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Compensation: In negligence law, compensation is the money that a court orders a negligent defendant to pay to an injured plaintiff. The purpose of compensation is to make the plaintiff whole, or to restore them to the position they were in before the negligence occurred. See also Tort law, Negligence.
Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments.

Author Concept Summary/Quotes Sources

Robert Cooter on Compensation - Dictionary of Arguments

Parisi I 15
Paradox of Compensation/Cooter/Miceli: Deterrence and compensation are perfectly compatible when only injurers can take precaution (as in the unilateral care model), but when victims can also take precaution, the compensatory and incentive functions come into conflict, a situation that Cooter (1985)(1) refers to as the “paradox of compensation.” >Threshold rules/Economic theories
Problem: The problem is the requirement that any money that the injurer is required to pay in liability must be passed on to the victim as compensation, thus precluding so-called “decoupling” of liability and compensation.* >Tort law/Learned Hand, >Negligence law/Miceli.
Solution: The brilliance of the negligence rule is that it resolves this paradox by establishing a standard of behavior that the injurer can meet to avoid liability, thereby giving the victim an incentive to invest in precaution so as to minimize her own damages. >Precaution/Cooter.

* See, for example, Polinsky and Che (1991)(2).

** A rule of strict liability coupled with a contributory negligence defense maintains bilateral incentives but also results in compensation of victims, which shows that deterrence and compensation are not necessarily incompatible.

1. Cooter, Robert (1985). “Unity in Tort, Contract, and Property: The Model of Precaution.” California Law Review 73: 1–51.
2. Polinsky, A. Mitchell and Y. K. Che (1991). “Decoupling Liability: Optimal Incentives for Care and Litigation.” Rand Journal of Economics 22: 562–570.

Miceli, Thomas J. „Economic Models of Law“. In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University Press.

Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments
The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.
Cooter, Robert
Parisi I
Francesco Parisi (Ed)
The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017

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