ABSTRACT
How should tort law be administered? Neoclassical law and economics offers a clear answer: Tort cases should be decided so as to maximize wealth in dollar terms. Rather than needing to weigh matters of justice, morality, or rights, judges only need to decide cases based on the simple and determinate guidelines of Kaldor-Hicks efficiency. When a tort occurs, the judge simply must weigh the net costs and benefits to all parties and rule according to what maximizes wealth. In cases of positive transaction costs, when the costs imposed on the injured parties are less than the benefits that accrue to the culpable parties, we should allow the harm to continue, and vice versa. Such a system is appealing for those who believe that members of society would be better under a system of efficiency- or wealth-maximization, with little or no concern for matters of justice or rights. 1 Although the guidelines appear simple, economists in the Austrian tradition argue that the theory rests on a few questionable assumptions. Despite its apparent simplicity, the process of using efficiency to determine law raises several issues that render it nonfunctional.
