Relational Economic Loss: An Integrated Economic Justification for the Exclusionary Rule

Abstract

This article suggests an integrated economic justification for a specific common law rule, which excludes liability in torts for relational economic loss (a concept that I wish to introduce to the American reader). Following a bird's eye view of the law governing relational economic loss in various western jurisdictions I analyze the relevant economic considerations under three headings: efficient deterrence, loss spreading and administrative costs. In the last part I apply the normative conclusions of this analysis to a range of fact-situations in which the relational loss problem arises.

My conclusion is that an exclusionary rule, accompanied by a few narrowly defined exceptions, is supported by economic considerations. It is true that exclusion of liability will not always have the same economic justification, but all in all it seems that subject to one or two minor modifications the traditional approach of the common law is economically justified.

Keywords: tort law, economic analysis, economic loss, negligence, liability, relational loss

JEL Classification: K13