Private Production of Public Goods: Liability for Unrequested Benefits

This Article explores why the law treats negative externalities (harms) and positive externalities (benefits) differently. Ideally, from an economic perspective, both negative and positive externalities should be internalized by those who produce them, for with full internalization, injurers and benefactors alike would behave efficiently. In actuality, however, whereas the law requires that injurers bear the harms they create (or wrongfully create), benefactors are seldom entitled to recover for benefits they voluntarily confer on recipients without the latter’s consent ( “unrequested benefits”). One aim of this Article is to explore the puzzle of the law’s differing treatment of negative and positive externalities and expose the reasons for this divergence. The Article’s novel explanation for this phenomenon is found in the different types of obstacles possibly hindering agreement between injurers and victims, on the one side, and benefactors and recipients of benefits, on the other The Article also proposes a change to the law, with the adoption of an Expanded Duty of Restitution (“EDR”), under which, when certain conditions are met, recipients would compensate benefactors for unrequested benefits. This EDR would apply mainly to cases in which the benefits whose creation is mandated by efficiency are public goods. Public goods are characterized by their producer’s inability to exclude others from consuming the good. Thus people tend to free ride on the producer’s investment and refuse to share in the costs of producing the public good. As a result, without government intervention, many public goods whose production is efficient are currently not being created. An EDR would solve the free-riding problem in such cases and would facilitate efficient private production of public goods.