Should Courts Deduct Nonlegal Sanctions from Damages?

Abstract

When legal and social norms regulate the same behavior, an act can trigger both legal and nonlegal sanctions. Should courts deduct the nonlegal sanction suffered by the wrongdoer from damages owed to the victim? We provide the answer for a legal system that seeks to minimize social costs. Nonlegal sanctions typically harm the wrongdoer and benefit other people. In principle, courts should avoid overdeterring wrongdoers by deducting the benefit of the nonlegal sanction from compensatory damages. In practice, instead of deducting the benefit of the nonlegal sanction to other people, courts should deduct the burden on the wrongdoer. Deducting the burden of the nonlegal sanction from compensatory damages typically improves the incentives of wrongdoers and victims. We make practical suggestions for courts to implement our proposal that would significantly reduce damages in torts and contracts.