Tort Law and Economics

Transcription

1 Tort Law and Economics Edited by Michael Faure Professor of Comparative and International Environmental Law, University of Maastricht and Professor of Comparative Private Law and Economics, Erasmus University Rotterdam, The Netherlands ENCYCLOPEDIA OF LAW AND ECONOMICS, SECOND EDITION Edward Elgar Cheltenham, UK Northampton, MA, USA

2 Contents List of contributors List of abbreviations General introduction xvii xviii xxi PARTI EFFICIENT LIABILITY RULES 1 Strict liability versus negligence Hans-Bernd Schdfer and Frank Muller-Langer Introduction Unilateral accidents Rule of no liability Negligence Relaxing assumptions Strict liability Relaxing assumptions for strict liability Liability and uncertain legal standards of due care Bilateral accidents The 'cheapest cost avoider' Rule of no liability Negligence Simple negligence Negligence with the defence of contributory negligence Comparative negligence rule Strict liability Simple strict liability Strict division of losses Strict liability with the defence of contributory negligence Strict liability with the defence of relative negligence Relaxing assumptions Litigation costs The decentralisation effect of strict liability and negligence The information-generating consequence of negligence

3 vi Tort law and economics Negligence generates public information on safety technology Information generated by the negligence rule alleviates principal-agent problems Strict liability versus negligence if the injurer's wealth is lower than the damage Liability and contracts Negligence under the disguise of strict liability, liability for design defects Multiple tortfeasors Risk aversion, liability law and insurance Relaxing behavioural assumptions of rational choice Comparing strict liability and negligence 36 Bibliography 39 2 Contributory and comparative negligence in the law and economics literature 46 Mireia Artigot i Golobardes and Fernando Gomez Pomar 2.1 Introduction The world of negligence Contributory and comparative negligence: concepts and evolution Contributory negligence: origin, development and later trend towards comparative negligence Comparative negligence: pure and modified forms Incentives to take care Initial literature: contributory negligence and the least-cost avoider Haddock and Curran and Shavell: the equivalence between contributory and comparative negligence Relaxing some of the initial assumptions and moving away from first-best analysis Evidentiary uncertainty and court error Stochastic due care and the losses of injurers and victims Heterogeneous agents Asymmetric information and liability rules as mechanisms to reveal information Convergence to equilibrium 72

4 Contents vii 2.5 Other grounds for criticism of comparative negligence 73 Ability to apportion negligence 73 Risk coverage 73 The role of jurors 74 The costly mechanism of adjusting the defendant's liability share both with respect to the plaintiff and with respect to the other defendants Empirical studies on the performance of contributory and comparative negligence rules, and on pure comparative versus modified comparative negligence Conclusions 77 Bibliography 77 PART II CAUSATION AND MULTIPLE TORTFEASORS 3 Causation and foreseeability 83 Omri Ben-Shahar 3.1 Introduction Causation in early economic analysis of law Prospective causation Causation and socially optimal care Causation under strict liability The effect of the scope of liability on the level of care The effect of the scope of liability on the level of activity Causation under the negligence rule The determination of the optimal standard of care The effect of the scope of liability on the actual level of care The scope of liability in an imperfectly operating negligence system Uncertainty over causation The case for threshold probability rules The case for the proportional liability rule Risk-based liability and safety regulation Causal apportionment among joint tortfeasors Foreseeability in tort law Foreseeability in contract law Causation and litigation costs 104 Bibliography 105

5 viii Tort law and economics 4 Joint and several liability Lewis A. Kornhauser and Richard L. Revesz Introduction Legal regimes Settlements Several only liability Joint and several liability with two defendants Independent probabilities Perfectly correlated probabilities The effects of limited solvency Joint and several liability with n > 2 defendants Deterrence: opening remarks Full solvency Negligence Strict liability Limited, exogenously determined solvency Endogenous solvency Fairness: several remarks Size of the plaintiff's recovery Division of the plaintiffs recovery The effects of settlements Division of the burden of insolvency Insurance under joint and several liability Conclusions References 5 Vicarious and corporate civil liability Reinier H. Kraakman 5.1 Introduction 5.2 The standard case for vicarious liability 5.3 Factors militating against strict vicarious liability 5.4 The interaction between principal and agent liability 5.5 Negligence and composite vicarious liability regimes 5.6 Reaching beyond the principal: alternative liability targets 5.7 Corporate civil liability versus criminal liability Bibliograohv

6 Contents ix PART III DAMAGES 6 Tort Damages 153 Louis T. Visscher 6.1 Introduction Full compensation of harm? Pecuniary and nonpecuniary losses Assessment of losses Damages for fatal accidents Introduction Optimal amount that injurers should pay Optimal amount that the surviving relatives should receive Compensation for nonpecuniary losses? Uncompensated losses Punitive damages Pure economic loss Harm to the victim or gain to the injurer? Future losses Role of defendants' wealth Mitigation of losses Judicial moderation, limitation of damages and insolvency Loss of a chance Multiple tortfeasors Secondary accident cost reduction Empirical research Conclusion 182 Bibliography Pure economic loss 201 JefDe Mot 7.1 Introduction A taxonomy of pure economic loss cases The insufficiency of explanations not based on efficiency Private versus social loss Private loss, social loss and market structure Strict liability versus negligence Unilateral precaution accidents Bilateral and trilateral precaution accidents Intentional versus negligent torts 209

