The Legal Analyst: A Toolkit for Thinking about the Law

By Ward Farnsworth | Go to book overview

31 Value and Markets

The chapters in this part began by discussing burdens and standards of proof. We then moved on to problems that arise in thinking about multiple pieces of evidence. Let’s now conclude with some thoughts on the last stage of a case: the calculation of damages. It is a useful place to finish, since the interesting problems here raise many themes discussed in the other parts of the book.

A large share of law is devoted to saying what things are worth. When a civil wrong is committed—an act of negligence, say, or a broken contract, or a beating by a police officer—the law’s usual reply is to make the wrongdoer pay whoever was injured by it. The payments are called damages. The question is how the size of the damages ought to be figured, which amounts to looking at the rights that the defendant destroyed and asking what they were worth. The same questions arise in a different setting when a government agency decides whether to adopt a regulation that will affect how some activity is carried out, whether it’s flying an airplane, running a construction site, or operating a power plant. The regulations might make it safer to do those things; suppose they will prevent property damage, save lives, or avoid some injuries. But the regulations also will be expensive, so we have to decide whether they are worth the cost. Again it comes to a question of value: what is it worth to save property, life, or limb?

An interesting thread connects the law’s answer to all these questions: the role of markets in which values can be measured. Sometimes the law searches hard for markets, and sometimes it avoids them. Begin with the simple case where I smash your car into an unrecognizable shape. Repairing it is out of the question. What do I owe you? A new car, you might suppose, but no; for I didn’t destroy a new car. I destroyed a used car—used by you, at least. So what I owe you is another used car, or rather an amount that will permit you to buy one. We consult the market for used automobiles, figure out what the car I destroyed would have sold for, and then I pay you that amount. You can spend it on a fairly precise replacement for the car you once had or you can put it toward a new model. I owe you, in other words, the market value of that which

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The Legal Analyst: A Toolkit for Thinking about the Law
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Preface vii
  • Acknowledgments xi
  • Part I - Incentives 1
  • 1 - Ex Ante and Ex Post 3
  • 2 - The Idea of Efficiency 13
  • 3 - Thinking at the Margin 24
  • 4 - The Single Owner 37
  • 5 - The Least Cost Avoider 47
  • 6 - Administrative Cost 57
  • 7 - Rents 66
  • 8 - The Coase Theorem 75
  • Part II - Trust, Cooperation, and Other Problems for Multiple Players 85
  • 9 - Agency with Eric Posner 87
  • 10 - The Prisoner's Dilemma 100
  • 11 - Public Goods 109
  • 12 - The Stag Hunt 117
  • 13 - Chicken 126
  • 14 - Cascades 136
  • 15 - Voting Paradoxes 144
  • 16 - Suppressed Markets with Saul Levmore 152
  • Part III - Jurisprudence 161
  • 17 - Rules and Standards 163
  • 18 - Slippery Slopes with Eugene Volokh 172
  • 19 - Acoustic Separation 182
  • 20 - Property Rules and Liability Rules 188
  • 21 - Baselines 198
  • Part IV - Psychology 207
  • 22 - Willingness to Pay and Willingness to Accept- The Endowment Effect and Kindred Ideas 209
  • 23 - Hindsight Bias 218
  • 24 - Framing Effects 224
  • 25 - Anchoring 230
  • 26 - Self-Serving Bias, with a Note on Attribution Error 237
  • Part V - Problems of Proof 247
  • 27 - Acoustic Separation 249
  • 28 - Standards of Proof 257
  • 29 - The Product Rule 273
  • 30 - The Base Rate 281
  • 31 - Value and Markets 294
  • Notes 305
  • Author Index 329
  • Subject Index 335
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