Recent years have brought a very productive resurgence of interest in the economic analysis of law. It is now quite rare to find a law school lacking a specialist in the area, and increasingly, lawyers are finding that an understanding of economic principles is absolutely necessary for evaluating risk, appropriate compensation, and in many other concepts crucial to legal practice. Economists too have found it fruitful to extend the use of tools of economic analysis to the law and to the legal process. Most effective has been the application of the theory of rent seeking, and the broader theory of public choice to the legal sphere. This trend has been overwhelmingly productive, and must be applauded. However, there is a tendency for advocates of productive research projects like the economic analysis of law to overestimate the extent to which their theory can account for the phenomenon to be explained. Such, I will argue, is the still popular view that norms of economic efficiency should be the guiding principles for judges deciding cases in common law.

At one extreme in the spectrum of opinion, Ronald Dworkin has claimed that in the context of common law adjudication, considerations of efficiency are not relevant at all. Dworkin's argument is that moral considerations like are constitutive 'elements of value,' while efficiency is not, and uses this claim to support his view that moral considerations are lexically prior to considerations of efficiency. For example, equality, according to Dworkin, should never be compromised for the sake of efficiency- "For, if an egalitarian distribution is in itself a component of value, ...it makes no sense to compromise that value for something else unless that something else is also a component of value."<1> At the other extreme, Gordon Tullock has claimed that no considerations other than efficiency are relevant. Moral principles, according to Tullock, are secondary at best. He writes: "For those people who want to maintain moral principles as a foundation for the law, it is fortunate that the conflicts between efficiency and morals are not very great. In most cases where efficiency considerations dictate a change in the law, moral principles are either irrelevant or unimportant."<2>

One frequently unrecognized problem in the background of this dispute is that 'efficiency' is not a single norm. Different standards of efficiency have different uses, and some standards of efficiency may at least partially incorporate moral principles. Many writers fail to recognize this, and some use 'efficiency' as a simple substitute for 'social utility,' or for the achievement of any moral or social aim they think law should pursue. However, sometimes the claims of law and conscience run parallel to the claims of efficiency, and often this is not accidental. If it turns out that some efficiency standards are moral standards, or embody reasoning implicit in those standards, then perhaps we need not always choose between standard legal norms and the claims of efficiency.

There are, however, better and worse ways to incorporate moral principles within efficiency norms. Richard Posner has famously argued that morality and efficiency are mutually supportive: by applying efficiency norms in practice, we effectively promote moral values as well. In this paper I will reconsider Posner's argument in favor of one concept of efficiency which he claims gives the proper weight both to considerations of autonomy and preference satisfaction. Posner claims that Kaldor-Hicks efficiency is uniquely supported by moral considerations, and is ideal as a norm to be applied in common law adjudication. We should be sympathetic with Posner's project- we need to understand how efficiency considerations are relevant in the legal arena, and if efficiency is itself supported by moral considerations, then there may, pace Dworkin, be some way to compare efficiency with other moral values. In this interest, we must carefully consider the claims made by Posner concerning the ability of the efficiency norm to promote social utility and individual autonomy, and his claim that it is supported by a democratic principle of consent.

However, I will argue that Posner fails to show that his preferred concept of efficiency is supported by moral considerations. His account of legal efficiency relies, in a way that has not been fully appreciated, on a mistaken notion of consent and autonomy. This is, however, by no means an indictment of the economic analysis of law in general. If my argument is successful, it does not follow that no efficiency standard can be supported by moral considerations, only that Posner's is not supported. I will, however, raise some more general doubts. In the context of common law adjudication, it is unlikely that any efficiency standard can be applied directly, and given absolute priority over other considerations (such as rights considerations), in the way in which Posner and Tullock suggest. Nevertheless, we may still regard reasons grounded in economic efficiency as prima facie considerations, and efficiency is often a relevant consideration in common law cases.

I. Two Concepts of Efficiency

Standards of efficiency are often misunderstood by those who appeal to them. In this section, I will consider two very different efficiency criteria: the Pareto criterion, and the Kaldor-Hicks criterion. While they are certainly not the only available efficiency standards, they are the most widely defended and discussed.

The Pareto criterion is the most basic and least controversial concept of efficiency. One major attraction of this criterion is that it gives a standard for social choice which does not require interpersonal comparisons of utility. A state of affairs is pareto optimal if it is impossible to make anyone better off without worsening the situation of at least one other person. Formally, an allocation x is pareto optimal for a group i if and only if there is no alternative allocation x*^ such that 1)x*^ is at least as good as x for every member of i, and 2)there is at least one member of i for whom x*^ is better than x. An allocation x is pareto superior to another allocation x*^ for a group i just in case 1)x is at least as good as x*^ for all members of i, and 2)x is better than x*^ for at least one member of i. According to most economists, an allocation is 'better' for someone just in case more of her preferences are satisfied under that allocation than under the relevant alternative. This is not necessarily to deny that people may sometimes prefer what is not in their interests, nor is it to assert that there are no values other than subjective-preference satisfaction, though there are economists who hold each of these views. It is, however, to assume that people are generally better off when they are able to get what they think they want than they are when they are frustrated. Another important, generative notion behind this account of the 'better than' relation is that an individual is usually the best judge of her own well being, so her actual choices are often the best way to judge, from an external perspective, what is in her interest.

