I had an interesting subject come up in class today: the offer/asking price gap as applied to compensatory damages.

For instance, if you asked me how much money it would take to get me to agree to be shot dead 10 seconds from now, I would say no amount would be sufficient. “Infinity” (or way more than anyone has) is my asking price. (Maybe some people are more altruistic, but at any rate, most people would demand an extremely large payout to their beneficiaries.)

On the other hand, suppose you said I’ve been sentenced to death by being shot 10 seconds from now, but I can bribe you not to do it. How much would I be willing to pay? Well, I would give you everything I have and agree to be your slave. That’s my offer. Notably, what I have and the value of my labor is far, far less than “all the money in the world”.

The question is, when we’re determining just compensation for victims of torts, which one should we use? Or rather, “offer price” is one choice. “Asking price” is not a realistic choice, so if we don’t like the offer price, what should we use instead?

That is, one answer is that, if you get horribly maimed through someone’s wrongful act, the maximum amount you should be able to collect is the maximum amount you would have been willing and able to pay to avoid it, i.e. as much as you have and could be expected to earn in your lifetime. The unworkable answer is to say, well, you wouldn’t have taken that deal for $1 quadrillion, so the wrongdoer has to pay you more than $1 quadrillion, i.e. as much as they have no matter what. Another possible answer would be to come up with some standard statistical value of a human life and use that, but that’s pretty arbitrary and goes against the general principle that you recover enough to actually make you whole, e.g. in a lost wages claim, a banker gets more than a janitor.

I’m tempted to say “offer price” makes the most sense, but that’s probably in part because the professor was ranting about how economists are stupid and advocate using it without giving any justification. I’m honestly not sure, because I do see the obvious limitations there.

Does anyone know of any good, detailed treatment of this issue? Ideally in a libertarian context? I feel like this is exactly the sort of thing David Friedman would write about, but if he has, I haven’t seen it.

This is what Lex Talionis is for.

You took my hand, so I’m gonna take your hand or some monetary amount we can agree on. This places the incentives correctly because I don’t actually want your hand, so I’m not going to ask for more than you can deliver – and you don’t want to lose your hand, so you’re not going to drag the process out into an antagonistic process because then I might just end up offended and spiteful enough that I set the price at “your hand or more money than you can possibly have.”

Yeah, that is one approach that I now remember hearing a version of from a libertarian law professor whose name escapes me.

It certainly has its own downsides. It’s got the same problem of basing the award on the wealth of the defendant rather than the actual loss to the victim. If an average guy breaks your arm, you don’t get that much, but if a rich guy does, then you can get a big windfall because he’ll pay a lot more not to get his arm broken. Not to mention, there’s a big misalignment of incentives problem in insurance: the insured wants to pay out the maximum possible because it’s not his money and otherwise he’ll get tortured. Or does the insurance company get to choose whether they lose a bunch of money or you get your arm broken?

Plus, I can’t see this actually being applied. Maybe if the retaliation is converted under some formula to imprisonment or even flogging or whipping.

But, imagine you leave the oven on accidentally (assuming that would be negligence, which it might not be), and it causes a fire which burns down the neighbor’s house and gives him third degree burns all over his body. Are we really going to have some guy in a black hood douse you in gasoline and set you on fire? And even if you’re for that, how could you ensure it would cause the same damage?

There’s a rationale for idea in civil cases that you have to compensate the people you harmed with money, even if the cause was only a little mistake that wasn’t very blameworthy. But to conflate that with the idea in criminal law of punishing people at the very least disregards the principle of mens rea: that the punishment ought to be connected with the blameworthy mental state you had. Setting someone on fire because he left the oven on certainly violates that principle.

Oh yeah there are many many issues with Lex Talionis, I was just reminded when I read your OP.

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