What (if anything) Does Normative Economics Contribute to the Philosophy of Justice?

FAIRNESS VERSUS WELFARE
Louis Kaplow & Steven Shavell

Harv. L. Rev. (Feb. 2001) & Harvard University Press (forthcoming)
[view abstract and table of contents]

Thesis: Legal Policy Analysis Should Be Based Exclusively on Welfare Economics

Plan of Larger Article/Book

• Define/contrast welfare economics & fairness
• Support thesis through:
  • general arguments about the nature of the two approaches
  • major part/chapter each on torts, contracts, procedure, and law enforcement
• Reconcile the appeal of fairness with thesis that it should not guide legal policy analysis
• Discuss implications for legal academics, government officials (e.g., judges)
• Address possible criticisms

ILLUSTRATION OF CONFLICT BETWEEN FAIRNESS AND WELFARE

Tort Reform: Move from Negligence Rule to No-Fault for Automobile Accidents

• Consider full repeal of tort liability, replaced with first-party insurance system and heightened enforcement of traffic laws
• Imagine, for example, that the net effect is, prospectively, to make all individuals better off deterrence same (loss from tort repeal offset by heightened traffic enforcement)
  • compensation of risk-averse victims improved
  • savings in administrative costs (cost of insurance + greater traffic enforcement less than savings from eliminating litigation)

• Favorable: everyone prospectively better off

• May be unfavorable: repeal of liability in conflict with notions of fairness that require wrongdoers (negligent drivers) to compensate their victims

WELFARE ECONOMICS

Based Exclusively on Individuals' Well-being (determined by analyzing effects of rules)

Concept of Well-Being Is Inclusive

• Incorporates risk and whole range of factors
• Even a "taste" for fairness is included in welfare
  • e.g., if people are upset when vicious criminals do not receive just deserts, their upset counts
  • fairness as a taste is purely empirical question
  • contrast fairness as an evaluative principle
• Disputes over "true" meaning of well-being are largely irrelevant to our thesis
  • our analysis applies whatever concept of well-being one endorses

• In whatever way social welfare function indicates
• Our position is not "wealth maximization")
  • note: may be best to do redistribution through tax/transfer system is true, but irrelevant here
  • note: when distribution is accounted for, no issues of "Kaldor-Hicks indeterminacy"

Our Critique Addresses All Notions that Give Weight to Factors Independent of Individuals' Well-being

• For our purposes, we define notions of fairness to include all principles (justice, rights, ...) not reducible to well-being
  • all notions that conflict with welfare economics, as just defined
• Our stance is equivalent to the moral position that should be concerned exclusively with individuals' well-being
• Note: some notions of fairness are exclusively concerned with income distribution (and others as well may be fully reducible to well-being) — these are not included when we speak of "fairness"

• Nonconsequentialist (typically): based on situational character of events
• Understood as independent evaluative principles
• Relevance of welfare in fairness theories
  • mixed views most common
  • may be general tradeoff, fairness as constraint, or (often) unspecified

PURSUING FAIRNESS REDUCES INDIVIDUALS' WELL-BEING

Nature of the Conflict

• Always: essentially a tautology
  • if give weight to something independent of well-being, will have to sacrifice well-being in the balance
  • does not, however, seem well appreciated
• Any notion of fairness may lead to everyone being worse off [ALER (1999), JPE (2001)]
  • if logically consistent, must reject all notions of fairness or the Pareto principle
  • sharply poses question of point of fairness

• Symmetric case means everyone is identically situated
  • e.g., all equally likely to be an injurer and a victim in an accident setting
• All notions of fairness result in everyone being worse off in every instance in which they do not make the same choice as a pure welfarist approach
• Proof: Consider any case in which fair rule and welfare-maximizing rule differ.
  • E.g., strict liability maximizes welfare and negligence rule more fair
  • If pick more fair rule (here, negligence), total welfare is lower — by assumption
  • Since case is symmetric, however, everyone's welfare is therefore lower under fair rule
  • Note: logic is perfectly general, as claim states
• Special significance of result for symmetric case
  • Golden Rule, categorical imperative, veil of ignorance, ... — each is equivalent to requiring rule to be tested as if in symmetric setting
  • Accepting any such framework (as most fairness advocates do) creates serious conflict: must reject all fairness notions or systematically favor making all worse off

ADDITIONAL PROBLEMS WITH NOTIONS OF FAIRNESS

1. Problems with Definitions

• Often, no reasonably rigorous, precise definition given (what counts as "fair" compensation? when must it be paid?)
• Question-begging and incomplete definitions ("wrongdoers" must pay compensation or be punished, but no definition of what counts as a "wrongdoer")
• Domain of notions of fairness (does corrective justice apply to contracts as well as to torts? how can we tell?)
• Conflicts among notions of fairness: when many, conflicting notions apply (as is typical), what is the theory that resolves them?

