Reading guide for Fri. 4/10 and Mon. 4/13: Richard Posner, “Utilitarianism, Economics, and Legal Theory,” The Journal of Legal Studies, vol. 8 (1979), pp. 103-140 (on JSTOR)
 

Assignment for Fri 4/10: §§I-II A, pp. 103-119

Posner is perhaps the best-known exponent of the application of economic thinking to the law. To the extent that offers justifications of laws and legal institutions, he employs a form of consequentialism which looks to consequences for the level of wealth of society as a whole. In this paper, he argues that this approach is preferable to utilitarianism and, in particular, is less subject to the sorts of problems critics see in utilitarianism. He argues also that his view is preferable to the deontological views (which he here calls “Kantian”) that are usually advanced as alternatives to utilitarianism.

• Posner’s §I is devoted to several introductory topics. In subsection B, he indicates one form of economic analysis, the description of a judicial decision as an attempt to simulate the operation of a market in cases where the costs of bargaining (“transaction costs”) are so high that the market doesn't operate well.

A typical example of this is a case where an industry creates a nuisance (e.g., pollution) that affects a large number of people. Even if the effects are so severe that the people affected would be willing to pay the industry enough that it would be to its advantage to reduce the nuisance, the costs of organizing that deal might be so great that it would never happen. However, if the industry is required to pay for the damage caused by the nuisance, it will not continue to create it if these costs of the nuisance are greater than the costs of changing its operations; that is, it will make the same choice it would be led to if the market operated in this case. Of course, if the market operated it would be the individuals affected, not the industry, who would bear the cost of this change of operations; but, because it is the total wealth of society that is to be maximized, it is not important from this point of view who bears the costs. All that matters is the actions chosen are the ones whose costs are the lowest.

• §II A is mainly devoted to problems Posner and others see with utilitarianism. Pay attention to his labels for the various sorts of problems because he will refer to these later when he argues that wealth maximization is less subject to them. Notice also his criticisms of the alternative views advanced by critics of utilitarianism. (Later in the paper, p. 133, he will cite Fletcher as an example of a critic of this sort.)

Posner speaks on p. 115 of the “diminishing marginal utility of money income,” and this notion appears unnamed in a number of his examples. The basic idea is that a given amount of money is worth less to someone who has a lot than to someone who has only a little.

Assignment for Mon 4/13: §II B-apps., pp. 119-140

• The heart of Posner’s argument for wealth maximization appears on §II B.

• In §II B 1, Posner (i) distinguishes wealth maximization from the maximization of happiness or “welfare” (pp. 119-122), (ii) argues that the implications of wealth maximization are closer to our ordinary ethical judgments (pp. 122-125), and (iii) argues further that wealth maximization comes closer than utilitarianism to providing an account of rights and justice (pp. 125-127). In each case, Posner argues largely by way of examples, and our class discussion will focus on some of them. Which examples seem to you to be the most telling?

• It is in §II B 2 that Posner turns to the criticisms of utilitarianism outlined in §II A and argues that wealth maximization is less subject to these problems. This discussion is organized around the classification of problems that he used in §II A; but, again, particular examples are likely to be the focus of our discussion. At various points and especially towards the end of the section, Posner will point to ways in which wealth maximization can still seem problematic. Although he does not conceal the less attractive sides of his view, he doesn’t always call attention to them in the way he does here, and you might watch for such implications throughout the paper.

• Finally, the appendices provide still more examples that illustrate his approach to the law and can provide the basis for arguments for and against it.