Great arguments aren’t always right, but they should be bold, persuasive, and force the scholarly community to respond by testing the arguments’ logic and limitations. In recent years, there are few arguments that have been more generative of thoughtful scholarship than Kaplow and Shavell’s claim that income redistribution should be done solely through the system of taxes and transfers and that legal rules should be chosen solely for their efficiency properties.1 This conclusion is instinctively repugnant to many scholars outside of the law and economics tradition, and surprising to many within it. Yet, first rank economists that they are, Kaplow and Shavell’s logic, at least under the assumptions of the model they use to make their argument, is unassailable.
But, what Kaplow and Shavell’s logic proves and what it has often been taken to prove are two very different things. Although many excellent scholars have offered incisive critiques of the Kaplow and Shavell result, Zach Liscow’s recent note in the Yale Law Journal does as fine a job as I’ve seen of both identifying the reason for this difference and arguing from within a welfarist framework that equitable considerations should apply to legal rules too. The note is admirable in its accessibility, clarity, and rigor. I would include it on the reading list for any law and economics or tax policy seminar that addressed the merits of redistribution through the tax and transfer system. Continue reading "Equity and Efficiency in Rule Design"