Encyclopedia of Law and Economics

2019 Edition
| Editors: Alain Marciano, Giovanni Battista Ramello

Economic Efficiency

  • Ram SinghEmail author
Reference work entry
DOI: https://doi.org/10.1007/978-1-4614-7753-2_206


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,...

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© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of EconomicsDelhi School of Economics, University of DelhiDelhiIndia