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Efficiency criteria for optimal laws: Objective standards or value judgements?

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  • Louis Alessi

Abstract

No discipline or combination of disciplines can provide a value-free basis for prescribing a constitution or any set of rules. Nevertheless, economists frequently compare alternative institutional and contractual arrangements and confidently identify which are more efficient without noting that their conclusions rest on the implicit welfare functions chosen and the presumption that values can be measured by outside observers. Moreover, comparing institutions on the basis of equilibrium conditions that will never be attained in a world of change and uncertainty ignores all information about the process of change itself. At best, economics can explain why certain rules exist and how different rules affect the welfare of individuals and the allocation of resources.—The paper focuses on the concept of efficiency taking account of transaction costs and the system of property rights. It then examines the belief that market prices and wealth are a suitable measure of value, the status of legal rules as a “common” good, and the limitations of Pareto criteria in assessing efficiency. Copyright George Mason University 1992

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  • Louis Alessi, 1992. "Efficiency criteria for optimal laws: Objective standards or value judgements?," Constitutional Political Economy, Springer, vol. 3(3), pages 321-342, September.
    • Handle: RePEc:kap:copoec:v:3:y:1992:i:3:p:321-342
    DOI: 10.1007/BF02393139
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. Smith, Adam, 1776. "An Inquiry into the Nature and Causes of the Wealth of Nations," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number smith1776.
    3. De Alessi, Louis, 1983. "Property Rights, Transaction Costs, and X-Efficiency: An Essay in Economic Theory," American Economic Review, American Economic Association, vol. 73(1), pages 64-81, March.
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    6. Louis Alessi & Robert Staaf, 1991. "The common law process: Efficiency or order?," Constitutional Political Economy, Springer, vol. 2(1), pages 107-126, December.
    7. James M. Buchanan, 1954. "Social Choice, Democracy, and Free Markets," Journal of Political Economy, University of Chicago Press, vol. 62(2), pages 114-114.
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    Cited by:

    1. Alessi Louis De, 1998. "Reflections on Coase, Cost, and Efficiency," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 8(1), pages 5-26, March.
    2. Eirik Furubotn, 1999. "Economic Efficiency in a World of Frictions," European Journal of Law and Economics, Springer, vol. 8(3), pages 179-197, November.
    3. Ejan Mackaay, 1997. "The Emergence of Constitutional Rights," Constitutional Political Economy, Springer, vol. 8(1), pages 15-36, March.
    4. Louis De Alessi, 1994. "Reputation and the Efficiency of Legal Rules," Cato Journal, Cato Journal, Cato Institute, vol. 14(1), pages 11-21, Spring/Su.
    5. L. Van Den Hauwe, 1998. "Evolution and the Production of Rules—Some Preliminary Remarks," European Journal of Law and Economics, Springer, vol. 5(1), pages 81-117, January.

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