Utilitarianism and Economic Analysis of Law

Jeremy Bentham
Jeremy Bentham was an English philosopher, law reformer and political economist and the
earliest expounder of Utilitarianism.

Jeremy Bentham is Against Natural Law

Bentham believes that law is not formed based on “natural law”, but is formed based on the
will of the sovereign. There is no such thing as natural law or natural rights. This is because
rights are created by law and law is simply the command of sovereign.

Jeremy Bentham is against Common Law

Bentham believes that common law is confused in theory since ordinary citizens could not
understand the technical language that was used by the court and judges. Also, common law
is dangerous in practice. This is because common law provides exclusive domain for the
professional elite such as lawyers and judges that often obscure and technical language to
keep the law shrouded in mystery in the point of citizens. Furthermore, common law is
incapable of being law in the fullest sense. This is because common law develops legal
doctrine from case-to-case basis. There are no strict guidelines on how such law guides the
conduct of citizens.

Jeremy Bentham proposed codification of law

Accompanied with the disbelieve of common law, Jeremy Bentham proposed the idea to
codify common law in a written form to the English Parliament. However, his idea was
rejected in the UK but the parliament allowed him to try an experiment in UK colonies. As a
result, Bentham idea of codification of law had gave birth to various codified English
common law in British Colonies. For example, India Contracts Act, Penal Code etc.

Utilitarianism
Utilitarianism before Jeremy Bentham
The core insight motivating the theory of Utilitarianism occurred much earlier before Jeremy
Bentham. This could be seen in 1751, where David Hume in his An Enquiry Concerning the
principles of Morals wrote that to determine morality, the circumstance of public utility
(public happiness) must be taken as a principle view.

Jeremy Bentham’s Utilitarianism

Even though there were a few scholars that had mentioned Utilitarianism before Bentham,
however Bentham was the first to utilized the ideas of utility in a concrete and usable way in
the book An Introduction to the Principles of Morals and Legislation published 1789. In his
book, he defined the ‘principle of utility’ as a principle that approves or disapprove any
action by observing whether such action will promote happiness or diminishes the happiness.
Hypothetically, utility could be measured by the summation of happiness and pain. While
happiness will increase the utility and pain will decrease the utility.
Unlike sociologist, Bentham doesn’t believe that a society exist. He opines that there is no
such thing as society or community. A society is only a fictitious body which composed by
the summation of the happiness or pain of individuals. It is wrong to determine the utility of
the whole community as a whole. Instead, the utility of the community should be the
summation of individual utility in the community. This principle that the individual as the
unit of measurement for utility is sometime known as methodological individualism.
Therefore, when a government intended to release a policy enact a new legislation, they must
maximise their utility by observing the members of community greatest happiness of the
greatest number of members as mentioned by Jeremy Bentham in A Fragment on
Government (1776).

Jeremy Bentham idea of Utilitarianism and Morality

Jeremy Bentham opines in building a legal system or enacting a legislation, it should depend
the concept of utility instead of morality. This is because morality is very subjective, every
person had different perspective on morality, especially when morality often relates with
religion, with education, and with personal values. If such law was made based on morality
only, the law might be controversial. On the other hand, if law was made based with the
objective to increase individual’s utility the law could be more efficient. Take killing under
criminal law as an example. If a person killed another person, there will be ‘pain’ in the
society and the utility of the community is low. This is because people of the community will
live in fear of losing their life. In order to solve this, law makers could criminalised murder
by imposing heavy consequences. With these consequences, those who intended to do any
criminal act will be discouraged. As a result, the enactment of law would increase back the
happiness of the community since they could live in a society where there is less risk of
criminal act.

How to measure utility

In the book, Introduction to the Principles of Morals and Legislation, Bentham uses
‘felicific calculus’ to measure utility hypothetically. The level of happiness and pain could
be determined according to 7 circumstances. First the intensity of such happiness or pain,
whether the effect of the action is strong that will affect the livelihood of a person, or it is
merely a slight influences; Second, the duration of such happiness or pain; Third, the
probability that such happiness or pain will happen, whether it is certain or uncertain; Forth,
the propinquity or remoteness of the action resulted in happiness or pain; Fifth, the
fecundity, or the chance that the happiness will persist and result in extra happiness or will
the pain persist and result in more pain; Sixth, the purity, or the chance that the happiness
will change to pain, or pain change to happiness. Seventh, the number of people whom are
affected by the action.

