Irredeemable Acts, Rent Seeking, and the Limits of the Legal System: A Response to Professor Raskolnikov
In a thoughtful article in a recent issue of The Georgetown Law Journal, Professor Alex Raskolnikov made a distinction between two types of socially undesirable behavior: irredeemably inefficient acts (or “irredeemable acts”) and contingently inefficient acts. Irredeemable acts are acts that are always socially undesirable; contingently inefficient acts are acts that are sometimes undesirable but sometimes desirable. Irredeemable acts always reduce welfare, in any form and at any level, because they are “inefficient at their core.” Theft of money, for instance, never creates a surplus because it is essentially a zero-sum exchange that becomes negative-sum as soon as there are transaction costs. Contingently inefficient acts, on the other hand, may or may not be socially undesirable depending on the magnitude of costs that need to be balanced. Pollution, for instance, is socially harmful when its costs exceed the benefits of the polluting activity, but socially desirable when the pollution costs are relatively small compared to the benefits. Therefore, we cannot say categorically that pollution is always bad; there is such a thing as “good pollution” too. Similarly, speeding can be bad for society when the accident costs outweigh the timesaving benefits, but good in the opposite situation.
In this short reaction paper, I hope to enrich Raskolnikov’s framework in three ways. First, I suggest making a further distinction between three types of contingently inefficient acts—those that can be cured by telling the actor what to do (for instance, through due care rules), those that can be cured by letting the actor internalize the harm (for instance, through corrective taxes for pollution), and those that are too hard to cure and therefore given up on by the legal system (for instance, by simply permitting advertising even though it may be wasteful in some cases). Second, I want to go deeper into a topic briefly raised by Raskolnikov—the relationship between irredeemable acts and rent-seeking behavior. And third, I want to connect the first two points by showing that rent seekers will avoid plain rent-seeking acts that are easily recognized by the legal system as irredeemable acts, and choose more disguised forms of rent seeking that may also have social benefits—in essence moving from Category I (irredeemable acts) to Category IIc (contingently inefficient acts that cannot be simply cured through harm internalization and are therefore permitted by the legal system). This way, I hope to show how “rent camouflage theory” could be integrated into Raskolnikov’s framework.
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