1. Richard Posner has also attempted to put wealth maximization or benefit-cost analysis on a firm basis (Posner 1980, 1984, 1985a, 1986, 1987a, 1992a and b). In my view, Posner's attempt was unsuccessful.

2. See Zerbe and Dively's (1994, p. 274) discussion of the former practice in India of allowing condemned criminals to hire substitutes to be executed in their stead (see also Chapter 7 of this book).

3. For example, if only Pareto-superior changes were allowed, it would have been impossible to eliminate slavery in America in the nineteenth century. Eliminating slavery harmed slave owners, so the Pareto criteria would have given veto power to the slave owners.

4. In other writings Posner (for example 1981a, p. 60) is at pains to disassociate wealth maximization from utility maximization.

5. Chapter 1 mentions some of the extravagant claims made by economists. In addition, some lawyers and economists have either stated that KH efficiency is value free, or have spoken as if KH efficiency was the only important value.

6. Kahneman and Varey (1991) point out that preferences may be poorly informed and changed by experience. The issue of whether or not valuation should reflect transitory preferences or experience preferences is not considered further here.

7. Broome and I came to this conclusion independently. I discovered his valuable article as this book was being finished. I thank Fauska for bringing it to my attention. Broome (1991, p. 1) points out that the original meaning of 'utility' by Benthan and others was usefulness.

8. In a similar vein, Coase argues that 'generalizations are not likely to be helpful unless they are derived from studies of how such activities are actually carried out within different institutional frameworks. Such studies would enable us to discover which factors are important and which are not in determining the outcome and would lead to generalizations which have a solid base. They are also likely to serve another purpose, by showing us the richness of the social alternatives between which we can choose' (Coase 1974;

9. This statement is true for almost any proposition regarding economic efficiency. For example, see Posner (1986, pp. 254-259) on the issue of efficiency consequences of monopoly.

10. Kuznets (1948) pointed out an apparent circularity in the KH criteria.

11. The usual reason given for the failure to reach a first-best situation is the existence of externalities, that is effects outside the decision process. The failure to consider these external effects, however, arises because the costs of considering the effects are too great. That is, production costs, in the guise of transactions costs, limit, as costs always do, output, as Howard McCurdy and I (1999) and others have pointed out. From this perspective the so-called second-best situations are not in fact second best but are in fact first best, and the reversal paradox disappears leaving only the status quo bias.

12. Posner (1985a, pp. 86-89) points out that in economics 'wealth' is not just monetary wealth.

13. The remarks of Hewins (1911, pp. 898, 900) are instructive: 'The concept of the standard of life involves also some estimate of the efforts of and the sacrifices that people are prepared to make to obtain it; of their ideals and character, of the relative strength of the different motives which usually determine their conduct.' For an elaboration, see Zerbe and Medema (1997).

14. This, however, is not to say that 'fairness' and 'efficiency' are independent concepts. Indeed, this book advances a definition of efficiency which incorporates a standard of fairness.

15. Posner (1992b, p. 264) echoes a common theme, that 'efficiency and redistribution are antithetical.' Far from being antithetical, they are in fact the same thing. Elsewhere, however, Posner (1985a, p. 99) recognizes this.

16. Posner (1984, p. 133) suggests that courts should ignore income distribution issues because

'courts cannot do anything about the distribution of wealth.' This seems disingenuous. Courts can certainly affect the distribution narrowly. Posner (1985a, p. 104) also says, 'Given the absence of anything approaching a consensus on the optimum distribution of wealth, however, it is very hard to see how courts could adopt a redistributive ethic to guide their decisions.' A consensus on the optimum distribution of wealth is unnecessary to justify a redistributive ethic. All that is required is agreement that, at the margin, gains to the poor are worth a modest extra consideration. This seems best applied however in benefit-cost analysis proper or, as Posner (1985a, pp. 104-105) notes, in actions by the legislature and not by the courts. Polinsky (1989, p. 122) notes that it is usually not possible for courts to redistribute income in contract or product liability disputes, whereas legal rules can always redistribute income in disputes between strangers.

17. The importance of the issue of the regard for others and in particular the distribution of resources in the context of differences between native Americans and other Americans is discussed by Malloy (1992, pp. 1624f).

18. E. O. Wilson (1998) appears to have recently adopted this view as well.

19. Had this been recognized earlier, Stigler's (1982, p. 13) lament might have been unnecessary:

I come to the error of my ways, and indeed of economists' ways generally. We expect the society eventually to believe our case for free trade ... The disapproval [of these policies] by economists, however, is uninformed. It is uninformed with respect to the reason that the disapproved policies are adopted - uninformed with respect to what the operative political desires of the community are. Clever economists have displayed an obtuseness in this matter that is difficult to believe. They will say, not year after year but generation after generation: 'Parliament, do you not realize that free trade will increase the national income.' As if the Parliament did not know this.

20. Economists usually discuss altruism as a positive interdependent utility function. Posner (1992b, p. 464) notes that 'the major cost of poverty is the disutility it imposes on affluent altruists.'

21. The regard for others may, of course, reflect negative emotions as well. For example, it may involve envy (Posner 1992b, pp. 264, 461n, 467). One might argue that the extent of positive regard for others is, in fact, one of the desirable qualities of civilization and, in part, can be a consequence of growth in income.

22. See also David Cheal (1988), Carol Rose (1992), and Richard Titmuss (1971), for evidence of altruistic behavior.

23. Lothrop (1986, p. 535) notes that 'cost-benefit analysis is generally blind to legal rights'.

24. First, the traditional KH tests ignore transactions costs and transfer costs. Therefore, even if a project passes the KH tests, it might not be possible to compensate the losers and retain a net benefit. Second, in many cases the government may not even attempt to compensate all of the parties who are harmed by the project. The fact that the government could compensate the injured people is unlikely to make them feel better if the government refuses to compensate them.

25. Posner has advanced a consent justification for wealth maximization, but since he proposes what is not the case, namely actual consent, his justification serves merely to invite easily made attacks (for example, Coleman 1980).

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