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The (Legal) Value of Chance: Distorted Measures of Recovery in Private Law

39 Pages Posted: 9 Nov 2005  

Omri Ben-Shahar

University of Chicago Law School

Robert A. Mikos

Vanderbilt University - Law School

Abstract

Parties who make investments that generate externalities may sometimes recover from the beneficiaries, even in the absence of contract. Previous scholarship has shown that granting recovery, based on either the cost of reasonable investment or the benefit conferred, can provide optimal incentives to invest. This article demonstrates that the law often awards recovery that is neither purely cost-based nor purely benefit-based and instead equals either the greater or lesser of the two measures. These hybrid approaches to recovery distort compensation and incentives. The article demonstrates the surprising prevalence of these practices and explores informational and institutional reasons why they emerge.

Suggested Citation

Ben-Shahar, Omri and Mikos, Robert A., The (Legal) Value of Chance: Distorted Measures of Recovery in Private Law. American Law and Economics Review, Vol. 7, No. 2; UC Davis Legal Studies Research Paper No. 61. Available at SSRN: https://ssrn.com/abstract=843866

Omri Ben-Shahar (Contact Author)

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

Robert A. Mikos

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States
615-343-7184 (Phone)
615-322-6631 (Fax)

HOME PAGE: http://law.vanderbilt.edu/faculty/faculty-detail/index.aspx?faculty_id=227

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