Criticism #1: Normative economic analysis often excludes important variables.

All too often, wealth-maximization studies, it is commonly said, are "simplistic." Such studies leave out too many things -- things that even economists would agree must be included in the calculus.

Here, for example, are a few factors excluded from Landes' and Posner's analysis of premises liabilty:

• Insurance. For the reasons sketched in the module on Accident Law, insurance is often economically advantageous, because it prevents losses from being concentrated on few persons. [### link to Shavell's discussion of diminishing marginal utility of wealth and offsetting transaction costs] However, some insurance systems may distort the ways in which the insured parties respond to risks. Are trespassers or landowners more likely to obtain insurance against injuries sustained on private land? To what extent would those insurance options lead to "moral hazards"?
• Costs of informing the public. The system of incentives sketched by Landes and Posner can only work if the affected parties know what the rules are. A wealth-maximization analysis thus must take into account the costs of informing them. Generally speaking, those costs increase with (i) the complexity of the rules; (ii) the extent to which the rules deviate from peoples' expectations concerning what a "fair" legal regime would provide.
• Externalities. The costs associated with a rule that leaves injured trespassers uncompensated must include such things as the emotional injuries sustained by fellow citizens who are exposed to "human-interest" stories documenting the resultant hardship. The costs associated with a rule that compels landowners to pay for injuries to trespassers must include such things as the emotional injuries sustained by fellow citizens offended by the prospect of compelling innocent property holders to compensate "criminals." Landes and Posner fail to consider either effect.

Suppose that we did take factors of these sorts into account. What, then, would be the most efficient legal rule? It is extremely difficult to say. At a minimum, we would need a great deal of information. It is thus not surprising that economic analysts, eager to make firm recommendations to lawmakers but lacking the data necessary to include all relevant factors in their calculus, exclude such things from their purview.

Rebuttal.