The Information-Forcing Dilemma in Damages Law

Abstract

Courts assessing compensatory damages awards often lack adequate information to determine the value of a victim’s loss. A central reason for this problem, which the literature has thus far overlooked, is that courts face a dilemma when applying their standard information-forcing tool to the context of damages. Specifically, the standard method by which courts obtain information is through a burden of proof. In the context of assessing damages, this means a rule requiring plaintiffs to prove the value of a loss with precision. But courts will often face a situation where it is clear that the plaintiff has suffered a loss, but where the plaintiff cannot prove the exact amount of the loss. A court that strictly enforces the burden of proof would award zero damages in such a case, producing a harsh result. But a court that avoids this result by instead awarding its best guess at the correct amount — effectively forgiving the inadequacy of plaintiff’s proof — then undermines future incentives for plaintiffs to produce rigorous evidence.

The result of this dilemma is that courts oscillate between strict and forgiving approaches, causing much confusion. Explaining the dilemma helps alleviate the confusion and points to a solution. In principle, courts should require a party to produce damages evidence if, and only if, the party is the lower cost provider of that evidence, and the benefit of having the evidence outweighs the cost of collecting it. The messy legal standards for calculating damages in various fields can be understood as clumsy attempts by courts to arrive at this unifying principle. Interpreting the vague and messy doctrine in light of this “cheaper cost-effective producer” principle thus helps make damages law more coherent.

Keywords: Information Forcing, Damages, Burden of Proof

JEL Classification: D82, K10, K11, K12, K13, K21, K40, K41