Private production of public goods: Liability for unrequested benefits

Michigan Law Review

Volumn 108, Issue 2, 2009, Pages 189-227

  Porat, Ariel ^a,b  

^a TEL AVIV UNIVERSITY   (Israel)

^b UNIVERSITY OF CHICAGO   (United States)

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[No Author keywords available]

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EID: 71949086939     PISSN: 00262234     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (162)

1. This is true under both strict-liability and negligence rules. Note that under a negligence rule, the injurer is expected not to cause harm negligently, but the choice of whether to do so or not is ultimately his.
2. But see Saul Levmore, Explaining Restitution, 71 VA. L. REV. 65 (1985) (justifying the law's different approaches to harm and benefit cases);
3. Ariel Porat, Offsetting Risks, 106 MICH. L. REV. 243 (2007) (discussing tort liability when the wrongful act reduces risks ex ante either to the victim or to third paries, thereby creating positive externalities).
4. See Daniel Friedmann, Unjust Enrichment, Pursuance of Self-interest, and the Limits of Free Riding, 36 LOY. L.A. L. REV. 831 (2003) (arguing that the negative aspect of freedom of contract entails that the recipient of unsolicited benefits be under no duty to pay for them);
5. Scott Hershovitz, Two Models of Tort (and Takings), 92 VA. L. REV. 1147, 1160 (2006) (arguing that "there is an underlying moral asymmetry between harms and benefits" and that "it is perfectly intelligible that the institution which redresses the harms that we inflict on one another is more robust than the institution which allows recapture of the benefits that we confer on one another").
6. Extending the duty of restitution as proposed here can be expected to trigger the development of at least six rules for handling benefit cases, although only the second and third rules are comprehensively discussed in this Article. These rules would be as follows: (1) A benefactor is free to create a given benefit but is not entitled to any recovery from the recipients. (2) A benefactor is free to create a given benefit and is entitled to recovery from the recipients in the amount of their relative share of his reasonable costs. (3) A benefactor is free to create a given benefit and is entitled to recovery from the recipients in the amount of their benefit. (4) Recipients are entitled to the creation of a given benefit and are not liable toward the benefactor. (5) Recipients are entitled to the creation of a given benefit, but are liable in the amount of their relative share of his reasonable costs. (6) Recipients are entitled to the creation of a given benefit, but are liable in the amount of the benefit.
7. But sometimes the contract is unenforceable and restitution law prevails. See, e.g., RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT §§31-37 (Tentative Draft No. 3, 2004) (describing when restitution law will be applied to unenforceable contracts);
8. 2 GEORGE E. PALMER, THE LAW OF RESTITUTION §6.1 (1978) (same).
9. See RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT §§2, 13-14 (Tentative Draft No. 1, 2000) (discussing when a duty of disgorgement will apply);
10. 1 PALMER, supra note 5, ch. 2 (same).
11. See RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT §23 (Tentative Draft No. 2, 2002) (referring to unrequested-benefit cases as cases of "[s]elf-[i]nterested [i]ntervention").
12. See id. §§20-21;
13. 2 PALMER, supra note 5, §10.4;
14. see also Hanoch Dagan, In Defense of the Good Samaritan, 97 MICH. L. REV. 1152 (1999) (analyzing rescue cases and supporting a broad duty of restitution).
15. E.g., Cotnam v. Wisdom, 104 S.W. 164, 166 (Ark. 1907) (awarding damages to doctor who performed emergency surgery on unconscious, injured passerby).
16. See RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT §25 (Tentative Draft No. 2, 2002);
17. HANOCH DAGAN, THE LAW AND ETHICS OF RESTITUTION 126-27 (2004);
18. 2 PALMER, supra note 5, §10.6;
19. Friedmann, supra note 3, at 852-54;
20. Levmore, supra note 2, at 100. Similar to this second category of cases are instances of equitable subrogation, where one party performs an obligation toward a third party, thereby discharging a second party from performing his or her separate obligation toward the same third party.
