Towards an economic theory of unjust enrichment law

Abstract

In various legal systems unjust enrichment is an important pillar of private law. However, it does not enjoy the same level of internal coherency and comprehensivness typical of other legal categories such as contract law and tort law. The doctrine of unjust enrichment is a rather general principle that encompasses a whole set of disconnected rules sharing a common rationale. Economic analysis can play a central role in establishing a more systematic understanding of this area of law. Confusion regarding unjust enrichment is partly attributed to a failure to distinguish between two different levels in which this doctrine function. Using the Calabresi & Melamed distinction between entitlements and remedies we show that unjust enrichment can serve as a source for the allocation of legal entitlements, and as a remedy to protect legal entitlements, and that there is no analytical correlation between the two. Subsequently, we try to show that while economic analysis of law should find it difficult to endorse the allocation of entitlements based on unjust enrichment sources, it, nevertheless, in many cases, ought to endorse the remedy of unjust enrichment to protect allocation of entitlements. The paper examines the ramifications of this remedy in circumstances that were not often addressed by the literature, where the beneficiary, who created a benefit, is required to transfer it to the alleged benefactor on the bases of unjust enrichment. In such circumstances, an incentive analysis should focus on the effects of a restitutive remedy on the behavior of the beneficiary. We show that unjust enrichment remedy, measuring actual profits, may carry different consequences then a liability rule or a property rule. This analysis demonstrates the virtue of unjust enrichment as an independent remedy, worthy of study in such cases as breach of contract or the protection of intellectual property.