The attraction of the pareto criterion is that it allows us to evaluate social patterns without making interpersonal utility comparisons. When there is motion to a pareto superior social state there are no losers, so clearly there is a net gain in utility. But there are many social states which cannot be compared to each other using only the pareto criterion. For example, the pareto criterion is necessarily indifferent among different pareto optimal allocations. This is serious, since in legal contexts we are often required to make comparisons and judgments which involve losers as well as gainers. The allocation in which 'I own everything' may well be pareto optimal, since it may be necessary to make me worse off in order to improve the lot of anyone else. But we may have reason to prefer a more equitable allocation which is also pareto optimal if such an allocation can be achieved without violating people's rights.

The strength of the pareto criterion is also its weakness: it only allows us to evaluate changes when there are no losers. But as Jules Coleman points out, there are two ways to prevent losers: either 'straightaway,' through directly pareto superior moves, or by compensation ex post.<3> The idea of 'possible ex post compensation' is the generative idea behind a second popular efficiency criterion, the Kaldor-Hicks criterion. Instead of requiring that no one be made worse of by a move to a different allocation, this criterion requires only that the increase in value generated by the move be sufficiently large that the losers could be fully compensated. Formally, an allocation x*^ is Kaldor-Hicks superior to another allocation x just in case in moving from x to x*^ the winners could compensate the losers so that 1)no one would be worse off at x*^ than at x, and 2)at least one person would be better off. If compensation actually were paid, then the move would be pareto superior. Thus the Kaldor-Hicks criterion is sometimes called the potential pareto superiority criterion. Jules Coleman gives the following example:

Suppose... you engage in a risky activity, for example, blasting, because, even if you had to compensate me for damages should an occasional blast cause me to suffer property damage, you would still be better off than if you did not engage in the activity at all. Now you blast, gain one hundred dollars thereby, and cause me twenty dollars in property damage. The move from the state in which you forgo blasting to the state in which you blast, damage, and compensate from the state in which you do not engage in blasting is a pareto improvement.<4>

Even if compensation is not paid, the move is Kaldor-Hicks efficient, since there is, in Posner's terms, a 'net gain in social wealth' between us. Coleman mentions two reasons why compensation might not be paid to losers: "First, some losers deserve to lose, for example, when policies are implemented to break up inefficient monopolies. ...Second, it is often costly actually to compensate losers."<5> The reason for the latter is that compensation is a kind of transaction, and has costs of its own. For example, when the potential recipients are many and widely dispersed, and the rate of compensation for each is low, the cost of finding each person and giving to each one the appropriate compensation might exceed the total amount of compensation owed. Under such circumstances, compensation would not be cost efficient, though of course this need not imply that the winners have no obligation to compensate.

Since the pareto criterion is too restricted in application, Posner suggests that we should adopt the Kaldor-Hicks criterion, or as he calls it, the 'wealth maximization criterion,' in evaluating law. In fact, he claims that it is most plausible as a norm for common law adjudication.<6> While wealth maximization may initially seem an unattractive and implausible norm for such use, Posner believes that we can defend it on moral grounds. In the following section, I will consider Posner's argument for the ethical basis of wealth maximization as an efficiency norm.

II. Moral Foundations of Efficiency

Why would anyone ever think that wealth maximization could be a plausible norm for social choice, let alone a norm to be applied by judges in the application of the common law? Posner argues that this efficiency norm gives proper weight both to Kantian considerations and considerations of utility, without giving complete priority to either. Thus, he argues, Kaldor-Hicks efficiency gives proper weight to considerations recommended by each of the two most popular and powerful moral theories available, and so it provides an attractive compromise between them. If this could be shown, we would indeed have good prima facie reason to accept the moral force of Posner's concept of efficiency, and to regard efficiency as a moral as well as a practical criterion. Some critics have suggested that the economic analysis of law is doomed to omit key moral notions- if Posner's argument were successful, it would provide at least a partial response to this objection.

a)Paretian Efficiency: Utility, Autonomy, and Consent

Posner begins with an examination of the attractive moral properties of the pareto efficiency criterion, and proceeds by suggesting that important aspects of these properties can be conserved in moving to the Kaldor-Hicks, or 'wealth maximization criterion.' First we must consider the attractions of Paretian efficiency.