21. See Ford v. United States, 88 F. Supp. 263, 263 (Ct. Cl. 1950) (holding that U.S. military authorities that compensated a victim of a crime committed by a U.S. soldier were entitled to recover the amount from the soldier's confiscated money);
22. RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT §26 (Tentative Draft No. 2, 2002);
23. 1 DAN B. DOBBS, LAW OF REMEDIES: DAMAGES, EQUITY, RESTITUTION §4.3 (2d ed. 1993).
24. See DAN B. DOBBS, THE LAW OF TORTS §3 86-87 (2000).
25. See RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT §§9-10 (Tentative Draft No. 1, 2000);
26. 2 DOBBS, supra note 10, §§11.1-.10;
27. 2 PALMER, supra note 5, §§11.1-.6. It could be argued that, strictly speaking, the benefits in this category of cases cannot be classified as having been voluntarily conferred, since there was a defect in the benefactor's volition.
28. RESTATEMENT (THIRD) RESTITUTION & UNJUST ENRICHMENT §23 cmt. a (Tentative Draft No. 2, 2002) ("The limitation [of the rule denying liability for unrequested benefits] to intentional acts excludes transfers that are subject to avoidance on the grounds of fraud, mistake duress, or similar invalidating cause.... ").
29. See, e.g., Challenge Air Transp., Inc. v. Transportes Aereos Nacionales, S.A., 520 So.2d 323, 324-325 (Fla. Dist. Ct. App. 1988) (suggesting that an airline carrying passengers with tickets issued by another airline, when mistakenly believing a reimbursement agreement to exist between the two, may recover from the issuing airline under certain conditions).
30. RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT §24 (Tentative Draft No. 2, 2002);
31. see also DAGAN, supra note 10, at 125-26;
32. Levmore, supra note 2, at 100-101
33. 2 PALMER, supra note 5, §10.7(c);
34. Friedmann, supra note 3, at 855-858
35. See, e.g., United Carolina Bank v. Caroprop, Ltd., 446 S.E.2d 415, 416-417 (S.C. 1994) (holding that when one cotenant stops paying his share of taxes and mortgage payments, other cotenants may pay his share and recover from him).
36. Another category of cases, which I will mention only briefly, is instances in which a benefactor, without any duty on his or her part to do so, performs the recipient's duty without the latter's consent, to the benefit of a third party or to promote a social interest. RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT §22 (Tentative Draft No. 2, 2002).
37. See John P. Dawson, Lawyers and Involuntary Clients in Public Interest Litigation, 88 HARV. L. REV. 849 (1975);
38. John P. Dawson, Lawyers and Involuntary Clients: Attorney Fees From Funds, 87 HARV. L. REV. 1597 (1974);
39. Levmore, supra note 2, at 95-99.
40. Section 23(b) of the Third Restatement of Restitution and Unjust Enrichment (Tentative Draft No. 2, 2002), allows recovery in cases where "the benefit is a money payment," thereby substantially broadening the common-funds category of cases.
41. For examples of suits brought by an heir against his or her coheirs, see the Third Restatement of Restitution and Unjust Enrichment §30, illustrations 23-25 (Tentative Draft No. 3, 2004)
42. , and 2 PALMER, supra note 5, §10.7.
43. See also Feick v. Fleener, 653 F.2d 69, 75-79 (2d Cir. 1981) (holding that heirs who hired a lawyer whose representation was successful and led to an increase in the amount they received could not obtain restitution from other beneficiaries of the lawyer's actions);
44. Friedmann, supra note 3, at 858-61 (discussing cases of co-heirs when an indemnity claim was allowed and cases in which it was denied). Moreover, some courts have granted fee awards to plaintiffs who enforced the law through their legal actions to the benefit of others, thereby helping parties to overcome a free-riding problem.
