Professional Documents
Culture Documents
Tort Law
What is a tort?
Contract law: injury from a broken promise
Tort law: injury without any promises
Intentional tort
( crime)
Unintentional tort (accidents)
Focus on efficiency: structure the law to provide
the correct incentives to avoid/prevent harm
Example 2: Pheasant
Hunting
Example 3: Fuel
Additives
Classroom Experiment
$10,000
$1,000,000
Smallest Damages
$100,000
$500,000
Largest Damages
$1,000,000
$2,000,000
Median Damages
$500,000
$650,000
$1m or less
5 out of 6
4 out of 6
Traditional Theory of
Torts
Harm
Perfect compensation?
Tangible vs intangible losses
Causation
Proximate cause
Binary fault
Continuous fault
not at fault if x
~
at fault if x < x
~
x
Not at fault
Negligent
Precaution (x)
~
x
Legal standard: reasonable person
A Trolley Folly
A tree fell on a moving trolley, injuring passengers. One
of them sued. He succeeded in demonstrating that in
order for the trolley to be where it was when the tree fell
on it the driver had to have driven faster than the speed
limit at some point during the trip. Breaking the law is per
se negligence, so the driver was legally negligent whether
or not his driving was actually unsafe. If he had not driven
over the speed limit, the trolley would not have been under
the tree when it fell, so, the plaintiff argued, the drivers
negligence caused the injury.
The court held that the drivers negligence had not
caused the accident in the legally relevant sense.
A Model of Optimal
Precaution
Precaution costs
Accident losses
Administrative costs
Assumptions
Rationality
Litigation is costless
No insurance available
No safety regulation
A Model of Optimal
Precaution
Define:
A Model of Optimal
Precaution
$
SC
wx
p(x)A
x*
x* occurs where:
Precaution (x)
w = -p(x)A
MC of precaution = MB of precaution
Injurers precaution
Victims precaution
Manufacture wiring
more carefully
Software fails
Better design of
software
Study warning on
medicine
3 Liability Rules
No Liability
Strict Liability
Negligence rule
No Liability
Victims Incentives
Choose xv*
Injurers Incentives
Strict Liability
Victims Incentives
Choose xv = 0
Perfect compensation
Injurers Incentives
Choose xi*
No Liability vs Strict
Liability
Legal Rule
Victims Precaution
Injurers Precaution
No liability
Efficient
Zero
Zero
Efficient
Strict liability
Injurers Incentives
if x < ~
x then D = A
Injurers cost = wixi + p(xi)D
~
if x x
then D = 0
wx + p(x)A
wx
~
x
= x*
Precaution (x)
Contributory Negligence
Comparative Negligence
Victims
Precaution
Injurers
Precaution
No liability
Efficient
Zero
Zero
Efficient
Efficient
Efficient
Strict liability
Any negligence rule with
efficient standards of care
Legal Rule
Victim
Precaution
Injurer
Precaution
Victim
Activity
Injurer
Activity
No Liability
Efficient
Zero
Efficient
Too High
Zero
Efficient
Too High
Efficient
Simple
Negligence
Efficient
Efficient
Efficient
Too High
Contributory
Negligence
Efficient
Efficient
Efficient
Too High
Comparative
Negligence
Efficient
Efficient
Efficient
Too High
Strict Liability
with CN
Efficient
Efficient
Too High
Efficient
Strict Liability
Since
there
are occasions
when every
will is
break
from her
Hand
Rule:
if w < -pA
thenvessel
injurer
negligent
Random mistakes
Systematic mistakes
Strict Liability
Negligence Rule
Administrative Costs
Social Cost = wx + p(x)A + C
Firms
Cost of
Production
per unit
Probability
Loss if
of Accident
Accident
to Consumer
Expected
Accident
Loss
Full Cost
per unit
Use Bottle
40 cents
1/100,000
$10,000
10 cents
50 cents
Use Can
43 cents
1/200,000
$4,000
2 cents
45 cents