Encyclopedia of Law and Economics

2019 Edition
| Editors: Alain Marciano, Giovanni Battista Ramello


  • Andrew TorreEmail author
Reference work entry
DOI: https://doi.org/10.1007/978-1-4614-7753-2_40


Externalities and court output are closely related since the primary economic function of the courts is to price and thereby internalize external effects in missing markets. This is achieved using the complementary technologies of torts and criminal law. An externalized cost can be broken up into two components, the cost imposed on the unconsenting victim and the cost imposed on wider society, such as insecurity and fear of further random episodes of the same event. Damages awarded to the victim in torts, and criminal punishment inflicted upon the offender, value and internalize the first and second components, respectively. Unless damages and punishment accompany each other, the externality will not be fully internalized. In addition, punishment produces absolute general deterrence, which is a positive externality, and in this sense negative and positive externalities are mirror images of each other, or perfect complements, in a legal economics framework. This framework also establishes the theoretical underpinnings and basis for valuing joint court output in the civil and criminal jurisdictions.

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© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.School of Accounting, Economics and FinanceDeakin UniversityMelbourneAustralia