The Relationship between Nonlegal Sanctions and Damages
The Relationship between Nonlegal Sanctions and Damages
This chapter examines positive externalities caused by nonlegal sanctions. It first considers a wrongdoer's incentives in cases where nonlegal sanctions are dead-weight losses versus cases where nonlegal sanctions transfer or create value. It then presents theoretical arguments about victims' incentives before making the case for deducting nonlegal sanctions and explaining how this affects legal standards of care and damages. It also describes three elements of social costs and benefits and whether each is internalized by wrongdoers: plaintiff's harm from the wrong, defendant's harm from the nonlegal sanctions, and other peoples' benefit from the nonlegal sanctions. The chapter introduces the notion of “ideal net damages,” which it asserts should be awarded by courts in the typical case where nonlegal sanctions benefit other people, and “practical net damages,” suggesting that courts must deduct the burden of the nonlegal sanction on the wrongdoer.
Keywords: positive externalities, nonlegal sanctions, incentives, dead-weight losses, value, standards of care, social costs, harm, net damages
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