Fairness Versus Welfare: The Limits of Kaplow and Shavell’s Pareto Argument

In a series of articles and a book, Louis Kaplow and Steven Shavell (KS) articulated and defended the normative approach of standard law-and-economics. KS also argued that legal analysts should think in welfare-economic terms exclusively when advising on normative social issues of tremendous import. This thesis generated controversy within the legal academic community because it implied that numerous analysts were not doing an important part of their jobs the way that they should be doing it. One of KS's main arguments featured a very plausible version of the Pareto principle. KS claimed that their Pareto argument demonstrated that any method of policy evaluation that gives any weight to principles independently of their effect on how well-off individuals become sometimes commits the evaluator to making everyone worse off. This Article argues that KS misstated what their Pareto argument demonstrated. It also argues that KS's Pareto argument provides no independent reason to endorse any part of welfare economics and thus no independent reason to adhere exclusively to welfare-economic thinking. Additionally, the Article clarifies much of what is at stake in deciding whether to adopt an exclusively welfare-economic approach to normative legal scholarship. Finally, the Article suggests that KS's central thesis is incorrect—there is an important place at the table for forms of normative analysis that diverge from a purely welfare-economic approach.