Nonlegal sanctions have never enjoyed such glory days. Dare you misbehave in a social or commercial relationship, your misdeeds are likely to be recorded, posted, and eventually aggregated with other feedback by a rating platform. Businesses are graded by their customers on Yelp, landlords and guests review each other on Airbnb, drivers are rated by their auto insurers, and borrowers are scored by credit agencies. These reputations determine people’s access to services, the prices they pay, and the friends they meet.
The sharp teeth of nonlegal sanctions pose a challenge: how to make sure that they are levied when proper, and in the right magnitude? More generally, how should the frequent presence of reputational sanctions and rewards affect the design of legal sanctions, and in particular the damage measures awarded in private law for the breach of contract or the commission of a tort?
In recent years, scholars in law and economics began to develop a theoretical framework for the optimal blend of legal and nonlegal sanctions. Many have noticed that legal sanctions have the potential to trigger informal reputational penalties. In an interesting article, Bob Cooter and Ariel Porat asked how to optimally combine the two. If the wrongdoer already suffered reputational ruin, should this fact be a reason—as they argued—to moderate their legal sanction, for example by reducing the legally-assessed damages? Later, in examining the effect legal sanctions have on informal penalties, Ed Iacobucci usefully distinguished between two types of third party responses: the conscious (and privately costly) propensity to ostracize bad actors who were found to be legally liable, and the self-interested motivation to refrain from dealing with those revealed by the legal sanction to be unattractive or dangerous trading partners. To this literature, Sadie Blanchard recently added a wonderful contribution in Nominal Damages As Vindication, nesting it in a discussion of the law of nominal damages.
Nominal damages are awarded in cases in which the plaintiff demonstrated a violation of a right but did not prove compensable harm nor seek an injunction. Why does the law permit plaintiffs to bring a suit for nominal damages? If there is no compensable injury, why use the fiction—or the symbolism—of nominal damages and allow parties to fight their expensive battles in court?
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