The first obvious advantage of the pareto criterion is that we can be sure that pareto superior moves represent a net gain in utility. Unless we deny that considerations of utility are relevant from the moral point of view, we must concede that this gives a strong moral presumption in favor of pareto efficient moves. Of course, we could agree with this and still argue that there are moral considerations other than utility, and that there may be times when these other considerations outweigh the claims of utility.

But how can we tell whether or not one allocation is pareto superior to another? We can't directly consult the value functions of those involved, nor can we compare aggregate utilities, since we have no way to aggregate. Since it is impossible to measure utility directly, the only way to demonstrate that an allocation change is pareto superior is to show that everyone affected by the change consented to it.<7> Presumably, if a person willingly consents to a transaction, it indicates that she sees it as a way of promoting her ends. In the absence of force and fraud, when all participants consent to a transaction we have solid (though not irrefutable) evidence that the resultant distribution is pareto superior. This is a further advantage of the paretian criterion- under certain circumstances we can have reliable empirical evidence that one allocation is pareto superior to another, even though we don't have any way to make direct utility comparisons.

But this epistemic advantage illuminates a deeper advantage as well, one which Posner believes shows a connection between the pareto criterion and the Kantian tradition in ethics: "One ethical criterion of change that is highly congenial to the Kantian emphasis on autonomy is consent. And consent is the operational basis of the concept of pareto superiority."<8> According to Posner, the paretian emphasis on consent is a way of honoring the moral pull of claims to autonomy. But unlike the Kantian liberal, for a paretian liberal the value of autonomy is theoretically derivative: on the paretian view, autonomy is valuable because it is a precondition of consensual exchange, and consensual exchange yields pareto superior outcomes. While autonomy is not an end in itself for an advocate of paretian efficiency, the pareto criterion gives weight to claims of autonomy since its adoption gives us reason to protect people's ability to define the terms of their own transactions.

We have seen that the pareto criterion has three cardinal advantages: first, moves to pareto superior allocations necessarily entail a net gain in utility. Second, we can have empirical evidence of pareto superior moves whenever people engage in free consensual transactions. Finally, the pareto criterion gives weight to the moral claims of autonomy, since it provides a powerful presumption that people should be allowed to define the terms of their own transactions, and consent (which is a concept closely associated with autonomy) is the empirical criterion of acceptability for such transactions. By protecting the consentual foundation for personal interaction, we guard people's ability to control their lives, and at the same time we serve our Paretian aim. Unfortunately, the otherwise attractive Pareto criterion is too weak to be useful in many cases, since it applies only to allocational moves in which there are no losers, and such moves are rare. However, Posner thinks that the advantages of the pareto criterion can be largely conserved in moving to the more widely applicable Kaldor-Hicks criterion.

b)Kaldor-Hicks: Moral Foundation of Wealth Maximization?

It is clear that the Kaldor-Hicks, or 'wealth maximization' criterion does not guarantee a net gain in utility. When a move from one allocation pattern to another involves both winners and losers, the only way to measure net gain (or loss) would be to compare the amount of loss born by the losers with the amount of advantage gained by the winners. This could be done only if we could make interpersonal comparisons of utility, and we can't.

Standard economic theory assumes that there are contexts in which it is reasonable to suppose that money can represent raw, transferable utility, so that an increase in the amount of money (or more properly wealth) in an economic system may reflect a corresponding increase in net utility. This reflects an assumption which is sometimes reasonable: the assumption that members of wealthier societies are usually better off than members of less wealthy societies.<9> But if we know nothing about two individuals except that one is from a wealthy society and the other from a less wealthy society, where the wealth of a society is represented in terms of Kaldor-Hicks efficiency, do we have any reason to believe that the former is better off than the latter? Clearly we may not. If a series of Kaldor-Hicks efficient moves all serve to benefit the same single member of a society at significant cost to every other member, it may be that a greater percentage of people were better off prior to these changes. We would have reason to expect a representative member of the society before such changes took place to be better off than a representative member of society in the Kaldor-Hicks superior state which followed. If we could aggregate social utility, it is quite possible that we might find that such a move could involve a net loss. Unlike the Pareto criterion, there is nothing in the Kaldor-Hicks criterion which guarantees that efficient moves will make people better off. Wealth maximization does not guarantee a net utility gain, and may often represent a net loss.

