Abstract:

It is notoriously difficult to implement the efficiency rationale of commercial law. This Article identifies three causes: an information problem, a complexity problem, and a resource problem. Common methods of public policy analysis, such as cost benefit analysis, regulatory impact analysis and evidence-based policy even aggravate these problems, as these methods themselves require large amounts of information.

Based on the intrinsic properties of the concept of allocational efficiency and on insight from welfare economics, the author proposes a simple heuristic which enables a policy-maker to identify the legal rule (among a given set of rules) which is presumably most efficient in regulating a given fact pattern. This analysis centers on the factual assumptions, e.g., about the conduct of market participants, that need to be made in order to conclude that a particular rule is more efficient than an alternative rule.

The assumptions-based framework developed in this Article is informationally parsimonious and will at the same time mitigate the resource and the complexity problems. Moreover, the framework is not only a useful tool for policy-making, but can also inform the development of case-law and statutory interpretation in those legal fields whose only purpose is efficiency.