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The simple economics of tort law: An organizing framework
91 Europaische Zeitschrift fiir Politische Okonomie/ European Journal of Political Economy, 2] 1 (1986) 9 1 - 9 8 © VVF, Munich
THE SIMPLE ECONOMICS OF TORT LAW: AN ORGANIZING FRAMEWORK Susan Rose-Ackerman*
1. Negligence and the Learned Hand Test Considerable confusion in the economic analysis of torts can be cleared away if we are careful to understand how the term negligence is used by economists and how it is related to the Learned Hand test. Hand argued that the defendant should be held liable if the cost of prevention is less than the expected cost of the accident (i.e., probability of accident times damage) 1 . As many commentators have pointed out, this standard both ignores the possibility that the other person involved in the accident might have been able to reduce costs more cheaply and fails to consider the situation in which both sides should take some preventive actions. While wishing to acknowledge the precedent of Judge Hand, students of law and economics recognize the limitations of his test as stated and instead argue that an action should only be judged negligent if it is inefficient (e.g., Brown, 1973; Calabresi, 1970; Posner, 1972; and Posner, 1977, pp. 1 1 9 162). For example, suppose an activity with expected accident costs of ~150 can be prevented by person A at a cost of ~100 and person B at a cost of ~50. Then only person B would be found negligent if he failed to spend the ~50. Person A would have no legal obligation to spend anything. It is legally irrelevant to point out that if B's accident avoidance costs were higher, then A should take action. For example, person A would become liable if a change in circumstances raised B's costs to ~105. Thus negligence is, in economics, a relative concept. Even though you be-
* Columbia University, 435 West, 116th Street, New York, NY 10027, U.S.A. 1
United States v. Carroll Towing Co., 159 F. 2d 169 (2d Cir. 1947).
92
An Organizing Framework
have in exactly the same way in two situations y o u may be found negligent in one b u t not in the other.
2. Efficient and Inefficient Liability Rules Taking this legal standard as given, not as a positive matter of judicial behavior b u t as a matter of normative economic analysis, what choices are open to the legal system? To keep the analysis concrete, consider automobile-pedestrian accidents where only driving speed and whether the pedestrian runs or walks affect the probability and severity of accidents ~. Suppose that cars can be driven at one of two speeds: fast or medium, and that the efficient standard is for people to walk and cars to be driven moderately fast. Thus both running and speeding are judged negligent 3 . Four combinations, illustrated below, must be considered:
Driver Fast
Moderate
Runs
1
2
Walks
3
4
Pedestrian
Table 1
Suppose that courts can always accurately determine the behavior of drivers and pedestrians and that negotiations between drivers and pedestrians are very costly so that the legal rules themselves provide the basic incentive. Thus, for example, if the driver is held strictly liable in all four situations, he will be unable to bribe the pedestrian to change his behavior. This is a strong assumption, at the other extreme from the conditions of the Coase theorem (Coase, 1960; see also Cooter, 1982), b u t it is a good place to begin the analysis. To p r o m o t e efficient behavior, the legal system must assign liability in each situation in Table 1 so that rational actors will end up in b o x four. In addition, the law must concurrently decide how to apportion the losses that occur when no one is negli-
In particular, the overall a m o u n t of driving or walking does not affect accident probabilities. The example is from Polinsky, 1983, pp. 37--50, 66--72. Note that this example could easily be generalized to situations where the speeds of both automobiles and pedestrians are continuously variable. We then locate the speeds where the marginal benefits of increased speed are just balanced by the marginal costs and call this the negligence standard.