But Posner recognizes that wealth maximization may not lead to utility gains. He argues instead that wealth maximization is uniquely suited to accord with a principle of consent. However, it is not direct consent that supports the Kaldor-Hicks approach, but a related notion. It seems appropriate to let Posner speak for himself on this point:

I want to defend the Kaldor-Hicks or wealth maximization approach, not by reference to Pareto superiority as such or its utilitarian premise, but by reference to the idea of consent that I have said provides an alternative basis to utilitarianism for the pareto criterion. The notion of consent used here is what economists call ex ante compensation. I contend, I hope uncontroversially, that if you buy a lottery ticket and lose the lottery, then, so long as there is no question of fraud or duress, you have consented to the loss. Many of the involuntary, uncompensated losses experienced in the market, or tolerated by the institutions that take the place of the market where the market cannot be made to work effectively, are fully compensated ex ante, and hence are consented to.<10>

Posner's argument may be reconstructed as follows: in entering the market, we run risks analogous to the risk we take in buying a lottery ticket. Since price (for example) is presumed to reflect the underlying realities of the market, we pay a lower price for investments the greater the risk associated. We purchase the risk along with the investment, and in this sense, we consent to it. So if we happen to lose out in a given market transaction, we would not be justified in complaining that our loss was unfair, nor could we rightly demand compensation from the winners. When we entered the market, we consented to the risk, and ex ante, the risk was acceptable at the price we paid, perhaps because the risk-cost was counterbalanced by the size of our potential market gains. Whatever the reason, if we were responsible participants, we should have understood that the risk was part of what we paid for. So in this sense we consented to the risk when we chose to engage in market activity, and having consented ex ante to the risk, we must accept the consequences of our choice even if we happen to lose out. Fairness demands that we accept our bruises, since we earned them legitimately.

Posner gives an example: if a factory owner decides to move her operation to another town, the landowners who live in the town where the factory is presently located may lose out, since their property values may go down when the factory leaves. But the price they originally paid for their property reflected the risk that the factory might move. They purchased the risk along with the property, and may have benefited from a lower price because of the risk. In any case, the risk was acceptable ex ante, and this constitutes their 'ex ante compensation' for the loss they experience if the factory actually moves.<11>

Putting aside Posner's questionable empirical assumption that the presence of a factory nearby will increase rather than decrease property value, what conclusion can we legitimately draw from this? What we have here seems to be a somewhat plausible argument in support of a fairly reasonable thesis that people who enter the market and legitimately lose out are not necessarily owed compensation by the winners. If it is true that the original property values reflected the risk that the factory might move, this might justify us in allowing the factory owner to move her factory without paying compensation to the property owners who lose out. This is a fine result, but not very surprising. It would be very odd to claim that the factory owner in Posner's example owed compensation. If this were all that Posner wanted to claim, it is unlikely that his position would have attracted much controversy. Still, even at this stage we may raise some doubts about Posner's argument.

First, in what sense does Posner's discussion constitute a defense of the Kaldor-Hicks criterion? If the argument is successful, Posner has shown that there are times when Kaldor-Hicks efficient moves are not inconsistent with what his principle of consent. To his credit, he doesn't overstate his conclusion: "To summarize, the wealth maximization or Kaldor-Hicks criterion can sometimes be applied without violating the principle of consent."<12> But it is little support for a principle that it can sometimes be applied without violating autonomy. Racist principles can sometimes be applied without violating the principle that 'like cases should be treated alike' -for example, when they are applied uniformly against members of a single racial group- but it would be strange to suppose that this provided any kind of moral defense for such principles. Posner's conclusion is neither surprising nor powerful. It is not surprising that an autonomy-based principle of consent sometimes allows people to consent to risk, and take their lumps if their risk goes sour. And as it stands, Posner's argument is weak even if successful, since it gives us no reason to turn to wealth maximization as a norm in cases where it conflicts with the principle of consent. Certainly it gives us no reason to adopt the wealth maximization norm in cases where it does conflict with the principle of autonomy or of consent. And in cases like those described by Posner, the wealth-maximization criterion seems to do no work at all, since in such cases it is consent, not wealth maximization, that justifies us in allowing market losers to lose. Since the principle of consent is based on respect for people's autonomy, our fundamental norm in such cases is autonomy, not the maximization of wealth.

But Posner argues that we can't take respect for autonomy as a more fundamental norm than wealth maximization, since using the principle of autonomy directly has unacceptable moral consequences. He gives two reasons in support of this claim. First, using autonomy directly "requires an arbitrary initial assignment of rights."<13> Second, "the ethics of personal autonomy, interpreted and applied without regard for the consequences for human welfare, would lead to a great deal of misery."<14> I will consider each of these points separately.

