The Strict Liability in Fault and the Fault in Strict Liability

Tort scholars have long been obsessed with the dichotomy between strict liability and liability based on fault or wrongdoing. We argue that this is a false dichotomy. Torts such as battery, libel, negligence, and nuisance are wrongs, yet all are “strictly” defined in the sense of setting objective and thus quite demanding standards of conduct. We explain this basic insight under the heading of “the strict liability in fault.” We then turn to the special case of liability for abnormally dangerous activities, which at times really does involve liability without wrongdoing. Through an examination of this odd corner of tort law, we isolate “the fault in strict liability”—that is, the fault line between the wrongs-based form of strict liability that is frequently an aspect of tort liability and the wrongs-free form of strict liability that is found only within the very narrow domain of liability for abnormally dangerous activities. We conclude by defending these two features of the common law of tort: the strictness of the terms on which it defines wrongdoing and its begrudging willingness to recognize, in one special kind of case, liability without wrongdoing

Product-Related Risk and Cognitive Biases: The Shortcomings of Enterprise Liability

Products liability law has witnessed a long debate over whether manufacturers should be held strictly liable for the injuries that products cause. Recently, some have argued that psychological research on human judgment supports adopting a regime of strict enterprise liability for injuries caused by product design. These new proponents of enterprise liability argue that the current system, in which manufacturer liability for product design turns on the manufacturer\u27s negligence, allows manufacturers to induce consumers into undertaking inefficiently dangerous levels or types of consumption. In this paper we argue that the new proponents of enterprise liability have: (1) not provided any more than anecdotal evidence for their thesis; (2) failed to account for the mechanisms the law already has available to counter manufacturer manipulation of consumers; and (3) made no effort to address the well-known problems enterprise liability creates. Furthermore, even on its own terms, the new arguments for enterprise liability fail to consider the tendency of some manufacturers to exacerbate the risks that some products pose - a tendency that enterprise liability would exacerbate. In short, the insights gleaned from psychological research on human judgment do not support adopting a system of strict enterprise liability for products

Limited Liability and the Known Unknown

Limited liability is a double-edged sword. On the one hand, limited lia-bility may help overcome investors’ risk aversion and facilitate capital formation and economic growth. On the other hand, limited liability is widely believed to contribute to excessive risk-taking and externaliza-tion of losses to the public. The externalization problem can be mitigated imperfectly through existing mechanisms such as regulation, mandatory insurance, and minimum capital requirements. These mechanisms would be more effective if information asymmetries between industry and poli-cymakers were reduced. Private businesses typically have better infor-mation about industry-specific risks than policymakers. A charge for limited liability entities—resembling a corporate income tax but calibrated to risk levels—could have two salutary effects. First, a well-calibrated limited liability tax could help compensate the public fisc for risks and reduce externalization. Second, a limited liability tax could force private industry actors to reveal information to policymakers and regulators, thereby dynamically improving the public response to externalization risk. Charging firms for limited liability at initially similar rates will lead relatively low-risk firms to forgo limited liability, while relatively high-risk firms will pay for limited liability. Policymakers will then be able to focus on the industries whose firms have self-identified as high risk, and thus develop more finely tailored regulatory responses. Because the ben-efits of making the proper election are fully internalized by individual firms, whereas the costs of future regulation or limited liability tax changes will be borne collectively by industries, firms will be unlikely to strategically mislead policymakers in electing limited or unlimited lia-bility. By helping to reveal private information and focus regulators’ at-tention, a limited liability tax could accelerate the pace at which poli-cymakers learn, and therefore, the pace at which regulations improve

Optimal Successor Liability

In case of a merger or an acquisition, a tort liability that arises from the seller's conduct is often imposed on the buyer through the doctrine of successor liability. If the buyer has as much information about the potential liability as the seller, the first best is achieved: all gains from acquisition are realized and the seller takes the efficient amount of precaution. However, when the seller has more information about the potential liability than the buyer, there could be too little acquisition, too little incentive on the seller, or both. The court can increase the successor liability to improve welfare. We show that imposing a higher damages against the surviving seller is better than increasing the liability against the buyerSuccessor Liability, Tort, Products Liability

Comparative Causation -- A Re-examination

Negligence-based liability has been justified on the grounds of its efficiency properties. However, this approach towards liability assignment has been criticized in several recent writings. In a series of articles, causation-based apportionment of liability has been recommended, as an alternative basis for liability assignment. In an interesting paper, Parisi and Fon (2004) have studied various properties of the causation-based liability. In this paper, I review some of their propositions. The main aim of the paper, however, is to investigate the implications of the ‘alternative’ specification of liability. The paper shows that a combination of negligence-based and causation-based liability makes the diligence strategies dominant choice for the agents.liability rules, negligence-based liability, causation-based liability, comparative causation, economic efficiency

