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Copyright (c) 1996 The University of Chicago
The Journal of Law & Economics


* We are grateful to Marcel Kahan, the Journal's editors, and participants in seminars at Harvard and New York University Law Schools for helpful comments, and for research support from the John M. Olin Center for Law, Economics, and Business at Harvard Law School. Shavell also acknowledges aid from the National Science Foundation (grant no. SES-911-1947).

April, 1996

39 J. Law & Econ. 191


Louis Kaplow and Steven Shavell, Harvard Law School and National Bureau of Economic Research



ASSESSMENT of damages is often a principal issue in litigation because the primary objective of the plaintiff usually is to collect as much as possible and that of the defendant is to pay as little as possible. Accordingly, litigants frequently devote substantial time and effort attempting to establish the level of harm. In light of this, the question naturally arises concerning the underlying social purpose of accurate determination of harm. Our object here is to address this question and to compare socially desirable effort to ascertain harm with what parties in litigation wish to expend on the task. To this end, we consider a version of the now standard model of liability for harm 1 in Section II of the article, and we develop the following four points. 2

First, accuracy in the assessment of harm leads potential injurers to act in a way that reflects the magnitude of the harm they might cause--to take greater precautions the greater the harm they are likely to bring about. This fundamental and familiar point is the social justification for accurate assessment of damages in the model. 3

Second, accuracy in the assessment of harm cannot influence the behavior of injurers--and is therefore of no social value--to the degree that they lack knowledge of the level of harm they might cause when they make their decisions. Thus, if, when choosing his precautions, an injurer knows only that the average level of harm that would be caused in an accident ...
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