If we take respect for autonomy as a direct guide in the formation of public policy, why must our initial assignment of rights be arbitrary? Posner offers an illustration from the choice between strict liability and negligence:

I assumed [in an earlier example] that the victim of an accident had some kind of moral claim to compensation, ex post or ex ante, even though the injurer was not at fault. One could equally well assume that people have a right not to be hampered in their activities by being held liable for accidents that they could not have prevented at reasonable cost. No liability denies the autonomy of the victim, and strict liability the autonomy of the injurer. To differentiate the two when neither is at fault is no simple task.<15>

True enough: it does look difficult. But pointing out the difficulty of making a fair determination of liability is not to show that any decision we make must be arbitrary. Posner seems to fall prey to an error which is sometimes associated with a famous comment made by R.H. Coase in "The Problem of Social Cost." In arguing for his theorem concerning the internalization of externalities, Coase makes the following remark:

The question [of the internalization of externalities] is commonly thought of as one in which A inflicts harm on B, and what has to be decided is: how should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A. The real question that has to be decided is: should A be allowed to harm B, or should B be allowed to harm A?<16>

Coase is correct in claiming that, in the case of externalities, no matter what we decide someone will lose out. But this does not show that the choice is completely arbitrary, as Posner infers. In many cases, we may have good reasons for deciding in favor of one party rather than another. As Alvin Klevorick points out, the case of sadistic assault may be modeled in just the same way: we either limit the ability of people who would like to avoid being assaulted, or we limit the liberty of the sadist who would greatly enjoy assaulting people.<17> In the first case, the potential victims loose out, in the second the sadist looses out, since he is no longer at liberty to assault. But clearly it is not arbitrary that we choose the latter course. The case of no-fault liability cited by Posner above is clearly a hard case, just because neither party is at fault. But even in such cases as this it is not arbitrary that we accord a right of compensation to the victim rather than to the injurer. After all, while the other party took a risk that was reasonable, it was she who took the risk. Her choice, reasonable as it was, was a choice to put other people at risk. Even in hard cases like this one it is not arbitrary that we make the injurer liable and grant the victim the right to compensation.

I have not ruled out the possibility that there may be some cases for which there is no principled way to decide between two people. I cannot imagine what such a case might be like. But if there are cases where the assignment of rights would otherwise be completely arbitrary, it seems initially plausible that rights allocation should try to serve equality, or Rawls' difference principle, or some other similar principle rather than the maximization of wealth. We are not faced, as Posner implies, with a simple diadic choice between an arbitrary assignment of rights or the assignment recommended by Posner's theory. Some rights are created by legal rules whose justification lies in considerations other than efficiency- for example, considerations of entitlement and legitimate exchange that constitute the foundation of any liberal political social order. Nothing in Posner's argument shows that wealth maximization is preferable to these other possibilities. Posner has not only failed to show that using autonomy directly requires an arbitrary initial assignment of rights, he has also failed to give any reason why we should suppose that an assignment of rights generated by the application of the Kaldor-Hicks criterion is less arbitrary than the strongest alternative view of rights.

Posner's second criticism against using autonomy as a direct norm is that it "would lead to a great deal of misery,"<18> since we would then neglect considerations of utility. But this is far from clear. Perhaps a political theory that took autonomy to be the only significant moral value, a theory which claimed that autonomy is lexically prior to utility might have such consequences. But we don't need to assume that autonomy is lexically prior to utility in order to use autonomy directly as a norm guiding the creation of social policy. We could hold, for example, that considerations of autonomy and considerations of utility are both relevant, but that the wealth maximization criterion is not the criterion by which to weigh one against the other. Posner does not argue that the Kaldor-Hicks criterion is the best way to balance autonomy and utility- to do that, we would need to consider its merits and costs relative to other methods. To make Posner's argument work at all, we need to suppose that he thinks that the Kaldor-Hicks criterion is the only way to balance these values, since he seems to think that any other way of weighing the normative force of autonomy considerations will result in our ignoring utility altogether. But again, he never considers any of the alternative ways to balance these values.

Perhaps it is true, as Posner implies, that any plausible political theory must answer both to considerations of autonomy and utility, but Posner has not demonstrated that the best way to do this is by adopting wealth maximization as a policy guide. For example, classical liberal theorists, who place a high priority on a theory of rights grounded in a conception of individual autonomy, have been at pains to show that social institutions founded on a conception of individual rights can still produce public goods, and may in fact have highly utilitarian consequences. Posner neglects even to discuss this powerful alternative to his own view.

c)Wealth Maximization and Consent

According to Posner, common law adjudication is the arena in which the wealth maximization norm is most plausible. This is so, he argues, because wealth maximization is supported by principles of autonomy and consent:

I was at first stimulated to investigate the ethical foundations of wealth maximization by the suggestion that it was too unappealing a value to ascribe to common law judges. Yet it is precisely in the context of common law adjudication... that a consensual basis for wealth maximization is most plausible. The rules that govern the acquisition and transfer of property rights, the making and enforcement of contracts, and liability for accidents and the kinds of naked aggression that were made crimes at common law are supported by a broad consensus and distribute their benefits very widely. For example, only a na<ve analysis of the economic consequences of refusing to enforce the leases that poor people sign with presumably wealthier landlords would conclude that the poor would be better off under such a regime. Landlords would either charge higher rentals because of the greater risk of loss, or shift their property into alternative uses, so that the low-income housing supply would be smaller and its price higher. If we can generalize from this example that the choice between common law rules does not have systematic distributive consequences, then it is reasonable to suppose that there is (or would be, if it paid people to inform themselves in these matters) general consent to those common law rules that maximize wealth. If so, a common law judge guided by the wealth maximization criterion will at the same time be promoting personal autonomy.<19> [my emphasis]

