Why Can't I Sue for Benefits?

Under our tort system, someone who imposes costs on another is, under many circumstances liable to pay tort damages. But someone who imposes a benefit on another is only rarely permitted to use the law to force the beneficiary to pay for it. Why?

One possible answer is that if I am considering an action that benefits you, I can ask you to pay for it, and refuse to take the action if you don't--that, after all, is the way services are normally provided in a market society. But what about the case of a public good? Suppose I am considering some action that will impose benefits on a lot of other people--building a flood control dam, constructing a particular attractive building, or financing fundamental research in medicine? The same sorts of transaction costs that frequently prevent a market solution to problems of negative externality apply here. Each of the potential beneficiaries knows that his contribution will have only a minor effect on whether I decide to take the action. If the others do not contribute enough, his will do no good, and if they contribute enough without him, he can free ride on their efforts. So why isn't the argument for using the legal system to produce public goods by allowing the producer of positive externalities to sue the beneficiaries just as good as the argument for using the legal system to prevent public bads by allowing the victims to sue the producer?

One possible answer is that the absence of tort damages (or injunctions) for negative externalities creates an opportunity for costly strategic behavior. There are lots of things I could do on my land that would impose costs on you--play loud music late at night (if I am a nightowl and you are not), hold nude parties on the lawn (if I am a libertine and you a prude, et multae caetera. If I am not liable, I have an incentive to threaten to do such things, whether or not they are worth doing, even to start doing them, in order to be paid to stop. You, of course, have similar threats to use against me. Arguably, in a world without the law of nuisance, people might expend considerable resources in such games of mutual extortion.

Consider the analogous problem for positive externalities. I am planning to repaint my house. After hearing a few of my neighbors comment on how much it will improve the appearance of the neighborhood--and raise their property values--I announce that I am cancelling my plans to repaint--unless my neighbors agree to pay part of the expense. Here again, there is the potential for a costly threat game, as each party refrains from actions that would both benefit himself and impose positive externalities on others, not because the actions are not worth taking but because he is trying to bluff someone else into paying for them.

While such a situation is possible, it seems much less likely than the corresponding problem with negative externalities. Situations where I can, at some small cost to myself, make things worse for other people are common. There are, after all, a lot of ways of hurting people. Situations where I can, at some small cost to myself, avoid making things better for other people--postpone repainting the house even though I am sick and tired of how shabby it looks--are uncommon, since they occur only if there is something I already want to do that would have the side effect of benefitting them.

What this argument suggests is that, in the absence of strategic behavior, the argument for using the court to impose Pigouvian taxes is roughly the same whether the externality is positive or negative, and the appropriate taxes thus negative or positive. Strategic behavior--threatening to take actions not worth taking in order to be paid not to, or threatening not to take actions worth taking in order to paid to take them--makes the difference. Legal liability, positive or negative, provides a way of controlling both sorts of strategic behavior--but only the former is likely to be common enough to need such a control.

One case in which such suits are sometimes permitted is when one of a pair of adjacent property owners repairs a fence between the two properties, and requires the other property owner to reimburse him. The problem here, presumably, is bilateral monopoly bargaining.