Modern Interpretation of Utilitarianism

When the ides of Utilitarianism developed, modern economists were in the view that
Bentham’s idea of Utilitarianism is only hypothetical. This is because the level of happiness
and pain of a person could not be compared by calculation and scale. It is impossible to fix a
watermark for human emotion such as happiness or pain provided that human emotions had
different intensity and people view happiness and pain differently. Therefore, Modern
Economist do not believe that ‘interpersonal utility comparison’ is possible, since utility of
different individuals could not be compared.
However, utility could be compared if it involves only a single individual. This could be
done by observing the choice of the single individual on 2 objects. For example, A gives B a
banana and an apple. If B chooses banana, but not apple. This shows that in B’s view, the
utility banana provides is greater than apple. Also, since B had given out the apple, this
shows that apple provides less utility than the banana.
This idea of choosing between 2 products within a single individual can be further developed
into an exchange between 2 products between different individual. These 2 ideas are similar.
Now, A has 6 apples while B has 6 bananas. A will chooses to give up 2 of his apples to
exchange with 2 of B’s bananas. This is because from A’s perspective since she had no
bananas, giving out 2 apples to exchange with 2 bananas will increase her utility. While from
B’s perspective since he had no apples, giving out 2 bananas to exchange with apples will
increase his utility. Therefore, this shows that exchanges between parties will make both
party better off and resulted in the increase of joint utility of both A and B. This idea shows
the basis of contract law, while A and B being the party of the contract, while apples
represents the promise and B refers to the consideration.

Efficiency
The concept of efficiency could be traced back to the Jeremy’s Bentham’s idea of greatest
happiness of the greatest number in A Fragment on Government. In Bentham’s view, an
action of government or law is the most efficient when there it reaches the greatest
happiness (utility) and the greatest number (community). Based on the Bentham’s
foundation of what is efficient, subsequent economists developed and recognised two forms
of efficiency.
The first is Pareto Efficiency. Pareto efficiency describes the most efficient point as a point
where no party can be made better off without making someone worse off. For example, A
had a bundle of apples while B had a bundle of bananas. When A and B exchange, A will
give up a number of his apple to exchange with B’s bananas, until it reaches one point where
A had enough bananas and apples and B had enough bananas and apples. This point is known
as a Pareto efficient point, where A and B will not be any better off by exchanging. A will no
longer want to give up any apple since giving out one more will decrease his utility and B
will not give up any bananas as well. At the point of Pareto efficiency, both parties will reach
the maximum utility.
The second is Kaldor-Hicks efficiency. Kaldor-Hicks efficiency is similar with Pareto
Efficiency where both parties had reached their maximum utility. However, based on Kaldor-
Hicks, improvement can exist when the increase in utility of a person outweighs the decrease
in utility of another person. However, this approach might violate the idea of non-
interpersonal utility principle where the utility between individuals could not be compared.
For example, taxes are considered as a Kaldor-Hicks improvement. The idea of taxes is that
the more an individual earns, the more taxes he will pay. As a result, the tax money by the
rich will be used as a financial aid to the poor. This is considered as an example of Kaldor-
Hicks efficiency since for the rich to pay RM1000 taxes, it might be a decrease in utility for
the rich, but the increase in utility the poor could get far outweighs such decrease. For the
rich, RM 1000 might be a small number, but for the poor, the RM 1000 could provide for a
week of food aid for few families in order for them to survive. The next example of Kaldor-
Hicks efficiency is to make heavy vehicles compulsory to turn install a back profile
lighting. On one hand, installing back profile lighting might be a decrease of utility of the
driver since, the driver must pay to install the back profile lighting. But on the other hand,
opening warning lights will increase the utility of other road users since it helps them to have
a better visual on the heavy vehicles and as a result decreases the likelihood of accident. The
increase of utility by all road user’s safety on the road far outweighs the decrease of utility of
the driver of heavy vehicle.
To determine the whether such Kaldor-Hicks efficiency is efficient, one could analyse the
policy with a cost-benefit analysis. A cost-benefit analysis is an approach to analyse policy
to ensure the benefit gained by the policy outweigh the cost of the policy. Cost and benefits
here refers to both monetary and non-monetary point of view. Taking the previous example
of policy that makes it compulsory for heavy vehicle to open warning lights. On one hand,
the cost of installing lights may cost the heavy vehicle driver a few hundred ringgit. On the
other hand, the benefit of such policy is that accident on the road could be reduced and lives
of road users could be saved with less accident. Therefore, it could be concluded that such
policy is Kaldor-Hicks Efficient. This idea of cost-benefit analysis is also a modernised
version of Bentham’s idea of Utilitarianism, whereby the pain refers to the cost while
happiness refers to the benefits.