We may overlook the hypothesis that choice between common law rules don't have systematic distributive consequences. It is clear that some rules would have such consequences, and arguable that wealth maximization would. But more importantly, critics of Posner have too often overlooked the concepts of consent and autonomy that underlie his view. Roughly, the argument above seems to run as follows: 1)wealth-maximizing moves would make everyone better off (as he takes his example to show). 2)Everyone would consent to changes that make everyone better off, that is, if they were well informed. So 3)we promote people's autonomy when we guide social policy by considerations of efficiency.

Of course, this is ridiculous. First, wealth-maximizing moves won't make everyone better off unless compensation is actually paid to the losers. Posner's example shows that there may be some cases (the enforcement of leases) for which wealth maximization does make everyone better off. But this was already clear, since by definition all pareto superior moves are sanctioned by the wealth maximization criterion. This rough unanimity is just what we loose when we move from the pareto criterion to the Kaldor-Hicks criterion.

Second, Posner's concept of consent, and of the relationship between consent and autonomy, is quite surprising. Posner seems to claim that if (counterfactually) I would consent to some social policy were I both ideally rational and perfectly informed, then you 'promote my personal autonomy' by imposing that policy on me. This is, to say the least, a controversial view about autonomy. It is especially foreign to neo-classical economic theory to associate autonomy with 'what we would consent to were we ideally informed' rather than 'that to which we actually consent.' A central motivation for revealed preference theory (and for classical liberal political theory) is the notion that individuals are typically the best judges of their own interests. In fact, this notion of counterfactual consent, which identifies autonomy with people's true, rational interests rather than their actual interests, is usually associated with the Marxist concept of autonomy- a tradition in which Posner would likely feel uncomfortable. In any case, Posner offers no defense of this odd conception of what it means to promote autonomy. He seems not to notice that it is odd.

Even if we put aside this account of consent, we must consider how Posner's proposal would work in practice. How might judges apply the wealth maximization principle in common law adjudication? The literature abounds with well known horrific examples. Consider the following from Dworkin:

Suppose a poor sick man needs medicine and is therefore willing to sell a favored book, his sole source of pleasure, for the $5 the medicine costs. His neighbor is willing to pay $10 to have the book, if necessary, because he is the famous (and rich) grandson of the author, and if he autographs the book he can sell it for $11. The community is made richer according to the economic definition of community wealth, if the police just take the book from the poor sick man and give it to his rich neighbor, leaving the poor man with neither book nor medicine. The community is richer because the book is worth $11 in the rich man's hands, and only $5 to the poor man, The community's aggregate wealth is increased if the book is taken from the poor man even beyond what it would gain if the two struck a bargain, because a forced transfer saves the transaction costs of that negotiation..

Imagine a common law judge faced with the choice to award the book either to the rich, healthy man or the poor sick one. Suppose our judge is convinced by Posner's argument, and would like to make her decision consistent with the Kaldor-Hicks efficiency criterion. The move Dworkin suggests seems required by this efficiency measure, since the rich man could fully compensate the poor man for the loss. The poor man may value the book a great deal, but if he would be willing to exchange it for $5, then $5 would constitute full compensation. One objection is that this choice is unlikely to maximize utility, because $5 for the poor man likely means much more than $11 for the rich one. But Posner admits that his criterion will not always maximize utility. This highlights another serious problem with the wealth-maximization principle: it seems inconsistent with other time honored moral practices, like respecting property rights, and giving people their due. Often these practices are justified by their propensity to promote autonomy. Significantly then, the wealth maximizing choice seems inconsistent with respecting 'autonomy' according to a more standard account of what autonomy requires. Common law judges have no business redistributing people's property merely because doing so might maximize wealth. Posner's theory is inconsistent with any political theory that takes seriously the right to private property.

How might Posner respond? I think it is quite possible that he might make a rule utilitarian distinction between the application of the efficiency norm in particular cases, and its application to wide social policies. He might try to argue that the general policy of respecting property rights (like the poor man's property right in his book) is wealth maximizing, even if respecting property rights will not maximize wealth in each individual case. On this line of argument, we should respect the poor man's property right in the individual case, because the policy is efficient, even if the specific application is not.

But if wealth maximization were really our goal, wouldn't an exceptionless policy be less effective than a policy which allowed exceptions in cases like the one Dworkin describes? The ideal policy, as judged by Posner's standard, would seem to be one which respected property rights only when doing so actually maximized wealth. But Dworkin's example describes a case where an exception from our policy would be sanctioned by the goal of efficiency. The reason we judge that it would be absurd to apply the Kaldor-Hicks criterion in this case is not that it is inefficient, but because it is inconsistent with property rights, and with other legitimate social goals, both utilitarian and deontological.