45. See infra note 91 and accompanying text. Lastly, allowing derivative actions by shareholders and obliging the firm to cover the derivative plaintiff's litigation costs also can mitigate a free-riding problem. Jonathan R. Macey & Geoffrey P. Miller, The Plaintiffs ' Attorney's Role in Class Action and Derivative Litigation: Economic Analysis and Recommendations for Reform, 58 U. CHI. L. REV. 1, 19-20 (1991) ("Members of the plaintiff class in a large class action or shareholder's derivative suit often have claims so small that the litigation is a matter of relative unimportance to them. Even though the claims in the aggregate may be very large, the small size of the individual claims creates enormous free-rider effects ....");
46. see also Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 395 (1970) (stating that because shareholder-derivative suits are brought on behalf of the corporation, courts reason that the corporation should pay for any benefit it receives as a result of the suit).
47. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 809 (1985) ("Class actions... may permit the plaintiffs to pool claims which would be uneconomical to litigate individually.").
48. It is not always clear whether the third condition focuses on protection and preservation of the benefactor's entitlement or that of the recipient. Interestingly, in most of the categories of cases, the benefactor's acts clearly protected and preserved both. See 2 PALMER, supra note 5, §10.1 (discussing two categories of cases: those in which the person seeking restitution acted primarily to protect the defendant's interests and those in which he sought primarily to protect his own interests).
49. See infra Part III.
50. Friedmann, supra note 3, at 856-58;
51. see also RESTATEMENT (THIRD) RESTITUTION & UNJUST ENRICHMENT §24 cmt. a (Tentative Draft No. 2, 2002) ("Situations in which one person's payment to protect an interest has the consequences of conferring a benefit on another are those in which the parties share interests .... In either settings the interests of the parties have already been linked .... The claimant must have acted to protect an interest in property, and there must be a nexus of interests....").
52. See infra Part II.
53. See infra Part V.
54. ROBERT COOTER & THOMAS ULEN, LAW AND ECONOMICS 340 (5th ed. 2007) ("[N]o liability gives the injurer no incentive to take precaution.").
55. See supra Part I.
56. A third possibility, which will not be elaborated on here, is protection by an inalienability rule, under which the entitlement is nontransferable. See Guido Calabresi & A. Douglas Melamed, Property Rules, Liability Rules, and Inalienability: One View of the Cathedral, 85 HARV. L. REV. 1089, 1111-1115 (1972) (discussing the various ways in which the law protects entitlements).
57. See id. at 1106-1110 (distinguishing property rules from liability rules).
58. An alternative classification of the rule of negligence, and perhaps of other rules governing accident cases, is as a compensation, rather than liability, rule. Under this approach, the limitations of the protection offered to potential victims of an accident stem from practical enforcement difficulties and do not reflect permission to injurers to create risks and bear the costs of resulting harms. Specifically, since, in most such cases, it is virtually impossible to enjoin an injurer ex ante from negligently creating risks, the best the law can do is impose an ex post duty of compensation when negligence is the cause of the harm. For arguments in this vein, see Jules Coleman & Jody Kraus, Rethinking the Theory of Legal Rights, 95 YALE L.J. 1335 (1986) (arguing that a negligence rule is not a liability rule);
59. Benjamin C. Zipursky, Rights, Wrongs, and Recourse in the Law of Torts, 51 VAND. L. REV. 1, 55-70 (1998) (same).
60. See also Mark A. Geistfeld, Punitive Damages, Retribution, and Due Process, 81 So. CAL. L. REV. 263 (2008) (arguing that risk creation will respect the victim's rights only if the injurer expects to compensate the victim in the amount prescribed by their hypothetical agreement at the time of the risk creation). But for our purposes, it is immaterial: de facto, even if not de jure, injurers are allowed to impose negligent risks on victims, thereby forcing transactions on them.
61. See supra Part I.
62. Notice, however, that sometimes the opposite is true. See discussion infra Section II.B.
63. Lloyd Cohen, Holdouts and Free Riders, 20 J. LEGAL STUD. 351 (1991) (comparing holdout and free riding and indicating that sometimes free riding is a more severe obstacle to efficiency than holdout).
64. Indeed, one could argue that even under a property rule, when that rule is not effectively enforced, injurers would sometimes proceed with their injurious activities and compensate victims for the resulting harms (or wrongful harms). But this argument does not undermine the assertion implied in the text, that it is hard to imagine the modern world without a rule that in practice allows the creation of risks accompanied by a duty of compensation (whether conditioned on the injurer's wrongdoing or not).
