Liability for Harm or Restitution for Benefit?

Abstract

THE choice between liability (negative incentive) rules and restitution (positive incentive) rules presupposes important judgments about the distribution and protection of entitlements. This paper uses economic theory to provide a systematic framework for analyzing these fundamental entitlement issues in law and political philosophy. It develops a model that enables us to answer a wide array of questions, such as, Why do ordinary economic markets tend to rely on positive incentives (the carrot), while governments tend to rely on coercion (the stick)? Should the owner of a natural lake be liable for damage to a downstream homeowner if the lake owner does not build a dam to prevent flooding, or should the downstream homeowner be liable to the owner of the lake for the benefit of building the dam? Should a passerby be liable to another person lying unconscious on a railroad track for nonrescue, or should the unconscious person be liable for being rescued? If coastal land is rezoned so that development can no longer take place, should the owner of the land be compensated for diminished value? Should a polluter be taxed for creating too much pollution or subsidized for undertaking pollution control? Should children be punished for not doing their chores or be rewarded for doing them? Why is productive labor rewarded in capitalist societies while nonproductive labor is punished in feudal societies?