Unrequested Benefits, Damages Assessment, and Information Acquisition

American Law and Economics Review

37 Pages Posted: 17 Mar 2021

See all articles by Zhiyong (John) Liu

Zhiyong (John) Liu

Indiana State University - Scott College of Business

Ronen Avraham

Tel Aviv University - Buchmann Faculty of Law; University of Texas at Austin - School of Law

Yue Qiao

Shandong University

Date Written: January 31, 2021

Abstract

We investigate the interaction between the law’s prohibition of recovery for unrequested benefits, and parties’ incentives at the ex ante stage to acquire information about the harms or benefits of the activities they consider engaging in. We analyze the impact of these interactions on the efficiency ranking of two damages regimes: ex ante damages and ex post damages. We show that ex post damages induce information acquisition, thus potentially leading to more efficient decision-making. However, under an ex post regime, the existence of, and the prohibition of recovery for, unrequested benefits distort parties’ incentives to acquire information and engage in the activity. Taking into account the tradeoff between these effects, we show that the relative efficiency of ex ante versus ex post damages depends on the size of potential unrequested benefits, and how the ex ante damages are calculated by courts, specifically, whether they are truncated or not. The larger the potential unrequested benefits, the more likely non-truncated ex ante damages outperform ex post damages. In contrast, ex post damages are always more efficient than truncated ex ante damages.

Keywords: Externalities, Unrequested Benefits, Damages Assessment, Actual Damages, Ex Ante Damages, Information Acquisition

JEL Classification: K12, K13, D83, D86, D01

Suggested Citation

Liu, Zhiyong (John) and Avraham, Ronen and Qiao, Yue, Unrequested Benefits, Damages Assessment, and Information Acquisition (January 31, 2021). American Law and Economics Review, Available at SSRN: https://ssrn.com/abstract=3776687 or http://dx.doi.org/10.2139/ssrn.3776687

Zhiyong (John) Liu (Contact Author)

Indiana State University - Scott College of Business ( email )

Scott College of Business
Indiana State University
Terre Haute, IN 47809
United States

Ronen Avraham

Tel Aviv University - Buchmann Faculty of Law ( email )

Ramat Aviv
Tel Aviv, 69978
Israel

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States
(512) 232-1357 (Phone)

HOME PAGE: http://www.utexas.edu/law/faculty/profile.php?id=ra22397

Yue Qiao

Shandong University ( email )

27 Shanda Nanlu
Jinan, Shandong 250100
China

HOME PAGE: http://www.econ.sdu.edu.cn/

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