In Defense of Compensation

Abstract

In recent years, tort victims in the U.S. have been finding it increasingly difficult to secure compensation through the legal system. This decline of compensation is the result of a decades-long campaign by corporate defendants to reshape the litigation landscape in their own favor. The most recent volley in this ongoing battle is an unprecedented, forceful attack against compensation launched by the Trump Administration. Regrettably, the inaccessibility of compensation often spells tragedy for tort victims. To justify these attacks, supporters of the anti compensation campaign utilize the economic theory of tort law to formulate forceful arguments against compensation as a general legal principle.

This Article demonstrates that the prevailing economic argument, and the legal order that follows therefrom, is based on a fundamental oversight. In particular, current economic theory fails to consider the possibility of investments by victims to shift harm to others. This Article is the first to examine the possibility of harm shifting in the context of tort doctrine.

This additional consideration proves to be crucial for the analysis of compensation. Existing economic theory argues that compensation is “inefficient” as it annuls victims’ incentive to invest in self-protection. This argument is reversed once we consider the possibility of harm-shifting. When investing to protect themselves, tort victims can pass harms on to others. Such investments are wasteful as they are designed only to redistribute harms, not to eliminate them. Therefore, compensation can actually prove beneficial precisely because it annuls victims’ incentive to invest in self-protection.

Once harm-shifting investments are considered, the economic argument against compensation is overturned. The case, therefore, for compensation is stronger than economic theory currently leads us to believe, and action must be taken to reverse the trending decline of compensation.

Keywords: tort, compensation, remedies, tort reform

JEL Classification: K13,