Inequality Snowballing

International Review of Law & Economics 2024

27 Pages Posted: 12 Feb 2019 Last revised: 14 Feb 2024

See all articles by Zachary D. Liscow

Zachary D. Liscow

Yale University - Law School

Daniel Giraldo Paez

Yale University, Law School, Students

Date Written: August 29, 2019

Abstract

It has long been argued that efficient policies tend to provide larger legal entitlements to the rich than to the poor. This article shows how efficient legal rules can become even more skewed against the poor over time by sowing the seeds of their own vicious cycles. Repeated application over time of these rules can lead to increasingly adverse outcomes for the poor, which the article calls ‘‘policy snowballing’’.

Consider a set of polluters choosing between locating in places with rich versus poor people and facing a strict liability rule for harm to earnings. Polluters will disproportionately locate in the poor area, where they face lower damages. That disproportionate share of polluters in the poor area can make it cheaper to harm the poor in the next period, making subsequent polluters locate yet more disproportionately in poor neighborhoods, driving down the poor’s earnings further. And so on.

We identify the conditions for snowballing and explore its dynamics. When compensation for the harm is incomplete, policy snowballing can lead to spiraling income inequality. As a result, government transfers to the poor to compensate for the change in legal regime would be inadequate if calculated in a way that ignores the snowballing. The article raises the intriguing prospect that legal rules could generate state dependence in the legal costs of harm, and that efficient policymaking could be a contributing factor to increasing inequality over time.

Keywords: economic inequality; torts; dynamics; efficiency

Suggested Citation

Liscow, Zachary D. and Giraldo Paez, Daniel, Inequality Snowballing (August 29, 2019). International Review of Law & Economics 2024, Available at SSRN: https://ssrn.com/abstract=3327460 or http://dx.doi.org/10.2139/ssrn.3327460

Zachary D. Liscow (Contact Author)

Yale University - Law School ( email )

127 Wall St.
New Haven, CT 06511
United States

Daniel Giraldo Paez

Yale University, Law School, Students ( email )

127 Wall Street
New Haven, CT 06511
United States

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