The Pure Theory of Multilateral Obligations

This paper develops the pure theory of damage rules that internalize external effects in a multiparty setting. Desirable properties in terms of efficiency are shown to follow from a simple saddle-point property, which, in turn, is implied by general principles of liability. The legal practice of granting compensation of negative but not positive effects turns out to be consistent with the saddle-point property. The sharing of damage payments among several injurers is not restricted by efficiency considerations. For sequences of events that follow an injury, the pure theory would grant recovery even to parties that suffer at the far end of the sequence.