Beyond the Bottom Line: The Complexity of Outcome Assessment
Hebrew University - Faculty of Law
September 27, 2009
No one denies the importance of outcomes. Whether the object of our evaluation is acts, legal rules, policies or institutions, the outcomes they generate must be taken into account. Given the pivotal role of outcomes for legal analysis, surprisingly little attention has been devoted to the question of what an outcome actually is. Law-and-economics scholars, for example, typically disregard this issue, implicitly adopting the narrowest possible definition of outcomes, namely, end-results. This Article addresses the gap in the literature by conducting an experiment which examines people’s assessment of outcomes. The experimental findings reveal that individuals reject a narrow, simplistic conception of outcomes and embrace a broad one instead. In addition to end-results, various other factors are regarded as being part of the ensuing outcome itself. Consequently, events with similar end-results are perceived as generating different outcomes. Specifically, factors such as how an outcome was brought about, the voluntariness or non-voluntariness of the parties’ behavior, the intentionality or non-intentionality of their acts, and the identity of the parties involved, significantly affect people’s perception of the goodness or badness of the outcome. These findings have potentially far-reaching implications. If efficiency analysis aims at maximizing people’s welfare - measured by the extent to which their preferences are fulfilled - it must not ignore the fact that preference-satisfaction is determined by various factors in addition to the end-results. Analysis of several legal issues illuminates this general conclusion. The fact that individuals perceive outcomes broadly sheds new light on a diversity of issues such as: punitive and liquidated damages in contract law, the efficient breach doctrine, compensation for takings of property, the choice between property rules and liability rules, land assembly for economic development projects, the zoning vs. homeowner associations debate, and the public/private distinction.
Keywords: consequentialism, law and economics, experimental legal studies, outcomes, well-being, preferences, property law, contract law, damages, takings compensation, efficient breach, land assembly, eminent domain, public/private distinction, homeowners association, zoning, decentralization
JEL Classification: C91, D6, D61, D63, I3, K1, K11, K12
Date posted: February 24, 2012