Economic Efficiency and the Law: Distinguishing Form from Substance

Abstract

This essay is written for a Festschrift to commemorate Jurgen Backhaus’s contribution to law and economics in recognition of his long service as Editor of the European Journal of Law and Economics. Scholars of law and economics have long been intrigued by the possibility that legal processes operate to promote economic efficiency. This essay probes the problematical character of the efficiency claim. This appraisal operates by refracting the efficiency claim through Pareto (The Mind and Society: A Treatise on General Sociology, Harcourt Brace, New York, 1935 [1923]) distinction between logical and nonlogical action. What results from this refraction is recognition that economic efficiency is an objectively meaningful concept only inside a model of competitive equilibrium. Outside that model, economic efficiency depends on the perspective of a theorizing subject. Economic efficiency pertains to the form of an argument but not to its substance. Efficiency claims are Paretian derivations and not refutable hypotheses.