65. See supra note 35.
66. Example 1 (The Construction), supra text accompanying note 1, illustrates just such a scenario: Owner would fail to collect payments from Neighbors when each one of the latter expects to free ride on Owner's and other Neighbors' investments toward constructing the park.
67. See ROBERT NOZICK, THE NATURE OF RATIONALITY 50-55 (1993) (arguing that rational actors would cooperate and not free ride);
68. Ernst Fehr & Urs Fischbacher, Why Social Preferences Matter-The Impact of Non-selfish Motives on Competition, Cooperation and Incentives, 112 ECON. J. 478 (2002) (arguing that identification with the group can also prevent free riding);
69. David M. Kreps et al., Rational Cooperation in the Finitely Repeated Prisoners' Dilemma, 27 J. ECON. THEORY 245 (1982) (arguing that repeat players will tend not to free ride);
70. Daphna Lewinsohn-Zamir, Consumer Preferences, Citizen Preferences, and the Provision of Public Goods, 108 YALE L.J. 377 (1998) (arguing that the main reason for people's reluctance to take part in financing public goods is not their desire to free ride but, rather, their belief that others will do so);
71. Thomas J. Miceli & Kathleen Segerson, A Bargaining Model of Holdouts and Takings, 9 AM. L. & ECON. REV. 160 (2007) (arguing that allowing developers to exercise eminent-domain powers only after negotiations with owners resolves the holdout problem);
72. Gary J. Miller, The Impact of Economics on Contemporary Political Science, 35 J. ECON. LIT. 1173, 1179-83 (1997) (describing experiments that show that the free-riding problem does not always preclude cooperation).
73. It seems that a liability rule does not solve the holdout problem but, rather, merely changes the identity of the person creating the problem. Thus, in instances of one injurer and one victim and where the victim has an entitlement, protected by a property rule, not to be injured, the victim has the power to hold out (by refusing to permit the injurious activity unless he or she is well paid). If, instead, the victim's entitlement is protected by a liability rule, the injurer has the power to hold out (by refusing to stop the injurious activity unless well paid, which could happen when damages are not fully compensatory). But the situations discussed in this Section are different. I have assumed all along that, in a typical harm case, there is one injurer and many victims. In such cases, when the victim's entitlement not to be injured is protected by a property rule, the holdout problem is severe because there are many actors, not just one, who can hold out. Therefore, the move from property-rule protection for the victim's entitlement to liability-rule protection for that entitlement also represents a move from a situation in which many victims can hold out to one in which many victims can free ride. The latter move is a desirable one since the holdout problem is more severe than the free-riding one. Asimilar analysis applies to benefit cases.
74. In allocating the entitlement to injurers, the law could offer a liability rule under which victims could stop injurers from harming them but would have to compensate them for the resulting costs. Such a liability rule was proposed by Calabresi & Melamed, supra note 29, at 1115-24, which they entitled "Rule four." But in our Example, such a liability rule would not be of much assistance, since even if injurers were to be required to halt their activities upon victim demand and be compensated, free riding would still be an obstacle to agreement among potential victims. Specifically, each victim would have an incentive to free ride on other victims' investments, refusing to share with them the costs of compensating the injurer for halting his activity.
75. Example 2 (Stopping an Interference), infra text accompanying note 48, illustrates such cases.
76. See RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT §23 cmt. b (Tentative Draft No. 2, 2002) (explaining that the protection commonly afforded to property rights and contractual liberty (by denying restitution) comes at an important cost: an invitation to behave strategically and free ride).
77. See Friedmann, supra note 3, at 846 (noting free riding as an obstacle to efficient creation of benefits).
78. DAGAN, supra note 10, at 130-39 (arguing that the rationale for allowing recovery for unrequested benefits under prevailing restitution law is to avoid free riding);
79. see also Consol. Edison Co. of N.Y v. Bodman, 445 F.3d 438, 442 (D.C. Cir. 2006) ("[C]ourts have found it sensible to apply the unjust enrichment principle ... because doing so answers a potential free-rider problem.").
