Law, Economics and the Knowledge Problem

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Law, Economics and the Knowledge Problem

• Pierre Garello

pierregarello_at_hotmail.com
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Lecture 7

• Efficiency and justice

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Outline

• How do neoclassical economics see the
  relationship between efficiency and justice
• To what extent a dynamic approach points towards
  another articulation of those two concepts

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Efficiency and welfare economics

• The traditional approach works in a context of
  given resources
• The Pareto criteria is a minimal criteria for
  efficiency (for defining what a good allocation
  is)
• In order to single out a preferred allocation
  (e.g. a just one) you need to use a stronger
  criteria
• New welfare economics (back to Bentham) needs to
  solve potential conflicts among goals
• Law economics usually used maximization of
  wealth

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Efficiency and justice

• In a neoclassical world there should be no
  conflict between efficiency and justice
• (But cant we say that it raises efficiency to
  the rank of a meta-principle?)
• This rules out however some allocations and
  therefore some concepts of justice
• The egalitarian allocation, for instance, will
  often not be Pareto optimal
• The desire to protect legitimate expectations
  can lead you to some inefficient allocation

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Justice two approaches

• The (consequentialist) distributive approach
• Back to Plato
• Fits well a given available resources approach
• New welfare economics and new public economics
• The (procedural) commutative approach
• Back to Aristotle
• Fits the dynamic approach
• Nozick (Anarchy, State and Utopia)
• Think about the history of the concept of just
  price

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From justice to progress

• In the dynamic approach your definition of
  legitimacy will determine the quality of your
  treatment of the knowledge problem
• You go, in a way, from justice to dynamic
  efficiency
• This fits well also with a natural rights
  approach

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The direction taken by entrepreneurship

• Entrepreneurship as the engine of progress (human
  creativity)
• The institutions (or your concept of justice)
  give a direction to entrepreneurship
• Entrepreneurship vs. Technology (Saint-Simon v.
  J.B. Say)