University of Michigan Legal Working Paper Series
University of Michigan John M. Olin Center for Law & Economics Working Paper Series
Measuring Recovery for Non-Contractual Investment
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 the investment or the benefit it confers, can provide optimal incentives to invest. However, 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-of or lesser-of the two measures. These hybrid approaches to recovery distort incentives to invest. The article demonstrates the prevalence of these practices, and explores informational and related reasons why they emerge. It argues that they generally are ill-suited to promote rational policies.
Subject Area
Contracts, Law and Economics
Recommended Citation
Omri Ben-Shahar and Robert A. Mikos,
"Measuring Recovery for Non-Contractual Investment"
(September 2003).
University of Michigan Legal Working Paper Series.
University of Michigan John M. Olin Center for Law & Economics Working Paper Series.
Working Paper 19.
http://law.bepress.com/umichlwps/olin/art19
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