An Organizing F r a m e w o r k
93
gent 4 . If we limit ourselves to either/or rules, Table 2 catalogues all the logical possibilities, where P stands for pedestrian liability and D for driver liability. Each matrix shows who is liable under each circumstance. Consider each case in simple game theoretical terms where both actors behave independently taking as given the action of the other, i.e., no bargaining occurs. To see how the analysis proceeds in each case consider the example of case 9. Begin with box 3 where the driver speeds and the pedestrian walks. Then the driver has an incentive to slow d o w n and the pedestrian has an incentive to run so b o x 2 holds. But in that case the pedestrian n o w has an incentive to avoid liability by walking and box 4 holds. Once b o x 4 is reached, neither actor has any incentive to change. Students of tort law will recogaaize this as a negligence standard for drivers. The other cases can be analyzed in the same way. The arrows in Table 2 show the incentives of the actors to change their behavior and the circled alternative is the equilibrium in those cases where one exists. There are four efficient solutions, illustrated in column three, which provide incentives for both actors to take the efficient a m o u n t of care. In t w o the loss is borne b y the driver (cases 10, 12) and in two the loss is on the pedestrian (cases 9, 11). Notice that all efficient rules have P in b o x 2 and D in box 3, i.e., a person is always liable if he is negligent and the other actor is not. The four cases can be characterized as follows: Case 9 - Learned Hand Test: Liability on driver if and only if he is negligent (i.e., no contributory negligence and losses on pedestrian). Case 1 0 - "Reverse" Learned Hand: Liability on pedestrian if and only if he is contributorily negligent (i.e., strict liability on driver with defense of contributory negligence and losses on driver) (Calabresi and Hirschoff, 1972). Case 11: Strict liability on pedestrian unless driver is negligent and pedestrian is not (i.e., negligence with defense of contributory negligence with losses on pedestrian).
4
This is essentially C',dabresi's distinction between primary and secondary accident costs (1970, pp. 26-31).
An Organizing Framework
94
e~
To t
t= tT-
~tt°tl~II~tI
~+--
it"
~+--
~
95
An Organizing Framework
Case 12: Strict liability on driver unless pedestrian is negligent and driver is not (losses on driver) 5 . It is also instructive to consider the inefficient cases to see why they are unsatisfactory. Strict liability for either pedestrians (case 1) or drivers (case 5) has the obvious problem of not deterring negligence by the other party. Cases 2 and 6 are clearly pathological. In 2 the driver is liable only if he is not negligent and in 6 the pedestrian is liable only if he is not negligent. They are the mirror images of 9 and 10 respectively. Cases 3, 4, 7 and 8 are "all ones in which it pays one side or the other to be negligent. In the remaining, unstable cases, each combination of actions gives one of the actors an incentive to change his behavior and the result is indeterminate.
3. Comparative Negligence How does comparative negligence fit into this scheme? If the negligence standard is defined correctly 6 , then under comparative negligence, judgments are split when both driver and pedestrian violate the negligence standard. Thus is terms of my matrix, comparative negligence can be represented in box one of Table 3, where a is the share of costs paid by the driver if both are negligent.
Driver Fast Runs
Moderate
~atoD
Pedestrian ~ Walks
b to D
Table 3
D ( l - b ) to P
5
Compare the somewhat similar taxonomy in Calabresi and Klevorick, (1985). In addition, they are concerned with the type of information which can bc introduced at triM, i.e., can the plaintiff try to establish the defendant's liability by introducing information that only became known after the defendant decided on his level of safety. Such questions are especially relevant in toxic tort litigation where many years may pass between exposure and detectable harm.
6
Posner (1977, p. 124) assumes that, under comparative negligence, even if you arc not negligent in economic terms, you will still have to pay a share of the losses. This should not happen if the standard of negligence is defined correctly. Perhaps what he is pointing to is the court's difficulty in defining the proper standard.
96
An Organizing Framework
Comparative negligence does not provide a clear standard if neither actor is negligent. However, residual losses in box four can also be shared. Therefore, b in Table 3, also can range from 0 (losses in pedestrian) to 1 (losses on driver). Thus, Table 3 represents the general form that efficient rules must take where 0 ~< a~< 1, 0~< b~< 1. The four efficient rules in Table 2 are extreme cases with a and b equal to 0 or 1. This analysis confirms Haddock and Curran's (1985) recent claim that if the negligence standard has been set correctly, the debate over the use of comparative negligence or the defense of contributory negligence are essentially debates not about incentives b u t a b o u t the placement of losses, either when b o t h sides behave efficiently or when mistakes are made and neither side does. For economic analysts the legal standard that must be appried is clear whenever one side is negligent and the other side is not.