7 x Tort law and economics 7.8 Economic analysis of the various types of cases Ricochet loss cases Transferred loss cases Closure of public service and infrastructures cases Flawed professional advice cases Conclusion 211 Bibliography Non pecuniary losses 215 Siewert D. Lindenbergh and Peter P.M. van Kippersluis 8.1 Introduction Tort law and economics Why should non pecuniary losses be compensated? Why compensation? Prevention Efficient distribution and insurance Valuation of nonpecuniary loss Risks of high awards Conclusions 225 Bibliography Punitive damages 228 A. Mitchell Polinsky and Steven Shavell 9.1 Introduction Optimal damages when injurers are found liable for sure: the basic theory of deterrence Optimal damages when injurers might escape liability Optimal damages when harm is underestimated Optimal damages when injurers' gains are socially illicit Optimal damages when parties can bargain and transact in the marketplace Optimal damages and punishment Optimal damages in the light of both objectives Extensions of the analysis 238 Bibliography 242 PART IV SPECIFIC CASES 10 Environmental liability 247 Michael Faure 10.1 Introduction 247

8 Contents xi 10.2 Goals of environmental liability Coase Negligence versus strict liability The influence of regulation on liability Criteria for regulation Necessity of the combination Violation of regulation and liability Compliance with regulation and liability Liability and incentive-based instruments Damage and damages Moving beyond the original polluter Causal uncertainty Joint and several liability Channelling of liability Liability of lenders and producers Latency and retroactive liability Retroactive liability? Changes in the level of care Insurance of environmental liability Moral hazard Adverse selection Latency and retroactive liability Causal uncertainty Compulsory insurance Disaster insurance Other compensation mechanisms Environmental federalism and environmental liability The nuclear risk Marine oil pollution Concluding remarks 274 Bibliography Products liability 287 Mark A. Geistfeld 11.1 Introduction The basic model for analyzing the efficiency properties of contracting and tort liability The significance of imperfectly competitive markets The role of consumer information about product risk Do consumers undervalue product safety? Informational mechanisms in product markets 293

9 xii Tort law and economics 11.7 Product warranties Insurance costs and warranty liability The regulatory problem The choice between negligence and strict liability Empirical studies of the effect of seller liability on product safety The impact of tort liability on innovation and productivity Products liability and the market for liability insurance Introduction to the main doctrines of products liability The requirement of defect Construction or manufacturing defects Design defects Warning defects Extended seller liability Defenses based on consumer conduct The enforceability of contractual waivers of seller liability Bystander injuries Compensatory damages Punitive damages The evolution of products liability, and the evolution of economics 320 Bibliography Medical malpractice 341 Steve Boccara 12.1 Introduction The development of medical malpractice liability The economic analysis of medical malpractice liability The nature of the doctor-patient relationship Incentive and compensation Medical malpractice and the law and economics approach Tort law, regulation and insurance The main topics of medical malpractice Negligence versus strict liability Standard of care Is the tort system relevant? Defensive medicine The medical malpractice crisis The context 356

10 Contents xiii Malpractice insurance and the underwriting cycle Some proposals to end the medical malpractice crisis Tort reforms Shifting toward a no-fault system Conclusions 364 Bibliography 365 PART V ALTERNATIVE COMPENSATION SYSTEMS 13 Tort law and liability insurance 377 Gerhard Wagner 13.1 Introduction The economic rationale of insurance The demand for insurance Risk aversion Consequences for the deterrence function of tort law Insuring liability for fault Non-pecuniary losses The supply of insurance Pooling: the law of large numbers Subdivision of risk Compensation of victims as a purpose of liability insurance? Economic problems of liability insurance Asymmetric information and imperfect insurance Adverse selection Moral hazard Effect: destruction of incentives generated by tort law Source: informational asymmetry Remedy: partial insurance Activity levels Economic virtues of liability insurance Unlimited liability on paper, limited liability in reality The pervasiveness of limited liability Limited liability and the incentive to take care Limited liability and the incentive to insure Limited liability and activity levels Compulsory insurance 397

11 xiv Tort law and economics Alternative means The limits of insurance: insurability Uninsurability as an argument in political discourse Elements of insurability Insurability as a flexible concept The impact of liability insurance on tort law 401 Bibliography No-fault compensation systems 406 Karine Fiore 14.1 Introduction No-fault systems: the priority given to the protection of victims Definition of no-fault systems The theoretical rationale of no-fault systems Higher compensation Lower transaction costs Lower insurance premiums Disadvantages of no-fault systems Examples and empirical evaluations Automobile insurance A universal no-fault system: the case of New Zealand No-fault versus strict liability systems Definition of the strict liability system The advantages of strict liability The efficiency of compensation systems: the necessary conditions Unlimited liability/compensation amounts Safety regulation Compulsory insurance Examples of compensation systems (based on strict liability) for catastrophic risks Compensation for nuclear accidents Compensation for marine oil pollution accidents Conclusions 427 Bibliography 427

12 Contents xv PART VI OTHER PERSPECTIVES ON TORT LAW 15 Harmonizing tort law: a comparative tort law and economics analysis 435 Willem H. van Boom 15.1 Introduction Tort law as domestic preference Domestic preferences and the market for tort law systems Differences in European tort law systems and the harmonization of tort law General Economic analysis in the harmonization debate Tort law an obstacle for the mobility of persons and goods? Bibliography Regulatory competition versus culture Cross-border externalities argument Race to the bottom argument Reduction of (transaction) cost T VII EMPIRICS 16 Empirics of tort 453 Ben C.J. van Velthoven 16.1 Introduction 16.2 Prerequisites for empirical analysis Variation Data Methods 16.3 The tort litigation system Effects 16.5 Safety Base rate Claiming rate Disposition of claims Punitive damages Administrative costs of tort reform on litigation and insurance effects Automobile accidents No-fault Other changes in liability rules

13 xvi Tort law and economics Other safety measures Industrial accidents 479 From negligence to workers' compensation 480 Trends in workers' compensation Product liability 482 Empirical findings 483 Asbestos Medical malpractice 485 Defensive medicine Cost-benefit analysis 488 Bibliography 490 Index 499