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Archive for March 24th, 2011

Liability vs. Negligence and the Incentives they create

We have arrived at the law and economics I was expecting, and hoping, out of this course. Friedman’s chapter 14 about Torts is extremely interesting!

First, it seems to me that ex ante is to negligence as ex post is to liability (feel like i’m back in grade school with that analogy) in the world of tort law. While both types of punishments, if you may, have different effects, which are both useful in different situations. Liability deals strictly with results while negligence scrutinizes the motives and efficient steps that should rationally be taken to prevent a harm. At one point in the text, Friedman talks of Judge Posner’s legal rule which puts the “ultra hazardous” activities under liability rules to reduce them, or at least their hazard to others.

But isn’t that just making room for much bigger damages with a smaller probability just like a ex post rule? I still understand Friedman’s efficiency that liability rules lets the legal system disregard private judgements, risks, and efficiency conflicts on individual actors that make negligence rules¬† less well suited to government.

Regardless, Liability and negligence rules are used all over in society today. The example of dual- causality¬† with tanks and cars on the road (pg. 202,03) was quite insightful. To conclude, as a cocky, dumb 16 year old driver I got in my first, and only, traffic accident. Mistakes on my part, as well as the other drivers, caused the accident, but looking back has me thinking. How is the court ever supposed to to “fully informed” as Friedman assumes to highlight his economic thinking. While the abstract economic reasoning here is sound, even in my accident, the police, and courts were ultimately unable to assign perfect blame. Courts are rarely very well informed on all the economic factors necessary to pick the most efficient. Perhaps that is why our system still has actors strategically trying to “prove” the facts are on their side by hiring the best lawyers, etc, instead of searching for a truly economically efficient outcome. I am left, as usual, slightly skeptical that their are any easy solutions to such complex problems.