Finally, the 'rule utilitarian' response I have suggested may not be available to Posner for other reasons. Posner claims that the principle of autonomy cannot be applied directly, since this would have undesirable consequences. He takes it to be a virtue of his own principle of wealth maximization that it can be applied directly. But if Posner gives the rule utilitarian response to the objection I mentioned, then his own principle seems to be subject to the same objection he raised against the principle of autonomy.

It is not clear that this objection is unsolvable for Posner. Many people have suggested that it is possible that a norm may set limits on it's own pursuit in a manner analogous to the way Posner might claim that the institution of property rights as a social policy might limit, in particular cases, the pursuit of our more general goal of wealth maximization. It is not clear, however, that Posner recognizes that this is a potential problem for his view. And even if he succeeded in solving this problem, it would be scant support for his theory that it is not inconsistent with respect for property rights. In any case, we need a further argument from Posner before we can even evaluate his position properly. It just isn't clear from Posner's discussion just how the wealth maximization norm should be used by common law judges. Ultimately, his ability to respond to the objection raised depends on whether he can give a satisfactory account of property rights in terms of Kaldor-Hicks efficiency. To most liberal scholars, this will seem backwards: laws are needed not merely to create new rights, but to guarantee that people's antecedent rights are protected. Common law judges must consider people's rights, not merely considerations of economic efficiency. Efficiency and utility may arise as a social consequence of institutions that guarantee people's rights, but it is inappropriate to try to design an account of rights from an account of efficiency.

III. Conclusions

As Posner points out, the Pareto criterion is in many ways an attractive norm for the evaluation of social policy. Pareto superior moves guarantee a net gain in utility, since there are no losers, and there must be at least one winner. We can have empirical evidence that pareto superior allocations are achieved whenever people engage in free, consensual transactions. Because of this, using the pareto criterion gives us a presumptive reason to respect autonomy, since it gives reason to allow people to define the terms of their own transactions as they see fit. Unfortunately, the pareto criterion is limited in application, since it applies only in cases where there are no losers. Posner claims that many of the attractions of the pareto criterion are also available for the Kaldor-Hicks criterion, which may have wider application, but when he argues for the moral foundations of this criterion, he fails almost grotesquely to show that the wealth maximization norm has any advantages at all from the moral point of view.

The disadvantages of the Kaldor-Hicks criterion, on the other hand, are striking. There is often no reason to think that Kaldor-Hicks efficient moves will entail a net gain in utility, and we have no easy empirical test to tell us when moves are efficient. While Posner may have shown that there are cases where Kaldor-Hicks efficient moves are not inconsistent with a limited principle of consent, when losers have received some form of ex ante compensation, this is not sufficient to show that Kaldor-Hicks efficiency is an attractive norm in its own right. Showing that 'there are instances in which it is not inconsistent with respecting autonomy that we allow Kaldor-Hicks efficient moves' is not, as Posner seems to think, to show that the Kaldor-Hicks criterion is an adequate safeguard for personal autonomy. Further, Posner's argument that the wealth-maximization norm respects autonomy relies on a controversial notion of autonomy as counterfactual consent- a conception which he fails to defend. Finally, there are cases like the one described in Dworkin's example, for which wealth maximization seems absurd as a norm for common law adjudication, since it may conflict with other criteria like property rights, utilitarian principles, and more standard notions of autonomy. While it is not clear that Posner's position is incapable of accommodating these cases, we need an argument to that effect before we can fully evaluate the position's adequacy in this respect. Perhaps most seriously, Posner's theory inappropriately neglects individual rights. On Posner's view, rights are a consequence of efficiency, but according to many economists and liberal theorists, efficient social organization is a consequence of political institutions that guarantee respect for individual rights. Posner has it backwards.

