The alternative approach to maximizing social welfare

Victor Dorokhin

Chapter 4 in Law, Morality and Economics, 2026, pp 162-215 from Edward Elgar Publishing

Abstract: This chapter presents an alternative to Richard Posner's theory of wealth maximization, drawing from the Austrian school's theory of catallactic efficiency, the concept of moral costs, and ethical jurisprudence rooted in the works of Leon Petrażycki and John Finnis. It begins by criticizing the utilitarian and neoclassical underpinnings of Posner's framework, particularly its neglect of non-monetizable values, the fiction of ex ante consent, and its insensitivity to questions of fairness and initial entitlements. In contrast, the Austrian tradition rejects the objective measurement of social costs, emphasizing individual subjectivity, local knowledge, and clear property rights as foundations of legal order. The chapter introduces the concept of moral costs—the inner psychological and empathic burdens arising from unjust or opportunistic transactions—which standard economic models fail to capture. It proposes that minimizing both transaction and moral costs should become the normative aim of legal institutions. Drawing on Rawls's Difference Principle, the chapter further argues that legal and economic reasoning must incorporate a distributive priority for the least advantaged, even within frameworks of decentralized decision-making. The final section explores the principle of mutual legal recognition as a norm grounded in social cognition, moral imagination, and neurobiological foundations. This principle is presented as a viable legal alternative that fosters reciprocity, institutional legitimacy, and distributive fairness in a post-utilitarian legal environment.

Keywords: Austrian school; Economic analysis of law; John Rawls; Legal policy; Moral costs; Richard Posner (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035379491
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