4. Problems in Defining the Negligence Standard While I hope that this framework will be helpful in clearing up some misunderstandings in the economic analysis of torts, it is important to make its limitations clear. In detailing the incentive effects of legal rules I assumed that the courts could clearly determine the standard of negligence and that pedestrians and drivers knew the standard and could apply it in determining how to behave. Furthermore, I assumed the standard was the correct one, i.e., automotive design and miles driven were irrelevant. These are strong conditions. If they held, no lawsuits would ever occur, no one would ever be negligent, and when accidents did occur, liability would be clearly established (cf. Calabresi and Klevorick, 1985). In practice, of course lawsuits occur because the parties disagree among themselves about how the court is likely to act (Priest and Klein, 1984). There may be uncertainty b o t h about the facts and about the way a legal standard will be applied to the facts 7 . The latter uncertainty is a function of the complexity For an instructive recent a t t e m p t to assess the effects of unc e rt a i nt y, see Calfee and Craswell (1984). The authors present a model in which, if the defendant's choices are continuous, then overcompliance may be more of a problem than undercompliance even in an uncertain world. The key to their argument is the fact that the marginal benefit to the defendant of taking care may be high even though total damages are below actual damages.
An Organizing Framework
97
and multiplicity of the world which makes precedents an imperfect guide to future decisions. It also depends upon the constant incremental changes that occur in social, technical and economic conditions. Can the roles that the applied to horses and buggies be extended to cover railroad, airplane and automobile accidents? Can the law that held in a world of small scale manufacturers and farmers be applied to relationships between large m o d e m corporations? If we suppose that c o m m o n law courts are frequently called upon to answer such questions, then individuals who, in good faith, a t t e m p t to avoid negligence may find that they have violated a new legal standard. If b o t h parties to a lawsuit violate the standard, then as long as the courts clearly articulate the new rule, comparative negligence seems to be a fair way of sharing costs 8 . Nevertheless, if only one individual violates the standard, that person must bear the full extent of the losses in order to provide the correct incentives for future conduct. Furthermore, simple uncertainty a b o u t certain types of facts constrains the articulation of optimal legal rules even in a static world. If accident probabilities depend, in part, on the number of miles driven or walked, then a negligence standard based only on speed will be inefficient. In principle, the analysis could still be carried out with a suitable expansion of the options open to both drivers and pedestrians. In practice, the courts may be unable to obtain enough information a b o u t intensity of use to apply such a rule 9 . We are in a second best world where strict liability may be called for even when one recognizes that negotiations b e t w e e n the parties are costly so that some incentives for negligent behavior still exist. In this uncertain world, the economists' debate over alternative liability rules resolves itself into a debate first, on the relative ability of the courts themselves rather than the parties to the suit to do the "cost-benefit" analyses, and second, on the cost to the parties of influencing each other's behavior.
For example, in asbestos litigation workers who smoke would share the losses with firms who did not provide safety warnings. See Haddock and Curran (1985, pp. 6 3 - 6 6 ) . Calabresi and Hirschoff (1972) advocate strict liability on the basis of their understanding of the limitations of court determined negligence standards. Posner (1973), in contrast, appears to believe that courts are relatively good at fixing negligence standards. For a lucid explanation of these issues see Shavell (1980). See also Cooter ( 1 9 8 2 ) a n d Polinsky (1980).
