Tuesday, January 9, 2007

Lewinsohn-Zamir on Redistribution Through Private Law

Daphna Lewinsohn-Zamir (Hebrew University) has posted In Defense of Redistribution Through Private Law on SSRN.  Here's the abstract:

An ongoing debate has centered on whether redistribution should be attained solely through taxes and transfer payments, or also via the private law. The most powerful argument against redistribution through private law is grounded on economic considerations. Accordingly, legal rules are more costly and less effective at redistributing welfare than the tax-and-transfer alternative.

This Article offers a general and principled defense of redistribution through private law rules. The economic argument against such rules is based on a simplistic consequentialist theory; one that confines welfare promotion to the satisfaction of people's actual preferences, and disregards the positive or negative effects of the method which generated the redistributive outcome. The Article develops a more plausible consequentialist theory, which adopts an objective approach to welfare, and considers the impact of redistribution methods on the goodness of the resulting outcomes. Through the lens of the alternative theory, private law rules fare very well and enjoy advantages that taxes and transfer payments lack. Indeed, reallocation of a smaller quantity of goods through private law advances well-being to a greater extent than the same (or even larger) amount generated via taxes and transfer payments. This conclusion is supported by behavioral studies as well.

The Article demonstrates the greater desirability of redistributive private law rules in a few contexts, including Landlord and Tenant Law and Family Property. It also illustrates the advantages of private law in comparison to “intermediate” schemes, in which only one side of the redistribution (the taking or the giving) is executed through legal rules, while the other is attained via taxes or monetary transfers: the voucher system and rules of compensation for property takings.

Ben Barros

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