The Logical Fallacy in Cost-Benefit Analysis and Law & Economics

David Ellerman ()
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David Ellerman: University of Ljubljana

Chapter Chapter 7 in Putting Jurisprudence Back Into Economics, 2021, pp 131-140 from Springer

Abstract: Abstract Cost-benefit analysis and wealth-maximization Law & Economics are both based on the Kaldor-Hicks (KH) principle that was developed to bypass the usual notion of a Pareto superior change. In this chapter, the KH principle is shown to be based on a logical fallacy that, in a different context, Paul Samuelson illustrated as the ‘same-yardstick fallacy.’ The same-yardstick fallacy is illustrated here using the primary pedagogical example in David D. Friedman’s Law & Economics primer, Law’s Order: What Economics has to do with Law and why it matters. When the applications of cost-benefit analysis or Law & Economics are reformulated so they don’t involve the same-yardstick fallacy, then the KH principle just collapses back to the notion of Pareto superior change that the KH principle was designed to avoid. Thus the attempt of Law & Economics to put some alleged jurisprudence back into economics is shown to rest on a logical fallacy.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-76096-0_7

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DOI: 10.1007/978-3-030-76096-0_7

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