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

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  • Louis Alessi
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    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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    File URL: http://hdl.handle.net/10.1007/BF02393139
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    Bibliographic Info

    Article provided by Springer in its journal Constitutional Political Economy.

    Volume (Year): 3 (1992)
    Issue (Month): 3 (September)
    Pages: 321-342

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    Handle: RePEc:kap:copoec:v:3:y:1992:i:3:p:321-342

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    Web page: http://www.springerlink.com/link.asp?id=102866

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    1. Milgrom, Paul R., 1987. "employment contracts, influence activities and efficient organization design," Department of Economics, Working Paper Series qt6pf6c5j6, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    2. James M. Buchanan, 1954. "Social Choice, Democracy, and Free Markets," Journal of Political Economy, University of Chicago Press, vol. 62, pages 114.
    3. Demsetz, Harold, 1982. "Barriers to Entry," American Economic Review, American Economic Association, vol. 72(1), pages 47-57, March.
    4. 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.
    5. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
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