Bentham’s influence on Economic Analysis of Law

Torts law (Negligence rule and Strict liability rule)
Jeremy Bentham principle of utility also becomes the foundation stone for the economics of
the non-market behaviour, such as local law. For instance, Bentham’s idea of utility had
influence the development of Torts Law. The economic analysis of Tort Law could be seen in
one of the field under Tort law, the negligence rule and strict liability rule.
Under strict liability rule, the tortfeasor will always have to pay compensation to the victim,
regardless of the level of care the tortfeasor had actually taken and regardless whether the
tortfeasor had done any fault. However, the victim under strict liability rule will only have to
merely incur his personal cost because he will always be compensated under strict liability
rule. As a result, a victim will take no care or precautions since he knew that all the cost will
be borne by the tortfeasor. For instance, if the strict liability rule were to applied on driver
and pedestrian on the road, where the driver will have born all the cost of accident and pay
compensation to the pedestrian, this will result in a problem of moral hazard. For example,
pedestrian will simple cross the road without looking left and right, or cross the road
recklessly this is because the pedestrian knew from the beginning that the cost of accident
was not bound by him, but the driver.
However, on negligence rule, the cost will be borne by the party who conducted the
negligent act. Therefore, it gives both the tortfeasor and victim the incentive to take optimal
level of care. This is because tortfeasor will always take reasonable level of care to the people
round him to avoid paying damages under the negligence rule. The tortfeasor will always
take optimal level of care to minimise his cost. On the other hand, the victim will also take
optimal care in order to minimise the cost of accident. Therefore, knowing that the victim
himself will also take some sort of care he will not act recklessly. For example, the
application of negligence rule for the driver and pedestrian on the road. A driver on the road
will always take reasonable care to the other drivers on the road, in order not to pay
compensation in the event of any accident to other drivers, also to reduce his cost to drive on
the road. While for the pedestrian in order to prevent the cost of accident, he will also choose
to take optimal level of care to minimise the cost of accident.
With the usage of economic analysis, we could conclude that in accident law, negligent rule
is a better rule compare to the strict liability rule.

Modelling criminal sanctions using cost-benefits model

The general idea of Bentham modelling criminal sanctions is based on a principle which is
“the function of a punishment is to make a crime not profitable”. The cost-benefits
model aimed to make crime not profitable for criminals by putting the cost of conducting a
crime slightly higher than the benefit of conducting the crime. As a result, no rational
criminal will commit the crime since conducted the crime itself doesn’t benefit but it costs.
Therefore, criminals would be discouraged violate the laws.
When criminals carry out crimes, the criminal will consider 2 things. First, the severity of
punishment. Second, the possibility of being caught if he does the crime. The main idea of
Bentham modelling criminal sanctions is built in a situation if expected value of punishment
is higher than the value of committing the crime, then criminals will less likely to commit the
crime since it is not profitable. For example, in parking regulations. When a person wanted to
take risk not to put up a coupon, he will have to consider the expected value of punishment.
He needs to make a risk analysis on whether to choose to save the price of buying a coupon
considering the probability of being caught or to pay the fine. If the fine for not parking is
very cheap, or the risk of being caught was very low, the expected value of crime is lower
than the value of committing the crime (paying fine), then the community will choose not to
buy a coupon. For example, buying a coupon costs RM 1 and the fine for not paying coupon
is RM 10. The probability of him getting caught not paying is only 5%. By conducting a risk
analysis, the expected value of punishment is only RM 0.5. (this amount could be found by
RM 10 x 5%). Compare the benefit of committing the crime which is RM 1, and the expected
value of punishment is RM 0.50, people will choose to commit the crime of not putting the
coupon. However, if the probability of him getting caught is 100%, the expected value of
punishment will increase to RM 10. Comparing this with the benefit of the crime RM 1 a
rational criminal will not conduct the crime.

