Law and Econ Nutshell

Chapter 6, p. 170 Economics of Tort Law

Unintentional torts.

The economic approach seeks to minimize the sum of the

costs of accidents plus the costs of preventing them.

It allocates the cost to the parties which can avoid accidents at lowest cost.

The costs of accidents and economics of tort law

3 costs from accidents:

1) primary costs to the injured party.

2) secondary, social costs.

3) tertiary costs of administering the tort.


What is the best signal for those making decisions on accident prevention?

Judge Learned Hand, the Hand formula, or calculus of negligence

A process for determining whether a legal duty of care has been breached

The original description of the calculus was in U.S. v. Carroll Towing,[1947]

in which an improperly secured barge had drifted away from a pier

and caused damage to several other boats.

p. 177: Liability a function of 3 variables:

P: probability of the harm

L: the amount of injury

B: the cost of prevention

P*L is the expected harm.

If P*L > B, the party is negligent.

A finding of liability under the negligence standard

falls short of providing the proper signal if the other party can avoid the accident at lower cost.

p. 179 Contributory negligence

Reconciling contributory negligence and efficiency

From a common sense point of view,

it seems clear that the victim should be required to take action to avoid the harm.

Section 466 of the Second Restatement of Torts:

a plaintiff is contributorily negligent when exposing himself to danger created by the defendant’s negligence, of which danger the plaintiff knows or has reason to know.

The last clear chance is a doctrine in the law of torts that is employed in contributory negligence jurisdictions.

Under this doctrine, a negligent plaintiff can nonetheless recover if he is able to show that the defendant had the last opportunity to avoid the accident.

The underlying idea is to mitigate the harshness of the contributory negligence rule.

The defendant can also use this doctrine as a defense.

If the plaintiff has the last clear chance to avoid the accident, the defendant will not be liable.

“Last clear chance” permits a negligent victim to shift liability back to the injurer

by showing that the injurer was, at the time of the accident,

able to avoid the accident at a cost that was lower than the expected harm.

Comparative negligence

A rule of law applied in accident cases to determine responsibility and damages

based on the negligence of every party directly involved in the accident.

For example, Eddie Leadfoot, the driver of one automobile is speeding

and Rudy Airhead, the driver of an oncoming car

has failed to signal and starts to turn left,

incorrectly judging Leadfoot's speed.

A crash ensues in which Airhead is hurt.

Airhead's damage recovery will be reduced

by the percentage his failure to judge Leadfoot's speed contributed to or caused the accident.

The rule is an effort to alter the perceived inequity

resulting from the”all or nothing” outcomes of strict application

of negligence and contributory negligence standards.

The loss is apportioned among the parties according to how fault is allocated.

Apportioned contributory negligence

Both parties have some incentive to avoid the harm.

But, the parties may both attempt to avoid the harm,

when the efforts of either one would be sufficient.

Or, possibly the incentive to reduce the harm is reduced to the extent

that neither party takes preventive action, even when cost-justified.

P. 187: unapportioned comparative negligence

The Galena rule incorporates the equitable considerations of comparative negligence

with the goal of motivating the best cost avoider

to take the precautions necessary to avoid an accident.

Galena is a century old rule of tort law originated by the

Illinois Supreme Court in Galena & Chicago Union Railroad v. Jacobs.

The Galena rule assigns liability on the basis of comparative negligence

with no apportionment of damages between the parties;

the most negligence party pays all the damages.

Such a rule of nonapportioned comparative negligence

is Pareto superior to apportioned comparative negligence,

traditional contributory negligence, and indeed,

to any other modern or ancient tort rule,

in that it provides a distinct and preferable mechanism

for reaching social goals viewed as "economic" in nature.

The Galena rule operates on the basis of fault, thereby providing a moral basis for its acceptance.

Under Galena, the injuring party is fully liable

even though the victim is also negligent

if the injuring party’s negligence is gross relative to the victim’s negligence.

Assumption of the risk

Assumption of risk is a defense in the law of torts,

which bars or reduces a plaintiff's right to recovery against a negligent tortfeasor

if the defendant can demonstrate that the plaintiff

voluntarily and knowingly assumed the risks at issue

inherent to the dangerous activity in which he was participating

at the time of his injury.

