Compensation for the reliance loss (reliance damages) b) Compensation for the expected loss (expectation damages) 3. Critique III. Optimal punishment 1. Introduction 2. The rational delinquent 3. The optimal crime rate 4. Critique E. Summary PART TWO: PHILOSOPHICAL FOUNDATIONS § 5 Adam Smith’s Moral Philosophy A. Introduction B. Smith’s theory of ethics I. Self-interest II. The forces which control