98
An Organizing Framework
References Brown, J.P. (1973). "Toward an Economic Theory of Liability," Journal of Legal Studies, 2,323-349. Calabresi, G. (1970). The Costs of Accidents. New Haven: Yale University Press. Calabresi, G., and J.T. Hirschoff (1972). "Toward a Test for Strict Liability in Tort", }'ale Law Journal, 81, 1055-1084. Calabresi, G. and A.K. Klevorick (1985). "Three Tests for Liability in Torts", Journal of Legal Studies, 14. Calfee, J.E. and R. Craswell (June 1984). "Some Effects of Uncertainty on Compliance with Legal Standards", Virginia Law Review, 70,965--1003. Coase, R. (1960). "The Problem of Social Cost," Journal of Law & Economics, 3, 1--44. Cooter, R. (1982). "The Cost of Coase", ]o urnal of Legal Studies, 11, 1-27. Haddoc k, D., and C. Curran ( 1985). "An Fconomic Theory of Comparative Negligence", Journal of Legal Studies, 14, 49-72. Polinsky, A.M. (1980). "Strict Liability versus Negligence in a Market Setting", American Economic Review: Papers and Proceedings, 70, 3 6 3 367. Polinsky, A.M. (1983). An Introduction to Law and Economics. Boston: l.ittle Brown. Posner, R. (1972). "A Theory of Negligence", Journal of Legal Studies, 1, 29--48. Posner, R. (1977). Economic Analysis of Law, 2nd ed.. Boston: Little Brown. Posner, R. (1973). "Strict Liability: A Comment", Journal of Legal Studies, 2,205-215. Priest, G., and B. Klein (1984). "The Selection of Disputes for Litigation," Journal of Legal Studies, 13, 1-55. Shavell, S. (1980). "Strict 1.lability versus Negligence", Journal of Legal Studies, 9, 1-25.
Summary This n o t e outlines a general e c o n o m i c a p p r o a c h to the law o f torts. It shows that all efficient rules m u s t define negligent behavior as inefficient b e h a v i o r and m u s t hold an individual liable w h e n he or she is negligent and the o t h e r a c t o r is not. T h e n o t e d e m o n s t r a t e s h o w familiar rules such as strict liability with a defense o f c o n t r i b u t o r y negligence or simple negligence fit into this f r a m e w o r k and argues that c o m p a r a t i v e negligence can also be efficient u n d e r a c o n s t i t e n t e c o n o m i c a p p r o a c h .
THE SIMPLE ECONOMICS OF TORT LAW: AN ORGANIZING FRAMEWORK Susan Rose-Ackerman*
1. Negligence and the Learned Hand Test Considerable confusion in the economic analysis of torts can be cleared away if we are careful to understand how the term negligence is used by economists and how it is related to the Learned Hand test. Hand argued that the defendant should be held liable if the cost of prevention is less than the expected cost of the accident (i.e., probability of accident times damage) 1 . As many commentators have pointed out, this standard both ignores the possibility that the other person involved in the accident might have been able to reduce costs more cheaply and fails to consider the situation in which both sides should take some preventive actions. While wishing to acknowledge the precedent of Judge Hand, students of law and economics recognize the limitations of his test as stated and instead argue that an action should only be judged negligent if it is inefficient (e.g., Brown, 1973; Calabresi, 1970; Posner, 1972; and Posner, 1977, pp. 1 1 9 162). For example, suppose an activity with expected accident costs of ~150 can be prevented by person A at a cost of ~100 and person B at a cost of ~50. Then only person B would be found negligent if he failed to spend the ~50. Person A would have no legal obligation to spend anything. It is legally irrelevant to point out that if B's accident avoidance costs were higher, then A should take action. For example, person A would become liable if a change in circumstances raised B's costs to ~105. Thus negligence is, in economics, a relative concept. Even though you be-
* Columbia University, 435 West, 116th Street, New York, NY 10027, U.S.A. 1
United States v. Carroll Towing Co., 159 F. 2d 169 (2d Cir. 1947).
92
An Organizing Framework
have in exactly the same way in two situations y o u may be found negligent in one b u t not in the other.