Vicarious Liability and the Intensity Principle

The present paper provides an economic analysis of vicarious liability that takes information rents and monitoring costs to be borne by the principal explicitly into account. In the presence of information rents or if the principal is wealth constrained herself, vicarious liability need not generate efficient precaution incentives. Rather, precaution incentives turn out to depend on the exact quantum of damages specified by courts. I shall compare incentives under three damages regimes: strict liability, the traditional negligence rule, and proportional liability. To do so, I make use of the intensity principle that allows to rank damages regimes based on the monotonicity of differences of the principal's expected payof f as a function of induced precaution

Landowners' liability? is perception of the risk of liability for visitors accidents a barrier to countryside access?

The study seeks to analyse both the perception and reality of liability risk for owners of countryside land for injuries suffered by recreational visitors. The study starts by evaluating the relevant legislation and case law in England, Wales, Scotland and Northern Ireland on countryside access and liability in tort for injury suffered by visitors to such places. In doing so it reviews legislation such as Health &amp; Safety at Work Act 1974, Countryside &amp; Rights of Way Act 2000, Land Reform (Scotland) Act 2003, Occupiers' Liability Acts 1957 &amp; 1984, Animals Act 1971 and the Compensation Act 2006. Through appraisal of this legislation and key cases such as Tomlinson -v- Congleton Borough Council (2004) the actual level of liability risk is assessed to be low. The study then investigates the rise of a pervasive discourse amongst policy makers, judiciary and senior business figures asserting the need to avoid further development of a risk adverse culture within the UK and/or to tackle a growth in the perceived "compensation culture". A link to deregulation and pro-entrepreneurship interests is shown. The reality of compensation claim rates and associated behaviours is then examined. Issues of liability risk perception are then addressed by reviewing in detail the limited available UK literature on liability perception by landowners and comparing this with evidence from the United States and New Zealand. Case studies of alleged risk adverse land management are then examined to test the evidence base for common assertions of excess regulation and/or withdrawal of access to land or facilities through fear of liability. Finally, the study explores (via interviews of 21 land managers and representative bodies) how liability risks are actually perceived by land owners and the extent of awareness of recent changes in discourse and case law regarding public safety issues. In doing so the study reveals the ways in which land managers in large pro-access agencies and utilities develop common standards and understandings around the level of "reasonably practicable" safety provision. The study concludes with recommendations for further research to investigate the way in which liability risk perceptions are formed by smaller landowners who are more remote from such "interpretive communities" (Fish 1980).</p

Group versus Individual Liability: A Field Experiment in the Philippines

Group liability is often portrayed as the key innovation that led to the explosion of the microcredit movement, which started with the Grameen Bank in the 1970s and continues on today with hundreds of institutions around the world. Group lending claims to improve repayment rates and lower transaction costs when lending to the poor by providing incentives for peers to screen, monitor and enforce each other’s loans. However, some argue that group liability creates excessive pressure and discourages good clients from borrowing, jeopardizing both growth and sustainability. Therefore, it remains unclear whether group liability improves the lender’s overall profitability and the poor’s access to financial markets. We worked with a bank in the Philippines to conduct a field experiment to examine these issues. We randomly assigned half of the 169 pre-existing group liability “centers” of approximately twenty women to individual-liability centers (treatment) and kept the other half as-is with group liability (control). We find that the conversion to individual liability does not affect the repayment rate, and leads to higher growth in center size by attracting new clients.Microfinance, group liability, joint liability, social capital, micro-enterprises, informal economies

Limited Liability, Asymmetric Taxation, and Risk Taking - Why Partial Tax Neutralities can be Harmful

We examine the combined effects of asymmetric taxation and limited liability on optimal risk taking of investors. Given an optimal risk level in the pre-tax case under full liability, loss-offset restrictions reduce, and limited liability enhances the incentives for taking risk. For every degree of limited liability we can find corresponding loss-offset limitations inducing the same optimal risk level as in the reference case. Thereby we get tax neutrality with respect to risk taking. We show that tax neutrality with respect to risk taking is incompatible with tax neutrality with respect to the choice of the legal form. In our model, full liability requires symmetric taxation and limited liability requires asymmetric taxation of profits and losses.limited liability, loss-offset, tax neutrality, risk taking