Optimal Pricing of Sequential Inputs: Last Clear Chance, Mitigation of Damages, and Related Doctrines in the Law

Abstract

THE well-developed theoretical apparatus of economics can be used to help disentangle complex legal problems. Economics is here used as a prescriptive theory of law in cases where the production of damage takes place sequentially over time. Legal doctrines, including mitigation of damages, last clear chance and coming to the nuisance, are examined using the economic concept of marginal cost liability. Despite some confusion, if we include the role of criminal law, the working of the legal system is broadly consistent with economic theory. In fact, economic theory is able to explain the subtle differences in the approach to sequential behavior in accident, contract, and nuisance law. To that extent, economics is not only a prescriptive theory but a descriptive theory as well.