Efficiency means increasing the welfare of society as a whole, and legal systems are shaped by this. For example, prohibiting theft, enforcing bankruptcy laws, intellectual property rights, and environmental protection laws encourage creativity and promote long-term well-being. Laws should balance fairness and efficiency through social consensus, taking into account economic, social, and environmental factors.
In order to discuss whether a legal system is socially desirable, we first need a standard for judging desirability. Forensic economics uses efficiency as a measure. Efficiency is whether or not it increases the size of society’s total welfare, which is the subjective pleasure or satisfaction that results from an action. If a law is efficient, it can be interpreted as meaning that the law provides greater overall satisfaction and benefit to the members of society.
Efficiency can be divided into ex post and ex ante. Ex post efficiency is about getting the most output for the least cost in a given situation, while ex ante efficiency takes into account the parties’ prior incentives. 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. From an ex ante efficiency perspective, allowing theft creates incentives that reduce social welfare.
A classic example of a legal system shaped from a posteriori efficiency perspective is bankruptcy law. When a debtor’s assets are insufficient to pay their debts and bankruptcy proceedings are initiated, all individual debt collection is prohibited and creditors can only be reimbursed within the bankruptcy process. If individual debt collection were allowed, everyone would try to collect first. In the process, the debtor’s property is damaged or sold at a loss, reducing the overall welfare of society. To reduce this inefficiency, insolvency law aims to ensure fair distribution among creditors and preserve the debtor’s property as much as possible to increase social welfare.
In some cases, the legal system is based on an ex ante efficiency perspective. Intellectual property laws prohibit plagiarizing or using a novel or song without permission. However, copying doesn’t destroy 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, IP laws grant exclusive rights to creators to promote ex ante efficiency.
Another example of ex ante efficiency can be found in environmental protection laws. If a company operates a factory and causes environmental pollution, it may benefit economically in the short term due to lower production costs. However, in the long run, the costs of environmental pollution, such as health problems and natural disasters, will increase. From a proactive efficiency perspective, environmental protection laws provide incentives for companies to minimize environmental pollution and promote the long-term welfare of society as a whole.
Efficiency should be measured not only by economic benefits, but also by social, environmental, and ethical factors. Only when the legal system reflects the diverse needs and values of society’s members will it be truly efficient. It is important to build a legal system that balances efficiency and fairness through social consensus.
