Pure economic Loss.

Essay by BIBIUniversity, Bachelor'sB, January 2004

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Executive Summary:

This study emphasises the divergence between the legal approach to pure economic loss and the economic one, and focuses on the latter. Traditional economic theory is grounded on the divide between social and private loss and is employed in formulating policy recommendations for an efficient outcome. However, it fails to explain why pure economic loss cases are treated differently in different legal systems.

This study suggests that pure economic loss should be regarded as the internalisation of positive externalities through a mechanism (tort law) primarily designed for negative externalities. The pure economic loss problem is a problem of choosing between secondbest solutions, because tort law generally fails to provide first-best internalisation of both types of externalities. Within this framework, some new hypotheses on the comparative law and economics of pure economic loss will be discussed.


'Pure economic loss' and the possible approaches

Although there is no common definition of 'pure economic loss', it is generally understood to deal with matters of tortious liability for loss that is neither consequential upon death and personal injury of the claiming victim nor upon the infringement of the victim's property.

But other than that, the various topics that are dealt with under the heading of 'pure economic loss' seem to have little in common. The concept of 'pure economic loss' covers very dissimilar subjects such as liability for negligent statements (on which the plaintiff reasonably relied), ricochet damage to third parties in case of personal injury, and liability for inducing (or profiting from) breach of contract. 'Pure economic loss covers a wide variety of legal problems that are not dealt with in a homogenous way in the various legal systems.

In some cases the defendant's negligence will cause no physical damage or injury to the plaintiff or their property, but the...