Definition
The term Economic Efficiency refers to the relationship between aggregate benefits and costs to the individuals concerned. Among the widely used efficiency criteria are the Pareto Optimality, the Kaldor-Hicks, the Cost-Benefit, and the Wealth Maximization criterion (Hicks 1939; Jain 2015; Jain and Singh 2002; Kaldor 1939; Sen 1970 and Scitovsky 1941). In this essay, we discuss economic efficiency as a tool for the social choice among the alternative legal rules. Discussion is carried out by using illustrative examples. We show that in several contexts the efficiency can serve as a useful tool for comparing the legal rules. However, it has serious limitations as well. In several situations, the efficiency criteria can fail to compare legal rules or can lead to contradictory rankings. Moreover, the assumptions underlying some of the efficiency criteria do not hold always. We discuss merits and demerits of various efficiency criteria. It is shown that in the real world,...
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Hicks JR (1939) The foundations of welfare economics. Econ J 49:696–712
Jain SK (2015) Economic analysis of liability rules. Springer, New Delhi, pp 23–33
Jain SK, Singh R (2002) Efficient liability rules: complete characterization. J Econ 75(2):105–124
Kaldor N (1939) Welfare propositions of economics and interpersonal comparisons of utility. Econ J 49:549–552
Posner RA (1985) Wealth maximization revisited. Notre Dame J Law Ethics Public Policy 2:85–105
Schäfer H-B, Singh R (2018) Takings of land by self-interested governments economic analysis of eminent domain. J Law Econ 61:1–40
Sen AK (1970) Collective choice and social welfare. Holden-Day, Inc., San Francisco, Chapters 2
Singh R (2003) Efficiency of ‘simple’ liability rules when courts make erroneous estimation of the damage. Eur J Law Econ 16:39–58
Singh R (2004) ‘Full’ compensation criteria: an enquiry into relative merits. Eur J Law Econ 18:223–237
Singh R (2007a) Causation-consistent’ liability, economic efficiency and the law of torts. Int Rev Law Econ 27:179–203
Singh R (2007b) Comparative causation and economic efficiency: when activity levels are constant. Rev Law Econ 3:383–406
Scitovsky T-d (1941) A note on welfare propositions in economics. Rev Econ Stud 9:77–88
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2019 Springer Science+Business Media, LLC, part of Springer Nature
About this entry
Cite this entry
Singh, R. (2019). Economic Efficiency. In: Marciano, A., Ramello, G.B. (eds) Encyclopedia of Law and Economics. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-7753-2_206
Download citation
DOI: https://doi.org/10.1007/978-1-4614-7753-2_206
Published:
Publisher Name: Springer, New York, NY
Print ISBN: 978-1-4614-7752-5
Online ISBN: 978-1-4614-7753-2
eBook Packages: Economics and FinanceReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences