Pareto Optimality and the Rule of Law

  • Noel B. Reynolds
Part of the Studies in Economic Ethics and Philosophy book series (SEEP)

Abstract

In 1959, James M. Buchanan criticized the collectivist misuse of Pareto optimality by the “new welfare economists” and made a first attempt to extend that individualist concept into the political realm.1 Over the following three decades he further developed his political application of Pareto’s insight to buttress an essentially economic analysis of political exchange that would justify the processes of constitutional democracy in the same way Pareto efficiency justifies free markets. In this paper I will explain why Buchanan’s particular formulations will not work and propose a more comprehensive solution that accomplishes Buchanan’s announced purpose. I will argue that a conventionalist understanding of the rule of law provides a precise and appropriate application of the Pareto criterion in the legal and political realm.

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References

  1. 1.
    J.M. Buchanan: “Positive Economics, Welfare Economics, and Political Economy”, Journal of Law and Economics, 2 (1959), pp. 124–127.CrossRefGoogle Scholar
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    For the complete text in English, see V. Pareto: Manual of Political Economy, transl. by A. S. Schwier,., ed. by A. S. Schwier and A. N. Page, New York, 1971, Appendix, section 89. However, I have used here the translation of this passage published in R. CIRILLO: The Economics of Vilfredo Pareto, London 1979, p. 43.Google Scholar
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    See “Relevance of Pareto Optimality”, p. 341. Buchanan’s interpretation of the way the Pareto criterion has been used by welfare economists is reinforced by Renato Cirillo’s review of this history, though Cirillo appears more sympathetic to the people Buchanan criticizes. See Cirillo: Economics of Vilfredo Pareto, pp. 42–60.Google Scholar
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    See N. B. Reynolds: “Law as Convention”, Ratio Juris, 2 (March 1989), pp. 105–120. In “The Ethical Foundations of Constitutional Order” the implications of conventionalism for constitutional theory are also explored.Google Scholar
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    See “Relevance of Pareto Optimality”, pp. 345–347, and Liberty, Market, and State, p. 245.Google Scholar

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© Springer-Verlag Berlin Heidelberg 2002

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  • Noel B. Reynolds

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