I hope it is clear from this discussion that Posner's account of efficiency is inadequate from the moral point of view. But it is not at all clear that efficiency considerations are irrelevant, or that Posner's failure casts a shadow of doubt on the moral adequacy of any efficiency norm other than the one Posner recommends. Paretian efficiency, when achievable, still seems to be a morally attractive norm, even if limited in applicability. And where that pareto criterion does not apply, there may be a standard of efficiency other than wealth maximization which may succeed where Posner has failed. But our reasons for rejecting the Kaldor-Hicks criterion may be instructive: any acceptable efficiency criterion must be capable of accounting for counterintuitive cases like the one described by Dworkin, and must be more sensitive to the claims of autonomy. Similarly, it would be an error to conclude from this discussion that the claims of efficiency have no weight when they conflict with other moral claims like autonomy or property rights. The reason for this is that there may well be a corrolation (though not a direct one) between efficiency and human well being. To the degree that there is such a correlation, that is, to the degree that efficiency is grounded in utilitarian values, it must be granted some moral weight. The proper way to accommodate the claims of efficiency may reflect neither the absolute priority suggested by Tullock, nor the lexically subordinate position suggested by Dworkin. But adequate norms for the development of social policy cannot make the easy step from maximization of human well-being to the maximization of wealth. Efficiency with respect to wealth, and efficiency with respect to human well being may often diverge, and it is an error to neglect the latter when we devote our attention to economic considerations. Beyond this, we need either an argument to the effect that the claims of autonomy are outweighed by the claims of efficiency, or else some rule defining how these values are to be weighed against one another. In the absence of such an organized rule system, it would be unreasonable to use unmediated efficiency norms in common law adjudication. It is clearly preferable to take the protection of individual rights as the basis for decisions in this context.

References:

Calebresi, Guido. 1980, "About Law and Economics: A Letter to Ronald Dworkin," Hofstra Law Review, vol.8 pp.553-562.

Calebresi, Guido, and Melamed, Douglas, 1972, "Property Rules, Liability Rules, and Inalienability: One View of the Cathedral," Harvard Law Review, vol 85, no. 6 pp.1089-1128.

Coase, R.R. 1960. "The Problem of Social Cost," The Journal of Law and Economics, vol III pp. 1-44.

Coleman, Jules. 1980. "Efficiency, Utility, and Wealth Maximization," Hofstra Law Review, vol.8 pp. 509-551.

Coleman, Jules. 1984. "Economics and the Law: A Critical Review of the Foundations of the Economic Approach to Law," Ethics 94: pp. 649-679.

Coleman, Jules. 1985. "Crimes, Kickers, and Transaction Structures," in NOMOS XXVII: Criminal Justice, Ed. J.R.Pennock and J.W.Chapman (New York: New York University Press) pp. 313-328.

Dworkin, Ronald. 1980, "Why Efficiency?" Hofstra Law Review, vol.8 pp. 563-591.

Dworkin, Ronald. 1986. Law's Empire, Cambridge: Belknap Press.

Klevorick, Alvin K. 1985. "On The Economic Theory of Crime," in NOMOS XXVII: Criminal Justice, Ed. J.R.Pennock and J.W.Chapman (New York: New York University Press) pp. 289-309.

Posner, Richard. 1980. "The Ethical and Political Basis for the Efficiency Norm in Common Law Adjudication," Hofstra Law Review, vol.8 pp. 487-507.

Posner, Richard. 1985. "Comment on "On The Economic Theory of Crime" in NOMOS XXVII: Criminal Justice, Ed. J.R.Pennock and J.W.Chapman (New York: New York University Press) pp. 310-312.

Tullock, Gordon. 1980. "Two Kinds of Legal Efficiency," Hofstra Law Review, vol.8 pp. 659-669.

**ENDNOTES**

<1>: Ronald Dworkin, "Why Efficiency?" Hofstra Law Review (vol.8 1980) p. 564.

<2>: Gordon Tullock, "Two Kinds of Legal Efficiency," Hofstra Law Review (vol. 8 1980) p.669.

<3>: Jules Coleman, "Economics and the Law: A Critical Review of the Foundations of the Economic Approach to Law," Ethics, 94 (July 1984) p.651.

<4>: Jules Coleman, 1984, p.651.

<5>: Coleman, 1984, p. 652.

<6>: Richard Posner, "The Ethical and Political Basis of the Efficiency Norm in Common Law Adjudication," Hofstra Law Review (vol. 8, 1980) p. 500.

<7>: Posner, 1980, p. 489.

<8>: Posner, 1980, p. 490.

<9>: It is not always clear whether this is an assumption made by economists, or merely a consequence which many seem willing to accept.

<10>: Posner, 1980, p. 492.

<11>: Posner, 1980, pp. 490-91.

<12>: Posner, 1980, p.495.

<13>: Posner, 1980, p. 496.

<14>: Posner, 1980, p. 496.

<15>: Posner, 1980, p. 496.

<16>: R.H. Coase, "The Problem of Social Cost," Journal of Law and Economics vol 3, October, 1960,p. 2.

<17>: Alvin Klevorick, "On The Economic Theory of Law," in Nomos XXVII: Criminal Justice, Ed. J.R.Pennock and J.W. Chapman (New York:New York University Press, 1985) p. 293-4.

<18>:Posner, 1980,p.496.

<19>: Posner, 1980, p. 500.

<20>: Posner introduces this notion of consent earlier, but never seems to notice that it is controversial, and never provides an argument for it. See also Posner, 1980, p. 494.

<21>: Ronald Dworkin, Law's Empire, (Cambridge:Belknap Press, 1986)pp. 286-7.