Cooter and Porat, ‘Disgorgement for Accidents’

Abstract:
Under the usual tort rules, damages for an accident equal the victim’s loss (compensation), and damages for an intentional wrong equal the injurer’s gain (disgorgement). This paper departs from current law by advocating disgorgement damages for accidents (DDA). When damages disgorge perfectly for accidents, injurers do not expect to gain or lose from untaken precautions. DDA, consequently, is the smallest liability that deters deficient care against accidents. We distinguish three forms of DDA with the same incentive effects (“equivalence theorem”). Given equivalent effects, a court can use the form of DDA that fits information available to it. Minimally deterring damages often have advantages over compensatory damages, including measurability, preserving victims’ incentives for precaution, reducing over-deterrence from uncertainty, and increasing the level of activities that generate positive externalities. We discuss specific examples of court cases where DDA has compelling advantages over compensatory damages.

Cooter, Robert D and Porat, Ariel, Disgorgement for Accidents (May 27, 2014). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No 688.

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