80. Infra Parts IV-V.
81. Infra Section IV.B.
82. Cf. Green Tree Estates, Inc. v. Furstenberg, 124 N.W2d 90 (Wis. 1963) (denying restitution to a developer who made improvements for its own benefit and for the benefit of local residents).
83. Cf Ulmer v. Farnsworth, 15 A. 65 (Me. 1888) (denying restitution to owner of a flooded quarry who drained it to his own benefit and that of a neighboring quarry owner).
84. If the interference in this Example is illegal, the question will be whether A should recover from the recipients or from the enforcement agency that failed to stop the illegal interference, if at all. See discussion infra Section V.B. 1.
85. In the original version of Example 2, as well, one could imagine collusion between A and X, where X would increase risks and, subsequently, in line with A's demands and payment, agree to stop creating or to reduce those risks.
86. See supra text accompanying notes 17-21 (fifth category of cases).
87. But the overvaluation problem can make a difference here. See infra Section IV.C.
88. Cf. Sprague v. Ticonic Nat'l Bank, 307 U.S. 161 (1939) (awarding plaintiff reasonable attorney's fees and litigation expenses, when, by virtue of stare decisis, fourteen other claimants, who were not parties to the litigation, could recover from the defendant).
89. See supra text accompanying notes 8-9 (first category of cases).
90. ROBERT C. ELLICKSON, ORDER WITHOUT LAW: HOW NEIGHBORS SETTLE DISPUTES 65-76 (1991) (arguing that landowners in Shasta County are influenced by informal norms regulating the fencing of their lands).
91. Levmore, supra note 2, at 69-72 (claiming that the law may be seen as normally disallowing restitution claims because of valuation difficulties);
92. see also DAGAN, supra note 10, at 139-148 (discussing the recipient's subjective devaluation of the conferred benefit).
93. See DAGAN, supra note 10, at 141 (describing the duty of restitution of unrequested benefits as an obligation to exchange money for nonmonetary values without an opportunity to refuse the exchange). For another articulation,
94. see Levmore, supra note 2, at 74-79, who detaches the misvaluation argument from another argument, according to which even if the recipient is required to pay no more than the value of the benefit, because people's decisions to spend money depend on their wealth, a duty of restitution might force some recipients to spend their money in a way that deviates from their preferences. Levmore calls this latter argument the "Wealth Dependency" argument.
95. Id.
96. The liquidity issue could also pose an autonomy concern. See infra text accompanying note 73.
97. On the possible ways to solve this concern, see infra text accompanying note 74-81.
98. Valuation difficulties could be a barrier to a restitution rule when consensual transactions are a plausible option. Thus, in a recent (unpublished) paper, Bar-Gill & Bebchuk show why a market operating under a restitution rule, where sellers provide goods and services without buyers' consent but are entitled to recover the value of the benefits, will probably not survive. Oren Bar-Gill & Lucian Arye Bebchuk, Consent and Exchange (Harvard Univ. Law & Econ. Research Paper Series, Discussion Paper No. 590, 2007), available at http://ssrn.com/abstract=998486. According to their thesis, when courts are imperfectly informed about the value of goods and services, a restitution rule will induce excessive entry of low-quality sellers and excessive exit of low-valuation buyers. Court adjustment of the value estimate upward to reflect the exit of low-valuation buyers will induce the exit of more buyers, and the market could thus completely unravel. But Bar-Gill & Bebchuk's argument is limited by its own terms to situations in which transaction costs are low and consensual exchange is possible.
99. Id. at 2-4. Therefore, their argument does not apply to the cases for which the EDR presented here is designed, where transaction costs are high and consensual exchange is not an option.
