How do We Compensate a Victim's Losses?
| Published date | 01 May 2009 |
| DOI | 10.1177/026975800901600104 |
| Date | 01 May 2009 |
Intemationa/ Review of'Victimology. 2009, Vol.
16,
pp.
67-87
0269-7580/09 $10
© A 8 Academic Publishers -Printed
in
Great Britain
HOW
DO
WE
COMPENSATE
A
VICTIM'S
LOSSES?
An
Economic Perspective
J.D.W.E.
MULDER
Til
burg
University,
The
Netherlands
•
ABSTRACT
Compensatory
damages
awarded
in
court
are
intended
to
make
victims
'whole
again'.
This
intention
raises
the
question
how
the
losses,
especially
the
emotional
losses,
that
victims
incur
could
be
compensated.
This
paper
provides
an
overview
of
the
economic
theories
that
are
used
to
provide
an
answer
to
this
question
and
it
purports
to
provide
a
new
perspective
on
compensation
by
explaining
how
victims
could
be
compensated
by
both
financial
and
non-financial
forms
of
compensation.
Keywords:
Compensation
-
Pain
and
suffering
-
Economics
INTRODUCTION
'Lotto rapist' Iorworth Hoare had no money when he was jailed for life in 1989
for the attempted rape
of
Mrs. A (who cannot be named for legal reasons).
Hoare's financial situation changed dramatically shortly before being freed on
parole, however, when he won £7 million after buying a lottery ticket during his
day release from prison. At the time
of
Hoare's imprisonment, Mrs. A had not
sued for damages because she had been told Hoare's lack
of
funds would have
made it worthless (Reuters, 2007). Yet now that Hoare
is
a free man and a
millionaire, Mrs. A wants him to pay for her psychological distress as,
according to her, the attempted rape damaged her self-esteem and ruined her life
(BBC, 2007; 2008) 1•
Compensatory damages, as Mrs. A wishes to claim, are intended to return
victims
of
tortious acts as closely as possible to the condition they were in
before the loss, or to make them 'whole again' (King, 2004:
p.
165). But what is
it that could make Mrs. A as well
off
as she was before the rape? Should Hoare
be required to pay her £100,000? Or should he pay her at least
£1
million?
*
P.O.
Box
90153, 5000LE Tilburg.
The
Netherlands. Faculty
of
Law, Tilburg
University; International Victimology Institute Tilburg (lntervict); Tilburg
Law
and
Economics Center (Tilec). (j.d.w.e.mulder@uvt.nl). I
am
grateful
for
the extensive
comments
by
Eric van Damme, along with comments
from
Marc
Groenhuijsen, Joanna
Shapland
and
two
anonymous referees.
68
The central topic
of
this paper is how to compensate victims for their losses. I
will expound the framework that
is
used by economic scholars to analyze the
effects
of
compensation. The starting point within this framework is a victim's
well-being, expressed in terms
of
utility. Since an individual's well-being is
negatively affected by sustaining a loss, victims experience less utility from life
and wealth than they did before a crime or accident. Making victims whole,
therefore, implies compensating the utility they lost. According
to
renowned
economists, there
is
just one method to determine the amount
of
compensatory
damages that should be awarded in court: assessing the amount
of
first-party
insurance that a victim would have bought voluntarily (on an actuarially fair
basis) in a world without tort law (Viscusi, 1996:
p.
153; Shavell, 2003: ch. 5,
p.
10).
This 'theory
of
insurance' provides straightforward conclusions.
It
shows, for
example, how people only wish to buy insurance against economic losses
(losses that have substitutes or that can be repaired). Therefore, according to
insurance theory, the only losses that should be awarded compensation in court
are those
of
the economic kind. In other words, no compensation should be
granted for non-economic losses (pain and suffering). Consequently, whether or
not there exists an amount
of
financial compensation that could make Mrs. A
whole again, lotto-rapist Hoare should not be forced to tum over (some of) his
money to Mrs.
A,
not now nor twenty years ago.
Many legal and economic scholars share the conclusion that non-economic
losses should not be compensated in court2• This paper will argue, however, that
insurance theory falls short in determining the appropriate amount
of
damages
when it comes to non-economic losses, due to its focus on financial
compensation.
It
will do so by referring to several studies that have shown how
'litigants are propelled into litigation as a result
of
not only material but also
psychological and emotional needs to alleviate the effects
of
distressing
experiences' (Relis, 2006:
p.
193; see Huver et
a!.,
2007 for similar
conclusions). Plaintiffs in medical malpractice cases, for instance, do not even
mention financial compensation when asked about their objectives; just like
plaintiffs in tort, divorce, injury and small claims cases, they repeat a lexicon
of
non-fiscal, extra-legal objectives for their litigation: prevention
of
similar
occurrences, acknowledgement, admission that something had gone wrong and
answers to their questions (Relis, 2007:
p.
21). In other words, the focus
of
insurance theory, and most legal advisors (Relis, 2007) on financial
compensation as the sole method to make victims 'whole again', seems to be an
over-simplified view
of
victims' needs. This is particularly true as extensive
research on procedural fairness has shown how non-monetary matters, like
being able to ask questions and to experience polite and respectful treatment,
contribute to an individual's well-being, irrespective
of
instrumental outcomes
like financial compensation (Frey et al., 2004:
p.
381).
This paper willshow how the economic framework
of
well-being
is
very well
suited to analyze both financial and other forms
of
compensation, and it will
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