The Principle of Full Compensation in Tort Law

Abstract

According to the principle of full compensation, tort law seeks to put the victim in the position he was in before the tort. This position is generally considered to be the situation where the victim does not suffer any harm at all. We consider an alternative interpretation. If an injurer takes due care, the victim is faced with expected harm. This can be considered the victim's expected harm in the situation he was in before the tort. Thus conceived “full compensation” requires a negligent injurer to pay damages which bring the (potential) victim ex ante in the same position as the victim was in the case where the (potential) injurer takes due care. We investigate the consequences of this restated negligence rule. For due care levels larger than efficient care, the standard negligent rule may lead to excessive care, whereas the restated negligent rule always leads to efficient care. Furthermore, the activity level under the restated negligent rule is greater than the activity level under the standard negligent rule, which itself is greater than the efficient activity level. Social welfare under the restated negligence rule can either be higher or lower than social welfare under the standard negligence rule.