Compensating Market Value Losses: Rethinking the Theory of Damages in a Market Economy

Steven L. Schwarcz, Duke Law School

Available in the Faculty Scholarship collection.

Abstract

The BP Gulf oil spill and the Toyota car recalls have highlighted an important legal anomaly that has been overlooked by scholars — judicial inconsistency and confusion in ruling whether to compensate for the loss in market value of wrongfully affected property. This article seeks to understand the anomaly and, in the process, build a stronger foundation for enabling courts to decide when — and in what amounts — to award damages for market value losses. To that end, the article analyzes the normative rationales for generally awarding damages, adapting those rationales to derive a theory of damages that not only covers market value losses of financial securities (like bonds and stock) but also ordinary products (like automobiles and lightbulbs).