Law and Economics Workshop hosts Zhiyong “John” Liu, Indiana State University

21 November 2018, 16:00 - 18:00 
Room: 017 
Law and Economics Workshop

Article

 

Abstract: 

We investigate the interactions of the law’s disallowance of recovery for unrequested benefits and an actor’s incentives, at the ex ante stage, to acquire information about the harm or benefits potentially caused by his or her conduct. We analyze the impact of these interactions on the efficiency of two legal regimes: ex ante damages versus ex post damages. We show that ex post damages induce information acquisition, thus potentially leading to more efficient decision-making. However, under ex post damages, the existence of, and the prohibition of recovery for, the unrequested benefits distort the actor’s incentives of whether to acquire information and whether to engage in the activity. Taking into account the trade-off of these effects, we show that the relative efficiency of ex ante versus ex post damages depends on the size of potential unrequested benefits, and on how the ex ante damages are calculated. When the calculation of ex ante damages is based on the full distribution of potential impact that includes the unrequested benefits, the ranking of the regimes of damages assessment depends on the extent of unrequested benefits. The larger the potential unrequested benefits, the more likely ex ante damages outperform the more flexible ex post damages. In contrast, when the calculation of ex ante damages excludes the unrequested benefits, ex post damages are more efficient.

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