Economic Analysis of Law

The central criterion of ‘law and economics’ or economics analysis of law’ as a
jurisprudential approach is that laws should lead to efficient use of resources. This idea of
efficient usage of source could be traced back to the idea of Utilitarianism proposed by
Bentham where utility could be determined by the happiness and the pain of individuals. In
the context of modern economic analysis of law, the term happiness was replaced by
benefit, while pain replaced by costs.
The idea of economic analysis of law, were the most influential jurisprudence school in the
United States. This could be seen in a statement made by Kronman in 1995 where he makes
a remark that the law and economics movement was and continue to be an enormous force in
American legal thought.
Economic Analysis of Law could be done in both positively and normatively. In the positive
way, individual could make use of economic analysis of law to describe why the law is or is
not efficient. For example, a law could be analyse economically with Jeremy Bentham’s idea
of greatest happiness in the greatest number. While in a normative manner, an individual
could determine which law that the society ought to have by looking into their efficiency.

Coase Theorem
With the effect of Bentham’s idea of ‘Utilitarianism’, law and economics scholars believe
that laws should be made in a way that achieve efficiency in society. However, to achieve
absolute efficiency is impossible since there are too many factors involve that will affect the
effectiveness of the law.
Therefore, to bring the society a step closer to an efficient law, Ronald H Coase proposed the
idea of Coase Theorem. In simple terms, the Coase Theorem means when the transaction
cost is zero, and property rights are clearly defined, then the final use or allocation of
property rights is efficient and is the same regardless of the initial allocation of property
rights.
From the rephrase statement, it showed two conditions and two consequences for the Coase
Theorem.
The two conditions are the zero transaction and clearly defined property rights. The
fulfilment of these two conditions enables the negotiation to take place, and the negotiation
led to the two consequences. The first consequence is the final use or allocation of property
rights is efficient while the second consequence is the efficient outcome is the same
regardless of the initial allocation of property rights.
Zero Transaction Cost
Firstly, transaction cost was defined by Coase in his paper The Problem of Social Cost a type
of barrier that prevents 2 parties from entering into a contract. For example, negotiation,
searching, information and strategic behaviour etc. He further elaborated on the downside of
these transaction cost where they are extremely costly and sufficient enough at any rate to
prevent many transactions that would be carried out in a world which there is no transaction
cost.
However, in the real world, there will never be zero transaction costs, all the negotiations,
identifying terms, drafting of contract takes time, skills and knowledge. Therefore, in order to
reach an efficient outcome in a world where there are no zero-transaction costs, the party can
choose to lower the transaction cost. There are several ways to lower a transaction cost. For
example, under contract law, parties of contract could lower down the transaction cost by
drafting, interpreting and enforcing contract to ensure that the parties perform what they had
agreed in the contract. As a result, the party can cut down their time to argue on certain issue,
since it had been agreed in first hand. Also, intellectual property right lower down the
transaction cost of identifying the ownership of such property.
Clearly defined property rights
One of the way to lower a transaction cost is by clearly defining property rights. The law that
is use to define property rights must be clear and stringent in the sense that it is clear on
who has the property rights and the what are the boundary of the property rights. With the
clear and stringent definition of property rights, disputes can only bring to the court if the law
is not clear; if the laws is clear on whether the plaintiff or the defendant should have the
rights, then there is no point of arguing it in the court. Alternatively, instead of filing a suit
that increases the transaction cost, lawyers will tell the parties to negotiate among themselves
to reach an efficient outcome. As a result, transaction cost is reduced.