100. Calabresi & Melamed, supra note 29, at 1108 (discussing inaccuracies in awarding damages).
101. But then there is the risk of undervaluation arising from efforts to prevent overvaluation, and vice versa.
102. A reverse argument can be made for harm cases, according to which preference of overvaluation over undervaluation is justified in tort law. See Stephen R. Perry, The Moral Foundations of Tort Law, 77 IOWA L. REV. 449, 467 (1992) (arguing that distributive considerations favor the victim over the wrongdoer). A possible response to this argument would be that in torts, the victim often takes an active role in creating the situation that resulted in his or her injury, whereas the typical recipient in the cases discussed in this Article is almost always a passive party.
103. See infra Section V.A.
104. See infra Section V.D.
105. See RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT §24 cmt. e (Tentative Draft No. 2, 2002) (explaining when the measure of recovery should be reasonable costs);
106. 2 PALMER, supra note 5, §10.7 ("In some cases the value of the benefit has been measured by ... the cost of the improvement.").
107. Thus if Owner in Example 1 can choose between two uses of his land, and one is more beneficial to him than the other but less beneficial to Neighbors, under a rule that allows him to recover reasonable costs only, he would choose the first use even if the total benefit to him and Neighbors from the second use would be greater. A rule allowing Owner to recover at least some of Neighbors' benefits could prevent this inefficient outcome. Nevertheless, I am not advocating allowing recovery for more than the reasonable costs of producing the benefits, since the overvaluation problem is severe enough to rule out any recovery beyond that level.
108. See supra text accompanying notes 62-64.
109. Alternatively, when there are many potential benefactors, a licensing mechanism can be used. See infra text accompanying note 70. In class actions, a parallel question arises when there are many candidates for the class-action plaintiff and only one can be chosen.
110. See JOHN J. COUND ET AL., CIVIL PROCEDURE CASES AND MATERIALS 707-708 (6th ed. 1993) (describing a situation in which several members of a class want to be affirmed as class representatives).
111. 1 PALMER, supra note 5, §1.5(a) (explaining how equitable lien is used to protect plaintiff rights). The Arkansas Supreme Court reasoned similarly: It is well settled that a tenant in common has the right to make improvements on the land without the consent of his cotenants; and, although he has no lien on the land for the value of his improvements, he will be indemnified for them, in a proceeding in equity to partition the land between himself and cotenants, either by having the part upon which the improvements are located allotted to him or by having compensation for them, if thrown into the common mass.
112. Graham v. Inlow, 790 S.W2d 428, 430 (Ark. 1990).
113. See also In re Mach, 25 N.W2d 881 (S.D. 1947) (discussing an equitable lien in circumstances of performance of another's duty);
114. Bennett v. Bennett, 36 So. 452, 453 (Miss. 1904) (holding that a tenant in common is entitled to a lien on the shares of his cotenants in the land for taxes paid by him beyond his proportionate share and for any sum due him for improvements or rent from his cotenants);
115. RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT §24 cmt. e (Tentative Draft No. 2, 2002) ("Where a claimant has made expenditures to protect an interest in common property, the basic requirement that a liability in restitution not prejudice an innocent defendant (§ 49) is frequently observed by limiting the remedy in restitution to subrogation or equitable lien.").
116. See infra note 88 and accompanying text.
117. See infra Section V.A.
118. One possible objection is that a secret vote would allow cheating. For example, a recipient could ask for a side payment from other recipients as a condition for voting in favor of the application of the EDR, but then in fact vote against it. Indeed, aware of this possibility in advance, recipients might condition the side payment on the outcome of the voting rather than on the particular vote cast by said recipient. Then again, the latter might get paid his side payment even if he votes against the EDR's application but the majority decides in favor of its application. In sum, the main problem with a secret vote is the lack of transparency-i.e., despite its advantages, it could also have costs. Furthermore, if even with a secret vote side payments become effective, the free-riding problem could reappear and the difference between open and secret vote will narrow.
119. See RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT §23 cmt. b (Tentative Draft No. 2, 2002);
120. Friedmann, supra note 3, at 846-847
121. See supra Section IV.B.
122. As more people are expected to behave irrationally, this argument weakens.
123. See supra Section IV.B.
124. See infra Section V.B.
125. See infra Section V.B.
126. A counterargument could be that since the need for a liability rule for harm cases is greater than for an EDR in benefit cases, the justification for infringing on people's autonomy is stronger in the former cases than in the latter. See supra Part II.