2. Efficient and Inefficient Liability Rules Taking this legal standard as given, not as a positive matter of judicial behavior b u t as a matter of normative economic analysis, what choices are open to the legal system? To keep the analysis concrete, consider automobile-pedestrian accidents where only driving speed and whether the pedestrian runs or walks affect the probability and severity of accidents ~. Suppose that cars can be driven at one of two speeds: fast or medium, and that the efficient standard is for people to walk and cars to be driven moderately fast. Thus both running and speeding are judged negligent 3 . Four combinations, illustrated below, must be considered:
Driver Fast
Moderate
Runs
1
2
Walks
3
4
Pedestrian
Table 1
Suppose that courts can always accurately determine the behavior of drivers and pedestrians and that negotiations between drivers and pedestrians are very costly so that the legal rules themselves provide the basic incentive. Thus, for example, if the driver is held strictly liable in all four situations, he will be unable to bribe the pedestrian to change his behavior. This is a strong assumption, at the other extreme from the conditions of the Coase theorem (Coase, 1960; see also Cooter, 1982), b u t it is a good place to begin the analysis. To p r o m o t e efficient behavior, the legal system must assign liability in each situation in Table 1 so that rational actors will end up in b o x four. In addition, the law must concurrently decide how to apportion the losses that occur when no one is negli-
In particular, the overall a m o u n t of driving or walking does not affect accident probabilities. The example is from Polinsky, 1983, pp. 37--50, 66--72. Note that this example could easily be generalized to situations where the speeds of both automobiles and pedestrians are continuously variable. We then locate the speeds where the marginal benefits of increased speed are just balanced by the marginal costs and call this the negligence standard.
An Organizing F r a m e w o r k
93
gent 4 . If we limit ourselves to either/or rules, Table 2 catalogues all the logical possibilities, where P stands for pedestrian liability and D for driver liability. Each matrix shows who is liable under each circumstance. Consider each case in simple game theoretical terms where both actors behave independently taking as given the action of the other, i.e., no bargaining occurs. To see how the analysis proceeds in each case consider the example of case 9. Begin with box 3 where the driver speeds and the pedestrian walks. Then the driver has an incentive to slow d o w n and the pedestrian has an incentive to run so b o x 2 holds. But in that case the pedestrian n o w has an incentive to avoid liability by walking and box 4 holds. Once b o x 4 is reached, neither actor has any incentive to change. Students of tort law will recogaaize this as a negligence standard for drivers. The other cases can be analyzed in the same way. The arrows in Table 2 show the incentives of the actors to change their behavior and the circled alternative is the equilibrium in those cases where one exists. There are four efficient solutions, illustrated in column three, which provide incentives for both actors to take the efficient a m o u n t of care. In t w o the loss is borne b y the driver (cases 10, 12) and in two the loss is on the pedestrian (cases 9, 11). Notice that all efficient rules have P in b o x 2 and D in box 3, i.e., a person is always liable if he is negligent and the other actor is not. The four cases can be characterized as follows: Case 9 - Learned Hand Test: Liability on driver if and only if he is negligent (i.e., no contributory negligence and losses on pedestrian). Case 1 0 - "Reverse" Learned Hand: Liability on pedestrian if and only if he is contributorily negligent (i.e., strict liability on driver with defense of contributory negligence and losses on driver) (Calabresi and Hirschoff, 1972). Case 11: Strict liability on pedestrian unless driver is negligent and pedestrian is not (i.e., negligence with defense of contributory negligence with losses on pedestrian).
4
This is essentially C',dabresi's distinction between primary and secondary accident costs (1970, pp. 26-31).
An Organizing Framework
94
e~
To t
t= tT-
~tt°tl~II~tI
~+--
it"
~+--
~
95
An Organizing Framework
Case 12: Strict liability on driver unless pedestrian is negligent and driver is not (losses on driver) 5 . It is also instructive to consider the inefficient cases to see why they are unsatisfactory. Strict liability for either pedestrians (case 1) or drivers (case 5) has the obvious problem of not deterring negligence by the other party. Cases 2 and 6 are clearly pathological. In 2 the driver is liable only if he is not negligent and in 6 the pedestrian is liable only if he is not negligent. They are the mirror images of 9 and 10 respectively. Cases 3, 4, 7 and 8 are "all ones in which it pays one side or the other to be negligent. In the remaining, unstable cases, each combination of actions gives one of the actors an incentive to change his behavior and the result is indeterminate.