• Ex post character
  • focus on what has happened to exclusion of other (often more likely) outcomes (e.g., focus of retributive justice on the criminals who are caught)
  • ignore ex ante behavior (decision about care, regarding accidents; what contracts individuals will enter)
• Nonconsequentialist character
  • are we really indifferent to cost of accidents, extent of crime, ...?
  • paradox that pursuing fairness can reduce fairness, I: e.g., under fair level of punishment, can have more individuals unfairly punished
  • paradox II: pursuing justice narrowly may reduce overall justice (e.g., deterrence is ignored, but what is being deterred are acts that are wrong according to the very notion of fairness in question)

• We examine literature (legal and philosophical) as well as common notions that seem apt
• Typically, little explicit rationale; often stipulated
  • treatment simply called unjust or unfair
• Some patently question-begging formulations
  • retributive justice: punishment "restores moral balance" (conclusory metaphor)
  • "desert" (with no answer to question of why some treatment is deserved)
  • "respect" or treatment as a "person" (with no answer to question of why people should be seen, treated, or respected in one manner or another)
• Appeals to moral instinct or intuition
  • such appeals are frequent, usually unelaborated
  • if reject our access to infallible, divine revelation, however, this is not a rationale
  • theorists ignore alternative explanations for moral instincts and intuitions, explanations that reconcile them with welfare

RECONCILING THE APPEAL OF FAIRNESS WITH OUR CLAIM

Fairness Derived from Internalized Social Norms

• Social norms = guides to behavior in everyday life, outside formal legal system
  • e.g., keeping promises
• Notions of fairness correspond to such social norms
  • corrective justice and retributive justice: norms about treatment of others, rectification in cases of mistreatment, dealing with aggressors
  • promise-keeping contract/philosophical theory: promise-keeping social norm
• Social norms are functional: they promote welfare
  • curbing opportunistic behavior, maintaining social harmony, allowing for productive interactions (e.g., promise-keeping)
  • many also serve as rules of thumb to help advance self-interest, including by avoiding deviations in heat of the moment (we're too inclined to cheat, ignoring reputational costs)
• Origins of social norms
  • socialization (including inculcation in children)
  • evolution (e.g., retributive urge)

• Because social norms are internalized, corresponding notions of fairness will seem important to analysts of legal policy
• But underlying purpose of social norms is promotion of welfare
  • therefore, to give such social norms weight against welfare would be contradictory
• Systematic difference between contexts
  • types of sanctions used, administrative costs, availability of information
  • leads one to expect that there will be conflicts and that pursuing fairness in such cases will lead us astray
• Indeed, the conflicts between fairness and welfare that we identify throughout are attributable to respects in which the fairness notion is crude and/or the contexts differ
  • e.g., requiring injurers to pay victims deters, but not always (and sometimes the administrative cost is not worth it)
  • note: the (imperfect) proxy character of notions of fairness further lends to their appeal

• People may care about fair punishment in same way they have taste for food, aesthetic preferences
  • E.g., bothered by fact that grossly negligent driver may not have to pay anything
• Then is included, because is part of welfare
• Empirical question; entirely different from evaluative principle of sort elaborated by philosophical inquiry

• Perceived legitimacy of system, which may affect cooperation and compliance
• Legal rules sends messages about right and wrong
  • e.g., tort liability for dangerous driving may reinforce norms of good driving behavior
• A purely empirical question
  • significance? more effective than substitute of traffic enforcement (e.g., tougher sanctions for drunk driving)?

WHO SHOULD EMPLOY NORMATIVE ECONOMIC ANALYSIS OF LAW? [part VII]

Ordinary Individuals: No

• Fairness norms often are appropriate, socially useful in everyday life

Government Decisionmakers (judges, legislators, regulators): Complicated

• In principle, yes
  • subject to limits implied by specialized roles within government
• But there is issue of communication and accountability to citizens

OTHER ISSUES WE ADDRESS [part VIII]
(note: issues are largely independent of our argument)

Design of Legal Institutions

• accuracy
• controlling government officials' behavior
• legitimacy of legal institutions

• imperfect information, cognitive limitations, ...
• effect of law on preferences
• "objectionable" preferences

• ex ante versus ex post evaluation
• equality and equal treatment

• valuing life, ...
• omission of "soft" variables
• possible costs of permitting market trade
• indeterminacy
• individuals not necessarily rational maximizers ...

PRIMA FACIE REQUIREMENTS FOR NOTIONS OF FAIRNESS [part IX]

1. Define the notion with some precision and in a complete, non-question-begging manner

2. Address internal tension — i.e., that under most nonconsequentialist notions of fairness, the fairer rule may result in more unfairness

3. Clearly identify the inevitable sacrifice in individuals' well-being — and in basic settings, so that the nature of the conflict can be appreciated

4. Offer clear rationale — explicit and not purely metaphorical ("restore moral balance")

5. Address alternative explanations for attraction, especially that our moral instincts and intuitions derive from social norms that function to promote well-being

View article abstract and table of contents.

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