Liability for Accidents

This is a survey of legal liability for accidents. Three general aspects of accident liability are addressed. The first is the effect of liability on incentives, both whether to engage in activities (for instance, whether to drive) and how much care to exercise (at what speed to travel) to reduce risk when so doing. The second general aspect concerns risk-bearing and insurance, for the liability system acts as an implicit insurer for accident victims and it imposes risk on potential injurers (because they may have to pay judgments to victims). In this regard, victims' accident insurance and injurers' liability insurance are taken into account. The third general aspect of accident liability is its administrative expense, comprising the cost of legal services, the value of litigants' time, and the operating cost of the courts. A range of subtopics are considered, including product liability, causation, punitive damages, the judgment-proof problem, vicarious liability, and nonpecuniary harm. Liability is also compared to other methods of controlling harmful activities, notably, to corrective taxation and to regulation.

Economic Analysis of Litigation and the Legal Process

This paper contains the chapters on litigation and the legal process from a general, forthcoming book, Foundations of Economic Analysis of Law (Harvard University Press, 2003). In chapter 17, I consider the basic theory of litigation. Here I describe the three phases of litigation: its initiation through suit, the determination of whether the parties will settle their case or proceed to trial, and, if trial results, the trial expenditures. I also analyze the social desirability of their decisions, a major theme being that the private incentives to litigate may diverge from what is socially desirable. In chapter 18, I extend the basic theory of litigation, examining among other issues the bringing of negative value suits, shifting of legal fees to losers at trial, lawyer-client fee arrangements, and the influence of insurers on litigation. Then, in chapter 19, I discuss several general aspects of the legal process not considered in the basic theory and its extensions, including private systems of adjudication, the value of accuracy in adjudication, the appeals process, and the function of legal advice.

Eminent Domain Versus Government Purchase of Land Given Imperpect Information About Owners' Valuation

Governments employ two basic policies for acquiring land: taking it through exercise of their power of eminent domain; and purchasing it. The social desirability of these two policies is compared in a model in which the government's information about landowners' valuations is imperfect. Under this assumption, the policy of purchase possesses the market test advantage that the government obtains land only if an owner's valuation is low enough that he is willing to sell it. However, the policy suffers from a drawback when the land that the government needs is owned by many parties. In that case, the government's acquisition will fail if any of the owners refuses to sell. Hence, the policy of eminent domain becomes appealing if the number of owners of the land is large. This conclusion holds regardless of whether the land that the government seeks is a parcel at a fixed location or instead may be located anywhere in a region.

Corrective Taxation versus Liability

Taxation and liability are compared as means of controlling harmful externalities, with a view toward explaining why the use of liability predominates over taxation. Taxation suffers from a disadvantage in the analysis: because taxes do not reflect all the variables affecting expected harm, inefficiency results, whereas efficiency under liability requires only assessment of actual harm. However, liability also suffers from a disadvantage: incentives are diluted because injurers escape suit. Joint use of taxation and liability is examined, and it is shown that liability should be employed fully, with taxation taking up the slack due to escape from suit.

On Optimal Legal Change, Past Behavior, and Grandfathering

When is it socially advantageous for legal rules to be changed in the light of altered circumstances? In answering this basic question here, a simple point is developed -- that past compliance with legal rules tends to reduce the social advantages of legal change. The reasons are twofold: adjusting to a new legal rule often involves costs; and the social benefits of change are frequently only incremental, only in addition to those of past compliance. The general implications are that legal rules should be more stable than would be appropriate were the relevance of past behavior not recognized, and that a policy of grandfathering, namely, of permitting noncompliance, should sometimes be employed. The analysis of these points has broad relevance, applying across legal fields, often explaining what we observe but also indicating possibilities for reform, such as in the regulation of air pollution. The analysis is related to the conventional reliance-based justification for the stability of the law, the literature on legal transitions, and economic writing on optimal legal standards.

Economic Analysis of Welfare Economics, Morality and the Law

This paper contains the chapters on welfare economics, morality, and the law from a general, forthcoming book, Foundations of Economic Analysis of Law (Harvard University Press, 2003). I begin in chapter 26 with a discussion of the normative foundations of economic analysis, namely, the subject of welfare economics. I also describe notions of morality and fairness, which play an important, if dominant, role in much normative discourse about law, and I discuss the connections between welfare economics and morality. A theme of this discussion is that notions of morality have functional aspects, and that, for a complex of reasons, they also take on importance in their own right to individuals. Then in chapter 27, I consider the observed relationship between law and morality, and comment on what might be thought to be the optimal relationship between law and morality. In chapter 28, I discuss issues concerning income distributional equity and the law, including the question of whether the distributional effects of legal rules should influence their selection. The answer to this question will be a qualified no, given that society has an income tax system that can serve to redistribute income or to correct problems with distribution that arise due to the effects of legal rules.

The Social versus the Private Incentive to Bring Suit in a Costly Legal System

The question is asked how the incentives of private parties to bring suit relate to what would be socially appropriate given the costs of using the legal system; and the answer presented in the model that is examined involves two elements. The first is that as a potential plaintiff takes into account only his own legal expenses in deciding whether to bring suit, the private cost of suit is evidently less than the social cost (which would include the defendant's legal expenses), suggesting a tendency toward excessive litigation, other things equal. But consideration of the second element complicates matters: as the plaintiff takes into account his own expected gains but not the social gains attaching to suit (which in the model is the general effect of suit on potential defendants' behavior), and as these social gains could be either larger or smaller than his gains, there is a tendency in respect to litigation that could either counter or reinforce the previous tendency.

Economic Analysis of the General Structure of the Law

This paper contains a chapter on the general structure of the law from a forthcoming book, Foundations of Economic Analysis of Law (Harvard University Press, 2003). In this chapter, I consider basic features of the legal system, including whether the law directly constrains behavior or channels it by the threat of sanctions, and whether the law is brought into play by private legal action or involves public enforcement. I investigate the conditions under which one or another structure of law will be socially desirable, and I then discuss tort, contract, criminal law, and several other areas of law in the light of the analysis of the optimal structure of the law.

Fairness Versus Welfare: Notes on the Pareto Principle, Preferences, and Distributive Justice

In Fairness versus Welfare, we advance the thesis that social policies should be assessed based entirely on their effects on individuals' well-being. This thesis implies that no independent weight should be accorded to notions of fairness (other than many purely distributive notions). We support our thesis in three ways: by demonstrating how notions of fairness perversely reduce welfare, indeed, sometimes everyone's well-being; by revealing numerous other deficiencies in the notions, including their lack of sound rationales; and by providing an account of notions of fairness that explains their intuitive appeal in a manner that reinforces the conclusion that they should not be treated as independent principles in policy assessment. In this essay, we discuss these three themes and comment on issues raised by Richard Craswell, Lewis Kornhauser, and Jeremy Waldron.