Is Efficiency Biased?

Efficiency is a watchword in policy circles. If we choose policies that maximize people’s willingness to pay, we are told, we will grow the economic pie and thus benefit the rich and poor alike. Who would oppose efficiency when it is cast in this fashion? However, there are actually two starkly different types of efficient policies: those that systematically distribute equally to the rich and the poor and those that systematically distribute more to the rich. Our collective failure to grasp this distinction matters enormously for those with a wide range of political commitments. Many efficient policies distribute more to the rich without the rich having to pay for their bigger slice. Because these “richbiased” policies are ubiquitous, efficient policymaking places a heavy thumb on the scale in favor of the rich. Especially at this time of heightened concern about inequality, getting efficiency right should matter to a wide swath of the policymaking spectrum, from committed redistributionists to libertarians. We should support efficient policies only when the poor are compensated for their smaller slices or when efficient policies systematically distribute equally to the rich and the poor as we grow the size of the economic pie. This Article points a way forward in ensuring that a foundational tenet of the law does not follow a “rich get richer” principle, with profound consequences for policymaking

How Income Taxes Should Change During Recessions,

This paper offers recommendations for how the design of labor income taxes should change during recessions, based on a simple model of a recessionary economy in which jobs are rationed and some employees value working more than others do. The paper draws two counter-intuitive conclusions for maximizing social welfare. First, subsidize non-employment. This draws marginal workers out of the labor force, creating “space” for those who really need jobs. Second, subsidize employers for hiring, not the employees themselves. The problem during recessions is having too few jobs; subsidizing employers creates more jobs, while subsidizing employees confers benefits on those who already won the job lottery. Tax policy in the recent recession has done a poor job of following these recommendations

Reducing Inequality on the Cheap: When Legal Rule Design Should Incorporate Equity as Well as Efficiency

This Note develops a framework for understanding when policymakers should use equity-informed legal rules -rather than taxes -to redistribute. First, policymakers should choose the most efficient way to reduce income inequality, which may involve allocating legal entitlements to the poor, depending upon several factors described in the Note. Second, sometimes legal rules ought to account for non-income characteristics based upon which the tax system would be poorly equipped to redistribute

Is Efficiency Biased?

Efficiency is a watchword in policy circles. If we choose policies that maximize people’s willingness to pay, we are told, we will grow the economic pie and thus benefit the rich and poor alike. Who would oppose efficiency when it is cast in this fashion

Why Oppose Secession? Evidence of Economic Motivations from the American Civil War

Why fight secession? This paper is a case study on this question, asking why the North chose to fight the South in the American Civil War. It tests a theoretical prediction hat economic motivations were important, using county-level presidential election data. If economic interests like manufacturing wished to keep the Union together, they should have generated votes to do so. That prediction is borne out by the data, and explanations other than Northern economic concerns about Southern secession appear unable to explain the results, suggesting that economic motivations were important to support for fighting the South

Counter-Cyclical Bankruptcy Law: An Efficiency Argument for Employment-Preserving Bankruptcy Rules

Bankruptcy judges consider both value to creditors and harm to employees in deciding whether to liquidate or reorganize firms. This Article proposes to systematize what is currently an ad hoc trade-off by making bankruptcy law explicitly counter-cyclical- that is, placing more weight on preserving employment during times of high unemploy­ment. Although the suggestion that bankruptcy law should consider em­ployment effects runs counter to decades of economic analysis of bankruptcy law, this Article bases its analysis on the traditional law and economics efficiency norm. During times of high unemployment, significant social benefits flow from maintaining employment, as evi­denced by the hundreds of billions of dollars that the government has recently spent to maintain employment

Do Property Rights Promote Investment But Cause Deforestation? Quasi-Experimental Evidence from Nicaragua

As property rights have spread, promoted by organizations like the World Bank, it has become increasingly important to understand the consequences of improved property rights (see e.g., [14]). It is widely argued in the economic literature that property rights and the institutions that undergird them are essential for creating the incentives necessary for economic growth [1,51]. Many economists argue that property titling is one of the most effective ways to improve the lives of the poor, who often lack property rights [8,17,53]

Innovation Snowballing and Climate Law

Findings at the frontier of economics suggest startling implications of an under-appreciated fact about technological development: innovation builds on itself, developing path dependencies in which past innovations attract similar, but more advanced, innovations. Innovation snowballs. The world economy needs to undergo a dramatic transformation to avoid the risk of catastrophic effects from climate change. Policy to encourage this transformation should be sensitive to innovation snowballing. The conventional policy view has long been that, to address a social harm like pollution, the right response is simply to tax the behavior causing the harm, leading to a variety of responses including induced technological change. The Article shows that this view is incomplete. Rather, the most efficient response to climate change—and likely other social harms—requires a combination of taxes and a big push of government support to specifically redirect innovation toward technologies that alleviate social harm. Without a big push in cleantech innovation to change the trajectory of innovation, energy technology will tend to stay trapped in its high-pollution path. For climate policy and likely other pressing policy issues, the Article suggests a paradigm shift in the role of innovation policy: from broad to targeted. Otherwise, the transition to clean energy will be longer, more expensive, and riskier for the global climate. The Article shows how to efficiently deploy innovation policy to meet this challenge

Innovation Snowballing and Climate Law

Findings at the frontier of economics suggest startling implications of an under-appreciatedf act about technological development: innovation builds on itself developing path dependencies in which past innovations attract similar, but more advanced, innovations. Innovation snowballs. The world economy needs to undergo a dramatic transformation to avoid the risk of catastrophic effects from climate change. Policy to encourage this transformation should be sensitive to innovation snowballing

Who\u27s In, Who\u27s Out? Policy to Address Job Rationing During Recession

In response to the Great Recession, the federal government spent hundreds of billions of dollars in tax and other interventions in the labor market as part of the stimulus and follow-up policies. Policymakers traditionally have based their policies on Keynesian theories that recessions are driven by inadequate demand, so that increasing government spending will increase demand for economic activity and workers. However, these theories guide how much to spend, not how to design the spending. As a result, despite this massive outlay of funds, the theory for the form that labor income taxes and related policies should change during recessions is surprisingly poorly developed. Instead of drawing on Keynesian macroeconomic theories, we draw on the microeconomics literature on how labor markets function during recessions-in particular, the literature on matching unemployed workers with firms. Insights from microeconomics help answer why there are too few jobs and which workers gain employment. The Article draws two counterintuitive conclusions for maximizing social welfare during slack labor markets during and after recessions. First, subsidize nonemployment. This draws marginal workers out of the labor force, creating space for those who really need jobs. Second, subsidize employers for hiring, not the employees themselves. The problem during recessions is having too few jobs. Econometric evidence shows that statutory incidence matters for economic incidence during recessions; subsidizing employers creates more jobs, while subsidizing employees confers benefits on those who already won the job lottery. Policy during and after the Great Recession often did not follow these recommendations