Opportunity, not Welfare: How Behavioral Insights Should Lead to a Reorientation of the Normative Foundation in Law and Economics

In Fairness versus Welfare (2003), Louis Kaplow and Steven Shavell provide a manifesto for normative law and economics. Therein, they spell out the foundations for contemporary law and economics based on a Paretian consequentialist welfarism and a preferentialist account of welfare. We argue in this paper that this normative program faces serious challenges from recent behavioral insights that push back against a core assumption of a preferentialist welfare analysis, i. e., that people hold context-independent, stable preferences across different legal arrangements. We suggest an alternative normative focus for law and economics that borrows from Robert Sugden's (2018) opportunity criterion, which holds that individuals have an intrinsic interest in expanding their choice sets. We make the case that opportunity, rather than welfare as preference satisfaction, is a more convincing normative standard for law and economics, as its contractarian justification takes people's broadly construed interests seriously. Moreover, it is methodologically better suited to deal with people's unstable, context-dependent preferences.