Private Law Theory

Abstract:
Looking to curb potential liability and comply with regulatory standards, many large-scale injurers now offer nearby residents to purchase their property and help them relocate to safer areas. Because the relocation of potential victims reduces the risk of harm and saves litigation costs, buyouts have been viewed favorably by commentators and have been supported by state and government agencies. In contrast to this favorable perception of buyouts, this Article argues that buyouts allow injurers to exploit victims and reduce social welfare. When injurers’ activities are subject to cost-benefit standards, buying out potential victims enables injurers to avoid taking socially desirable precautions. Using game theoretic reasoning, we show that buyouts allow injurers to increase their profits — and further reduce social welfare — by adopting a divide-and-conquer strategy and by fostering competition among victims. The Article concludes by considering ways for identifying and preventing exploitative buyouts.

Guttel, Ehud and Leshem, Shmuel, Buying the Right to Harm (October 18, 2013). USC Law Review, 2014, Forthcoming.

First posted 2013-10-20 08:27:36