Courts as implementers of 'fair' or 'just' economic outcomes

Efficiency is clearly not the only criterion which may be relevant for courts. 'Fairness' or equity may also be important. There are two concepts of fairness that we consider here. The first is procedural fairness. Under this definition of fairness, a fair outcome is one that occurs as the result of a fair process. Suppose, for example,6 that two individuals with identical wealth levels agree to bet on the outcome of the toss of an unbiased coin. The loser pays the winner $100. After the result is known, the outcome may be perceived by an outside observer (who is only interested in outcomes) to be unfair, since it involves a more uneven distribution of wealth. But the process by which this occurred could hardly be said to be unfair.

On the other hand, now suppose that the losing individual steals $100 back from the winner. To our outside observer, the outcome in terms of distribution of wealth may appear to be fairer in terms of wealth distribution - but it was clearly obtained by an unfair process. Moreover, as we will see in Chapter 10, even if theft was acceptable from a fairness point of view, it would have significant (negative) efficiency consequences. Indeed, in this second example there is unlikely be a trade-off between equity and efficiency: if the entire set of negative economic consequences of not punishing or deterring theft are traced through, then the outside observer (who only cares about equality of outcomes) may also end up concluding that theft is undesirable.

Moving the focus away from outcomes and resorting to notions of procedural fairness is not required to reach the conclusion that theft is undesirable. The same considerations apply to many of the issues discussed in this book. For example, consider accident law. Those concerned with procedural fairness would argue that not allowing a victim to claim damages from an injurer as a result of accidental harm caused by the injurer's lack of care (that is, a rule of no liability) is inherently 'unfair'. However, as we will see in Chapter 4, it is also the case that a rule of no liability leads to inefficient outcomes. Again, there is no need to appeal to notions of procedural fairness to reach the conclusion that a rule of no liability is undesirable.

As a result of these and other considerations, there is considerable debate in the literature over the appropriate definition of the concept of economic fairness or equity. While many economists do not regard such questions as lying within the domain of economics, the actual development of many legal rules, judgements and decisions that affect economic outcomes (and their implementation) are almost always the subject of criticisms (or endorsements) based on notions of 'fairness' and 'equity'.

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