127. See supra text accompanying notes 71-72.
128. See supra text accompanying notes 71-72.
129. Pure public goods are characterized by the inability to exclude people from consuming them ("non-excludability") and by the inability of one person's consumption to detract from or prevent another person's consumption ("nonrivalry"). See JOSEPH E. STIGLITZ, ECONOMICS OF THE PUBLIC SECTOR 128-129 (3d ed. 2000).
130. See id. at 129 (explaining how non-excludability and nonrivalry result in market failure);
131. Paul A. Samuelson, Aspects of Public Expenditure Theories, 40 REV. ECON. & STAT. 332 (1958) (discussing market provision of public goods);
132. Paul A. Samuelson, Diagrammatic Exposition of a Theory of Public Expenditure, 37 REV. ECON. & STAT. 350 (1955) (discussing the market's ability to provide public goods);
133. Paul A. Samuelson, The Pure Theory of Public Expenditure, 36 REV. ECON. & STAT. 387 (1954) (discussing the need to focus on optimal public expenditure).
134. It seems that this is a generally accepted argument among the reporters of the Third Restatement. See RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT §23 cmt. b. (Tentative Draft No. 2, 2002).
135. See, e.g., GUIDO CALABRESI, THE COSTS OF ACCIDENTS: A LEGAL AND ECONOMIC ANALYSIS 95-129 (1970) (discussing specific deterrence, where the state, through its agents, regulates safety).
136. See id. at 68-129 (discussing the pros and cons of market deterrence and specific deterrence as a mean to reduce accident costs);
137. RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW §6.1 (7th ed. 2007) (discussing the advantages of private enforcement in torts and contracts over public enforcement in criminal law).
138. J.A. Mirrlees, An Exploration in the Theory of Optimum Income Taxation, 38 REV. ECON. STUD. 175 (1971) (discussing principles and methods of optimum income taxation for redistributing wealth).
139. See supra Section IVB.
140. See GARETH D. MYLES, PUBLIC ECONOMICS 311 (1995) ("One aspect of public goods that prevents the government making efficient decisions is the government's lack of knowledge of households' preferences and willingness to pay for public goods.").
141. There could be different views on the necessary conditions for justifying the production of public goods by the government. For a thoughtful discussion, see Barak Medina, "Economic Constitution," Privatization and Public Finance: A Framework for Judicial Review of Economic Policy, in ZAMIR BOOK ON LAW, SOCIETY AND POLITICS 583 (Yoav Dotan & Ariel Bendor eds., 2005) (arguing that the public-good theory is not value free, but rather depends on the normative considerations underlying the government's goals) (translation by author).
142. See Scott J. Jordan, Awarding Attorney's Fee to Environmental Plaintiffs Under a Private Attorney General Theory, 14 B.C. ENVTL. AFF. L. REV. 287 (1987) (discussing those cases and supporting them). Class actions are another mechanism by which the problem can be solved.
143. See JOHN G. HEAD, PUBLIC GOODS AND PUBLIC WELFARE 184-210 (1974) (discussing externalities and their relevance to the theory of public goods).
144. Cf. Abraham Bell & Gideon Parchomovsky, Givings, 111 YALE L.J. 547 (2001) (arguing that in takings, the public authority will act efficiently only if it internalizes both the negative and positive externalities of the takings).
145. Lee Anne Fennel, Property and Half-Torts, 116 YALE L.J. 1400, 1450-1452 (2007) (arguing against recovery of positive externalities conferred on landowners, when either they or the uses to which they may put their property are heterogeneous).
146. It has been argued that there should be less willingness on the part of the government to produce public goods that are consumed by high-income earners. This argument was raised with respect to activities for the preservation of the environment. See Richard J. Lazarus, Pursuing "Environmental Justice": The Distributional Effects of Environmental Protection, 87 Nw. U. L. REV. 787 (1992).