The California Supreme Court decision Nalwa v. Cedar Fair L.P. 2013.0

That decision extended the primary assumption of risk doctrine,

under which participants in and operators of certain activities

have no duty to protect other participants from risks inherent in the activity,

to protect recreational activities in addition to traditional “sports.”

Nalwa held that a plaintiff injured while riding in a “bumper car”

that was bumped by other cars

had no cause of action because she had assumed that risk.

Assumption of the risk bars the recovery of a plaintiff in such cases.

In “primary assumption of the risk,”

the injurer is engaged in a possibly dangerous activity,

but the costs of eliminating the risk is high.

For example, spectators at a golf tournament may be hit by stray balls.

The cost of avoiding the risk is high.

The injurer is not negligent.

The victim assumes the risk.

In the “secondary assumption of the risk,”

the plaintiff’s actions are dangerous because of

a situation created by the injurer.

Having witnessed the negligence of the defendant,

the plaintiff cannot ignore an easy opportunity to avoid the harm.

Strict liability

Strict liability means that a party is liable for damage cause by his activity

even if there is no showing of negligence.

 A rule specifying strict liability makes a person legally responsible for the damage and loss caused by his or her acts and omissions regardless of culpability.

The law imputes strict liability to situations it considers to be inherently dangerous.

It discourages reckless behavior and needless loss by forcing potential defendants

to take every possible precaution.

It also has the effect of simplifying and thereby expediting court decisions in these cases.

In a crime of absolute liability, a person could be guilty even if

there was no intention to commit a crime.

The difference between strict and absolute liability is whether the defense of a mistake of fact

is available: in a crime of absolute liability, a mistake of fact is not a defense.

For strict liability offenses no evidence of intent or any other mens rea is required.

It is however normal for the prosecution to be required to prove causation.

For example, in speeding it is necessary to prove the defendant was "driving",

but not that he intended to drive faster than permitted, or even that he knew he was doing so.

Just like strict liability, absolute liability offences do not require evidence of intent or mens rea. As for causation, the prosecution only has to prove that the proscribed event occurred

or a situation existed, then the defendant will be liable because of his status.

In strict liability offences, if the defendant argues

that he was under an honest, reasonable mistake of fact ('HRMF')

(honest and reasonable mistake of fact),

the prosecution will need to negate that claim beyond all reasonable doubt to secure a conviction.

P. 189: Strict liability amounts to an assignment of a right to others

to be free of the consequences of that activity or to be compensated.

Efficiency and strict liability

The liable party may not be the best cost avoider.

An accident that should have been prevented by the Hand formula

may not be prevented.

Or, an accident may be avoided, but not by the best cost provided.

One major consequence of applying strict liability is

that it forces the party who will be liable

to consider not only the standard of care,

but also the level of activity.

P. 193: In product liability, the harm resulting from the use of the product

can be viewed as an external cost of its production.

Risk aversion and loss spreading

Strict liability is also often seen as a method of minimizing secondary accident costs.

The burdens by society from accidents.

P. 200: Duty to rescue

Individuals are generally not liable for declining to undertake

even easy rescues.

This applies strict liability to those who are imperiled.

If one swims in deep water, one is liable for any misfortune not caused by others.

This induces the swimmer to internalize the full cost of his decisino.

In the United States, as of 2009 ten states had laws on the books

requiring that people at least notify law enforcement of and/or seek aid for

strangers in peril under certain conditions: California included.

California Penal Code § 152.3

Parents have a duty to rescue their minor children.

This duty also applies to those acting in loco parentis, such as schools or babysitters.

Common carriers have a duty to rescue their patrons.

Employers have an obligation to rescue employees, under an implied contract theory.

Property owners have a duty to rescue invitees but not trespassers

from all dangers on the property.

Spouses have a duty to rescue each other in all U.S. jurisdictions.

P. 200: It would seem efficient to hold those liable who do not offer assistance when the burden would be small.

Defenses to strict liability

A problem arises when a product is used in a manner

that is not reasonably anticipated by the manufacturer.

A defense of assumption of risk arises when

the plaintiff knows of a particular danger associated with using a product

but chooses to use it anyway.

A possible defense to strict liability would be to permit the defendant

to show that the plaintiff was negligent.