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Markets, Morals, and the Law$
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Jules L. Coleman

Print publication date: 2002

Print ISBN-13: 9780199253609

Published to Oxford Scholarship Online: January 2010

DOI: 10.1093/acprof:oso/9780199253609.001.0001

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Efficiency, auction and exchange

Efficiency, auction and exchange

(p.67) 3. Efficiency, auction and exchange
Markets, Morals, and the Law

Jules L. Coleman

Oxford University Press

This chapter distinguishes between Pareto optimality, Pareto superiority, and Kaldor-Hicks efficiency, and provides an extended discussion of the Coase theorem. One of the central claims in this chapter is that the economic analysis of law relies largely on the Kaldor-Hicks criterion of efficiency, less on Pareto optimality, and almost not at all on Pareto superiority. This is important, especially from a normative point of view. What justifies the use of public power, that is, courts, legislatures and administrative agencies, in pursuing efficiency? In his essay Theory of Negligence, Richard Posner shows that a large number of negligence cases were decided along lines of economic efficiency.

Keywords:   economic efficiency, auction, economic exchange, law, Pareto optimality, Pareto superiority, Kaldor-Hicks efficiency, Coase theorem, Richard Posner, externalities

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