To discuss the desirability of a legal system, we must first consider two criteria: efficiency and equity. Efficiency aims to increase the well-being of society as a whole, while equity emphasizes the fair distribution of resources. This allows legal systems to achieve both efficiency and equity in cases such as theft, bankruptcy law, intellectual property, and environmental protection law.
In order to discuss whether a legal system is socially desirable, we first need a standard of desirability. Forensic economics uses efficiency as this criterion. Efficiency is the increase in the size of society’s total welfare, which is the subjective pleasure or satisfaction that results from an action.
Efficiency can be divided into ex post and ex ante efficiency. Ex post efficiency refers to getting the most output at the least cost in a given situation, while ex ante efficiency takes into account the incentives of the parties involved. Let’s take theft as an example. In a society of two people, Gu and Silver, Silver steals an item from Gu and uses it without asking permission. You might think that the item is transferred from G to E, and that the size of the society’s total welfare has not changed, but this is not the case. This is because K’s and E’s welfare for the item may be different. If A’s utility is 100 won and E’s utility is 80 won, then society as a whole has a decrease in utility of 20 won. This is why the law prohibits theft in terms of ex post efficiency. The problem with stealing can also be explained in terms of ex ante efficiency. If stealing is allowed by law, we can predict the following. First, people will be less motivated to work. This is because he can get what he needs without working. Gu will spend money to prevent theft. This decrease in work motivation and expenditure on theft prevention does not contribute to an increase in social welfare. In other words, from an ex ante efficiency perspective, allowing theft creates incentives that reduce social welfare.
To determine the efficiency of a legal system, we also need to consider the concept of equity. Equity is a criterion for determining whether the distribution of resources among members of society is fair. Designing a legal system based on efficiency alone can lead to unequal distribution of resources, so equity must be considered alongside efficiency. For example, in the case of social welfare systems, efficiency alone may prioritize cost savings. However, this can disadvantage the most vulnerable, so equity must be considered to ensure that they are adequately supported.
A classic example of a legal system shaped by ex post efficiency is bankruptcy law. When a debtor’s assets are insufficient to pay their debts and insolvency proceedings are initiated, all individual debt collection is prohibited and creditors can only be reimbursed within the insolvency process. If individual debt collection were allowed, everyone would try to collect first. In the process, the debtor’s property would be damaged or sold at a loss, reducing the overall welfare of society. Insolvency law exists to prevent this inefficiency, allowing the debtor’s property to be managed and distributed more efficiently.
In some cases, the legal system is based on an ex ante efficiency perspective. Intellectual property laws make it illegal to plagiarize or use a novel or song without permission. However, copying doesn’t eliminate the original, and if the cost of copying is very low, it can be argued that society benefits from copying. However, if intellectual property rights are not recognized in relation to creation, the incentive for parties to create is reduced, and creation may not occur in the first place. Therefore, intellectual property laws grant exclusive rights to creators to promote ex ante efficiency.
Furthermore, environmental protection laws are a good example of ex ante efficiency. In the short term, reducing environmental pollution regulations can reduce production costs for companies and stimulate the economy. However, in the long run, environmental degradation is likely to reduce the welfare of society as a whole. Therefore, environmental protection laws are necessary regulations to increase ex ante efficiency in the long run.
When judging the desirability of a legal system, both efficiency and equity must be considered. Efficiency aims to increase the total welfare of society, while equity aims to realize social justice through the fair distribution of resources. This allows the legal system to move in a socially desirable direction.