3. Comparative Negligence How does comparative negligence fit into this scheme? If the negligence standard is defined correctly 6 , then under comparative negligence, judgments are split when both driver and pedestrian violate the negligence standard. Thus is terms of my matrix, comparative negligence can be represented in box one of Table 3, where a is the share of costs paid by the driver if both are negligent.
Driver Fast Runs
Moderate
~atoD
Pedestrian ~ Walks
b to D
Table 3
D ( l - b ) to P
5
Compare the somewhat similar taxonomy in Calabresi and Klevorick, (1985). In addition, they are concerned with the type of information which can bc introduced at triM, i.e., can the plaintiff try to establish the defendant's liability by introducing information that only became known after the defendant decided on his level of safety. Such questions are especially relevant in toxic tort litigation where many years may pass between exposure and detectable harm.
6
Posner (1977, p. 124) assumes that, under comparative negligence, even if you arc not negligent in economic terms, you will still have to pay a share of the losses. This should not happen if the standard of negligence is defined correctly. Perhaps what he is pointing to is the court's difficulty in defining the proper standard.
96
An Organizing Framework
Comparative negligence does not provide a clear standard if neither actor is negligent. However, residual losses in box four can also be shared. Therefore, b in Table 3, also can range from 0 (losses in pedestrian) to 1 (losses on driver). Thus, Table 3 represents the general form that efficient rules must take where 0 ~< a~< 1, 0~< b~< 1. The four efficient rules in Table 2 are extreme cases with a and b equal to 0 or 1. This analysis confirms Haddock and Curran's (1985) recent claim that if the negligence standard has been set correctly, the debate over the use of comparative negligence or the defense of contributory negligence are essentially debates not about incentives b u t a b o u t the placement of losses, either when b o t h sides behave efficiently or when mistakes are made and neither side does. For economic analysts the legal standard that must be appried is clear whenever one side is negligent and the other side is not.
4. Problems in Defining the Negligence Standard While I hope that this framework will be helpful in clearing up some misunderstandings in the economic analysis of torts, it is important to make its limitations clear. In detailing the incentive effects of legal rules I assumed that the courts could clearly determine the standard of negligence and that pedestrians and drivers knew the standard and could apply it in determining how to behave. Furthermore, I assumed the standard was the correct one, i.e., automotive design and miles driven were irrelevant. These are strong conditions. If they held, no lawsuits would ever occur, no one would ever be negligent, and when accidents did occur, liability would be clearly established (cf. Calabresi and Klevorick, 1985). In practice, of course lawsuits occur because the parties disagree among themselves about how the court is likely to act (Priest and Klein, 1984). There may be uncertainty b o t h about the facts and about the way a legal standard will be applied to the facts 7 . The latter uncertainty is a function of the complexity For an instructive recent a t t e m p t to assess the effects of unc e rt a i nt y, see Calfee and Craswell (1984). The authors present a model in which, if the defendant's choices are continuous, then overcompliance may be more of a problem than undercompliance even in an uncertain world. The key to their argument is the fact that the marginal benefit to the defendant of taking care may be high even though total damages are below actual damages.
