ecause factual uncertainty distorts the allocation of civil liability, this article argues that the law should impose liability for uncertainty. Justified on both corrective justice and economic efficiency grounds, this liability should be imposed upon any person who negligently aggravates the uncertainty of a civil case by making its evidential base deficent. Because "evidence" belongs to the world of inferences rather than things, evidential damage may be inflicted in a variety of ways, far beyond destruction of documents and other physical tampering with evidence. Through adoption and refinement of this insight, the Article diagnoses the presence of evidential damage in many legally important settings, such as mass torts, medical malpractice, exposure to risk and employment discrimination. It also identifies a number of legal doctrines that handle the evidential damage problem indirectly and thus attempt to resolve it within the narrow scope of their application. As underdeveloped forms of liability for evidential damage, these doctrines are urged to be replaced by an explicit and comprehensive liability.

According to legal principles, a driver who negligently breaks a pedestrian’s leg should pay the same damages as a doctor who negligently breaks a patient’s leg. According to economic principles, however, the driver should pay more than the doctor. Drivers should pay more than doctors who inflict the same harm because of externalities in the underlying activites. Non-negligent drivers impose risk on others and liability law does not make them pay for it. When liability externalities are negative as with driving, socially efficient damages should increase beyond full compensation in order to discourage the activity. In contrast, doctors create benefits for patients that exceed their fees. When liability externalities are positive as with doctoring, damages should decrease below full compensation in order to encourage the activity. In general, law should adjust damages up or down according to the externality associated with the underlying activity. Instead of case-by-case adjustment, law should refine the menu of available damage measures and associate different measures with different activities. The menu should include a novel measure -- disgorgement damages for accidents.

Like constructing a building, performance on many contracts occurs in phases. As time passes, the promisor sinks more costs into performance and less expenditure remains. For phased performance, we show that optimal liability for the breaching party decreases as the remaining costs of completing performance decrease. In brief, efficiency requires a decreasing liability contract. To implement such a contract, we recommend deducting past expenditure on incomplete performance from liability. We show that progress payment contracts, which are commonplace in some industries, are materially equivalent to decreasing liability contracts. Our analysis should prove useful for elucidating progress payment contracts and for drating and litigating contracts.

When legal and social norms regulate the same behavior, an act can trigger both legal and non-legal sanctions. Should courts deduct the non-legal sanction suffered by the wrongdoer from damages owed to the victim? We provide the answer for a legal system that seeks to minimize social costs. Non-legal sanctions typically harm the wrongdoer and benefit other people. In principle, courts should avoid over-deterring wrongdoers by deducting the benefit of the non-legal sanction from compensatory damages. In practice, instead of deducting the benefit of the non-legal sanction to other people, courts should deduct the burden on the wrongdoer. Deducting the burden of the non-legal sanction from compensatory damages typically improves the incentives of wrongdoers and victims. We make practical suggestions for courts to implement our proposal that would significantly reduce damages in torts and contracts.