Consequences
This shows that if the ownership and boundary of property rights is allocated clearly, and
transaction cost is low, negotiations could be taken place and the parties is able to bargain. As
a result, with the bargain between parties, the final use or allocation of property rights will
be efficient. Also, if ownership and boundary of property rights is allocated clearly, and
transaction cost is low initial allocation of the rights does not really matter. This is because
the outcome of the decision is the same regardless of the parties who had the property rights,
the important aspect is for parties to negotiate. This negotiation will enable them to come to
settlement and arrangement which will maximise the utility of society.
Proof of Coase Theorem
This could be seen in Sturges v Bridgman case. In this case, Dr Sturges moved next door to a
confectioner Bridgman who had produced sweets in his kitchen for many years. Later, Dr
Sturges constructed a small consultation room beside the Bridgman’s kitchen. However, the
machine in the Bridgman’s kitchen is very noisy, and make the consultation room not usable.
Doctor Sturges file a nuisance charge against Bridgman. Bridgman counter claim that the
Doctor Sturges is the one that came to the nuisance since his kitchen had already been there
for many years. In deciding this case, the court held that there was a nuisance conducted by
Bridgman. The fact that the doctor had moved to the nuisance was not a defence of the
nuisance itself.
There are 3 possible options to overcome this problem.
Options Costs
Sturges ceases his medical practice £100,000
Build an abatement wall £10,000
Bridgman ceases his confectionery business £50,000
Analysing this case with the Coase Theorem, if the property rights for quite enjoyment of the
land belongs to Bridgman, Bridgman had 3 options. First, he can ask Sturges to stop his
medical practice that cause £100,000. Second, he can ask Sturges to pay him £50,000 to stop
his confectionary business, Third, Bridgman can ask Sturges to pay for the building for
abatement wall for £10,000. Needless to say, a rational man would go for the third choice.
The same applies to Dr Sturges. If in this case, the property rights for quite enjoyment of the
land belongs to Dr Sturges, he also had the same 3 options. First, he can ask Bridgman to pay
him £100,000 for his to stop his medical practice. Second, he can ask Bridgman to stop his
confectionery business that cost £50,000. Third, Dr Sturges can ask Bridgman to pay for the
building an abatement wall for £10,000. Needless to say, a rational man would go for the
third choice.
This explains the Coase Theorem where regardless whether the property rights were granted
to Dr Sturges or Bridgman, the solution still remains the same, which is the most efficient
way. This prove the Coase Theorem idea where regardless of the initial allocation of property
rights, the outcome is still independent.
This applies the same even if there is no third option to build an abatement wall. If the
property rights were granted to Bridgman, Sturges would give an amount of £50,000 to
Bridgman to stop his confectionery business instead of sacrificing his medical practice for
£100,000. If the property rights were granted to Sturges, Bridgman would sacrifice his
business that costs £50,000 instead of paying Bridgman £100,000 to stop his business. The
final allocation of property still remains the same regardless of the initial allocation of the
property, which is to stop Bridgman confectionery business and remains Sturges’s medical
practice. This is the most efficient way to solve this problem.

