A deeply entrenched principle in the law of fraud and negligent misrepresentation provides that damages can be recovered only upon a showing of reliance. To prevail, plaintiffs must not only establish the mere falsity of a statement, but also show that they had acted upon the statement and sustained injury as a consequence. 

Despite the intuitive appeal of this principle, this paper argues that the reliance requirement ought to be abandoned. Harm can be caused by a misrepresentation without reliance, and recovery for such loss should not be barred. When a firm misrepresents an attribute of a product, its price in equilibrium typically rises. The inflated price is an injury caused to all consumers, relying and non-relying alike. A rule restricting recovery to only relying consumers results in inadequate deterrence of the firm, which in turn spurs a host of inefficient effects: it may distort allocative efficiency; encourage investments by firms in the production of fraud; induce investments by consumers in self-protection efforts and in detrimental reliance investments; and prompt competing firms to invest excessively in signaling. Furthermore, it undermines deterrence by erecting a substantial barrier to private enforcement through class actions. 

While the discussion focuses on consumer markets, it applies more broadly to other markets and other market structures. We explicitly discuss its extension to security markets, in which the reliance requirement has been famously limited under the fraudon-the-market doctrine—currently under review by the Supreme Court in Halliburton Co. v. Erica P. John Fund, Inc.. While the analysis supports existing policy in the domain of primary security markets, it does not do the same in the context of secondary markets.

Dr. Yuval Procaccia specializes in Economic Analysis of Law, Behavioral Law and Economics and Contract Law. He holds an S.J.D. and LL.M from Harvard Law School, as well as an M.A in Economics and a joint LL.B and B.A in Law and Economics from the Hebrew University. Dr. Procacccia clerked at the Supreme Court of Israel for Justice Dalia Dorner. At Harvard he was a Fulbright Fellow, as well as a research fellow at the Olin Center of Law, Economics and Business and at the Program on Negotiation. 

El seminario se dictará en idioma inglés, sin traducción.