147. A similar practice is the creation of a "business improvement district" ("BID"). A BID is a public-private partnership in which property and business owners of a defined area elect to make a collective contribution to the maintenance, development, and promotion of their commercial district. BIDs require legislative authorization from the local government. They typically provide services such as street and sidewalk maintenance, public-safety officers, park and open-space maintenance, marketing, capital improvements, and various development projects. The services provided by BIDs supplement the services already provided by the local government. BIDs are funded through special assessments collected from the property owners in the defined boundaries of the district. Like a property tax, the assessment is levied on the property owners who can, if the property lease allows, pass it on to their tenants. For further details, see the website of The Los Angeles Downtown Center Business Improvement District, http://www.downtownla.com (last visited May 14, 2009), and
148. Downtown DC BID, http://www.downtowndc.org (last visited May 14, 2009).
149. Cf. Donald Wittman, Liability for Harm or Restitution for Benefit?, 13 J. LEGAL STUD. 57 (1984) (arguing that the choice between encouraging actors to create benefits by sanctions and by subsidies should depend to a great extent on the litigation costs entailed in each method).
150. STEVEN SHAVELL, FOUNDATIONS OF ECONOMIC ANALYSIS OF LAW 578-581 (2004) (arguing that the reason the entitlement to collect damages for harm done is allocated to victims and not the state is that the former have better information about their harms).
151. Injurers will not behave negligently, because if they do, their expected liability will be higher than the precautions they could have taken to avoid liability. This is a simple application of the Hand Rule. See POSNER, supra note 86, §7.1 (describing and explaining the Rule).
152. This argument is inspired by a different argument made by Giuseppe Dari-Mattiacci, Negative Liability (George Mason Univ. Law & Econ. Research Paper No. 03-29, 2008), available at http://ssrn.com/abstract=422961, as part of an endeavor to explain why a duty of restitution, which he calls "negative liability," is so rare. Dari-Mattiacci argues that under a rule of negligence, it is sufficient for the law to have one sanction at its disposal, since in equilibrium, there is no negligence and the sanction is never implemented. In contrast, in benefit cases, the "sanction," or, more accurately, the subsidy, should be implemented again and again, whenever a benefit is created by one person for another person.
153. Occasionally, legislatures create institutions that facilitate market solutions to free riding. A good example is the patent registration afforded inventors under intellectual property law. The ability to collect a fee from users of their inventions through the market without competition for a limited period of time protects patent holders from free riders, resulting in sufficient incentives for inventors to invent. See POSNER, supra note 86, §3.3.
154. Note also that after the park has been built, the investment in its construction is a sunk and fixed cost. In a perfectly competitive market, the price-competing parks charge would not reflect the fixed costs of construction; in fact they would be zero, assuming the marginal cost of giving each additional person access to the park is negligible. Competition, however, is seldom expected to be perfect. In our Example specifically, since there are no identical substitutes for A's park, he would probably have the ability to charge Neighbors a positive price even if all of his costs are fixed and sunk. See, e.g., JEAN TIROLE, THE THEORY OF INDUSTRIAL ORGANIZATION 280 (1988) (showing formally how, in the case of competition between a small number of firms that do not provide perfect substitutes, prices remain above the cost of supplying the marginal unit).
155. See supra note 96.
156. Cf. STIGLITZ, supra note 82, at 131 (explaining how a benefactor who expects to gain a large benefit from a public good will produce it, but not in the efficient quantity).
157. See supra Part IV.
158. See supra Section V.B.2.
159. A subsidy could work better than an EDR, because the valuation problem is especially severe here: recipients are very heterogeneous (everyone enjoys the mall in a different way); it is hard to define the class of recipients (should it include only people living next to the mall or encompass a broader vicinity?); and in measuring the net benefits received by recipients, the negative externalities, which are difficult to measure, should also be factored in.
160. See supra note 24 and accompanying text.
161. And therefore, the currently prevailing condition under restitution law, that the benefactor was pursuing his own interests while the benefit to the other party was incidental, will typically be met.
162. GRANT GILMORE, THE DEATH OF CONTRACT 88 (1974). I thank Ofer Grosskopf for this reference.