Other Economic analysis of law that correct market failure

(Each of this economic analysis is a separate chapter in “Law and Economics” which carries
around 10-20 pages per chapter. But he only speaks for 10 minutes for these 6 economic
analysis. I only include what he mentioned in class only, if you want to suffer yourself to read
pm me or tony to get individual notes for this other economics analysis of law)
Another important function of law from an economic point of view is to correct market
failures. Market failure is defined as an inefficient economic situation where there is
inefficient distribution of goods and services in the free market. Economist had classified
those market failures into 6 categories, namely, Negative Externality, Public goods,
Market Power, Asymmetric information, Principle-Agent problem and Behavioural
Market.
Negative externality
Negative Externalities is defined as the imposition of a cost on a third party as a
consequences of an action done by the producer. For example, smoking creates negative
externalities. When the smoker (producer) smokes, it will release second hand smoke on the
people around him (third party). As a result, the second hand smoke will create a cost to his
surrounding people and increase their chances of getting lung cancer.
 Public goods
Positive Externality is the reverse of negative externality whereby it can be defined as benefit
enjoyed by a third party through the action of another person, without that third party’s prior
consent or inducement. For example, your neighbour plants a nice garden beside your house
and you can fresh air from it, and provide a nice view to your taman. Here, the garden brings
some benefits to you, without your prior consent or inducement. Therefore, it can be said as a
form of positive externality.
However public goods are non-rivalry in consumption and non-excludable. Non-rivalry in
consumption means that the goods can be used with unlimited number of people, for
unlimited times, without degradation in quality or reduction in quantity. Non-excludable
means once information is being released or made available to the public, it is impossible and
extremely hard to make the non-payers or others from having access to it or excluded from
enjoying the benefits, or to compel them to voluntarily pay for it.
As a result, because of the characteristic of public goods, it leads to a problem of ‘free-riding’
where the non-payers enjoy the same information without paying for its cost whereas others
may have to pay for the same. Eventually, this difficulty of exclusion or problem of ‘free-
riding’ will cause market failure.
For example, a Criminal law textbook costs RM 300 in the market. This RM 300 comprises
of effort and knowledge of the author. However, when someone goes to photocopy it, it only
cost RM 20 or even lower than such price since the printing shop merely have to pay for its
electricity, ink and paper cost. If everyone only has to pay RM 20 for a photocopied book,
then no one will be going to buy for the original textbook and thus, it directly causes lower
income to its author and eventually lead to market failure since no one will willing to work so
hard in doing a new creation with high fixed cost and get no benefit in return.
Market Power
When a company have too much of market power, it will lead to a problem of Monopoly.
Monopoly is defined as is defined as a market with only one seller or producer in a market.
There is no competition in the market and the producer as the price maker may sell the
product at the price they want. To solve this problem, parliament may limit the duration of
protection of copyright and patent. Limit the level of protection until certain level. Protection
given is not to absolute. Next, allow more consumers in the market, by cancelling license
system. Removing regulations that limits producer in the market.
Asymmetric information
Asymmetric information happens when two parties to a transaction have difference in the
levels of information regarding the object of trade. It could happen in both ways, either the
producer had more information of the product than the consumer or the consumer have more
information of product than the producer.
For example, in the market of used cars, the seller had more information than the buyer on
the condition of second-hand car. As a result, the seller might misuse his position to cheat the
buyer on the condition of the car and induce him to buy the car and resulted in market failure.
To solve this, Section 5 of Trade Description Act 2011 makes it an offence for person who
applies false trade description to any goods.
The other example is in insurance, where the consumers have more information about their
risk than the producer who were required to bear the risk. To solve this, the insurance
company may make it compulsory for the consumer to conduct a health check before signing
the insurance. If the purchaser had a very high risk of health, the insurance company may sell
a premium based on the correct risk of that consumer.
Principle-Agent problem
Principal-agent problem occurs when the owner of the property rights or final bearer of
cost/risk (principal) is different from the user or decision maker of that property rights
(agent). The problem of principle-agent problem could be seen in a relationship between
employer and employee. For example, the use of the office printer in any firm. If an
employee is writing a memo at home using his own printer, printer ink, and paper stock, he
might do more editing on the computer screen and conserve the printing costs. In contrast, at
work, there is no private cost, and so he might misuse the resources given by the employer.
The extra printing that he does at work constitutes an agency problem. In this context, the
employee is the agent, and the employer is the principal.
Behavioural Market failure
Consumer behaviour are not rational at all times. This is because consumers process
information in a limited context, since he had no unlimited capacity to understand everything.
Therefore, law will come in place to intervene to correct the behaviour of the producer or
consumer. For example, rules and regulations in a product are often written in a difficult and
complex wording, in a small font, at the bottom of page which is not visible. Therefore, law
can come into place to make it mandatory for the producer to write down their rules and
regulations in easy and short wordings, in a visible manner to help consumer to understand
the product better before they pay. For example, corporate finance report that reports a
company financial performance is done in a standardise way to help consumer to understand
better the operation of company before they make a decision to invest in the company or not.

Wealth Maximisation
The general idea of economic analysis of law is based on the idea of Bentham of ‘principle of
utility’ where the utility of individuals is determined by their happiness and pain. Also to
reach efficiency, one must lower the cost and maximise the benefit.
However, Richard A. Posner view economic analysis of law differently. Instead of talking
utility as a measurement, one should strive to maximise wealth as a measure of efficiency.
The advantage of wealth maximisation instead of utility maximisation is that the former is a
more objective and tangible measure compared to Utility that is intangible and not
comparable. For example, when judges make decisions, they will make their decision that
could maximise the wealth, instead of reducing the wealth between the 2 parties in dispute.
This is a more plausible way than utility maximisation since utility is not observable, but the
costs and benefits of decisions are more intuitively ascertainable. The disadvantage of wealth
maximisation is the marginal of utility of money is different for each individual. For example,
a same RM 100 may give different satisfaction to a rich and a poor people. By not looking at
the utility behind the money but only looking at the value itself, such economic analysis is
not accurate.

Efficient Common Law Hypothesis

Richard A. Posner made the observation in his book Economic Analysis of Law that the
common law appears to be efficient. This principle is also known as Efficient Common Law
hypothesis. There are several reasons why common law is efficient. First, inefficient rules are
neglected and efficient rules will survive. This is because inefficient rules are discussed more
frequently by judges and are eventually overturned by appeal courts. On the other hand,
efficient rules are likely to survive through the process of precedence. Second, common law
rules are developed by stare decisis which involves large number of judges, therefore a
common law will not be tampered by the decision of single judge. Third, a common law is
efficient as it could be developed easily. This is because it is difficult to amend inefficient
laws in legislation, but judges may easily modify inefficient doctrines in common law.