Alan Schwartz & Robert E. Scott, Market Damages, Efficient Contracting, and the Economic Waste Fallacy
Market damages are the best default rule when parties trade in thick markets: They induce parties to contract efficiently and to trade if and only if trade is efficient, and they do not create ex ante inefficiencies. Courts commonly overlook these virtues, however, when promisors bundle services that are not separately priced. When the cost of completion is large relative to the “market delta”—the increase in market value—courts concerned with avoiding “economic waste” limit the buyer to the market value increase. This concern is misguided. Since the buyer commonly prepays for the service, a cost-of-completion award actually has a restitution element—the prepaid price—and an expectation interest element—the market damages. Courts fail to see the restitution issue and thus deny these damages more frequently than they should.
Human rights treaties play an important role in international relations but they lack a foundation in moral philosophy and doubts have been raised about their effectiveness for constraining states. Drawing on ideas from the literature on economic development, this Essay argues that international concern should be focused on human welfare rather than on human rights because of three advantages.