An Organizing Framework
97
and multiplicity of the world which makes precedents an imperfect guide to future decisions. It also depends upon the constant incremental changes that occur in social, technical and economic conditions. Can the roles that the applied to horses and buggies be extended to cover railroad, airplane and automobile accidents? Can the law that held in a world of small scale manufacturers and farmers be applied to relationships between large m o d e m corporations? If we suppose that c o m m o n law courts are frequently called upon to answer such questions, then individuals who, in good faith, a t t e m p t to avoid negligence may find that they have violated a new legal standard. If b o t h parties to a lawsuit violate the standard, then as long as the courts clearly articulate the new rule, comparative negligence seems to be a fair way of sharing costs 8 . Nevertheless, if only one individual violates the standard, that person must bear the full extent of the losses in order to provide the correct incentives for future conduct. Furthermore, simple uncertainty a b o u t certain types of facts constrains the articulation of optimal legal rules even in a static world. If accident probabilities depend, in part, on the number of miles driven or walked, then a negligence standard based only on speed will be inefficient. In principle, the analysis could still be carried out with a suitable expansion of the options open to both drivers and pedestrians. In practice, the courts may be unable to obtain enough information a b o u t intensity of use to apply such a rule 9 . We are in a second best world where strict liability may be called for even when one recognizes that negotiations b e t w e e n the parties are costly so that some incentives for negligent behavior still exist. In this uncertain world, the economists' debate over alternative liability rules resolves itself into a debate first, on the relative ability of the courts themselves rather than the parties to the suit to do the "cost-benefit" analyses, and second, on the cost to the parties of influencing each other's behavior.
For example, in asbestos litigation workers who smoke would share the losses with firms who did not provide safety warnings. See Haddock and Curran (1985, pp. 6 3 - 6 6 ) . Calabresi and Hirschoff (1972) advocate strict liability on the basis of their understanding of the limitations of court determined negligence standards. Posner (1973), in contrast, appears to believe that courts are relatively good at fixing negligence standards. For a lucid explanation of these issues see Shavell (1980). See also Cooter ( 1 9 8 2 ) a n d Polinsky (1980).
98
An Organizing Framework
References Brown, J.P. (1973). "Toward an Economic Theory of Liability," Journal of Legal Studies, 2,323-349. Calabresi, G. (1970). The Costs of Accidents. New Haven: Yale University Press. Calabresi, G., and J.T. Hirschoff (1972). "Toward a Test for Strict Liability in Tort", }'ale Law Journal, 81, 1055-1084. Calabresi, G. and A.K. Klevorick (1985). "Three Tests for Liability in Torts", Journal of Legal Studies, 14. Calfee, J.E. and R. Craswell (June 1984). "Some Effects of Uncertainty on Compliance with Legal Standards", Virginia Law Review, 70,965--1003. Coase, R. (1960). "The Problem of Social Cost," Journal of Law & Economics, 3, 1--44. Cooter, R. (1982). "The Cost of Coase", ]o urnal of Legal Studies, 11, 1-27. Haddoc k, D., and C. Curran ( 1985). "An Fconomic Theory of Comparative Negligence", Journal of Legal Studies, 14, 49-72. Polinsky, A.M. (1980). "Strict Liability versus Negligence in a Market Setting", American Economic Review: Papers and Proceedings, 70, 3 6 3 367. Polinsky, A.M. (1983). An Introduction to Law and Economics. Boston: l.ittle Brown. Posner, R. (1972). "A Theory of Negligence", Journal of Legal Studies, 1, 29--48. Posner, R. (1977). Economic Analysis of Law, 2nd ed.. Boston: Little Brown. Posner, R. (1973). "Strict Liability: A Comment", Journal of Legal Studies, 2,205-215. Priest, G., and B. Klein (1984). "The Selection of Disputes for Litigation," Journal of Legal Studies, 13, 1-55. Shavell, S. (1980). "Strict 1.lability versus Negligence", Journal of Legal Studies, 9, 1-25.
Summary This n o t e outlines a general e c o n o m i c a p p r o a c h to the law o f torts. It shows that all efficient rules m u s t define negligent behavior as inefficient b e h a v i o r and m u s t hold an individual liable w h e n he or she is negligent and the o t h e r a c t o r is not. T h e n o t e d e m o n s t r a t e s h o w familiar rules such as strict liability with a defense o f c o n t r i b u t o r y negligence or simple negligence fit into this f r a m e w o r k and argues that c o m p a r a t i v e negligence can also be efficient u n d e r a c o n s t i t e n t e c o n o m i c a p p r o a c h .