37 Pages Posted: 16 Jul 2003 Last revised: 7 Apr 2011
Date Written: January 27, 2010
Negative and positive externalities pose symmetrical problems to social welfare. The law internalizes negative externalities by providing general tort liability rules. According to such rules, those who cause harm to others should pay compensation. In theory, in the presence of positive externalities, negative liability should apply: those who produce benefits should be paid a compensatory award by the gainers. Nevertheless, the legal system does not display such general negative liability rules. Rather, it tackles the problem of internalizing positive externalities by implementing a set of different and often indirect solutions. My explanation for this asymmetry in legal remedies rests on three features of a negative liability regime, relating to intent, incentives and evidence. These features explain the scope and design of restitution rules, liability for nonfeasance and other mechanisms for the internalization of positive externalities.
Keywords: liability, positive externality, enrichment, restitution, nonfeasance
JEL Classification: D62, K10, K13
Suggested Citation: Suggested Citation