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Description
2.1 Tort Law in an Economic Framework
In contrast to criminal law, which is enforced by public agencies, civil law relies on enforcement by private parties under rules promulgated by the public sector. One branch of the civil law is tort law. A tort occurs when someone deliberately or through carelessness causes harm to another person or property. In common law, a tort is a civil or private wrong for which the law provides a remedy in the form of monetary payments and equitable remedies for the party or parties, which are victims of wrong-doing. Under tort law, enforcement is performed by injury victims rather than by public officials, thus possibly overcoming the reluctance, or the lack of resources, of public officials to observe and act upon observed departures from regulatory rules.
Tort law applies to civil wrongs arising from extra-contractual liability, i.e., other than wrongs arising from a breach of contractual obligations. Contract law is an alternative to tort law, and substitution of contract law for tort law has been advocated under some circumstances, e.g., for situations involving medical injuries. In other circumstances, contracts are clearly impractical, such as among strangers and operators of motor vehicles, or when the contingencies that would be regulated by contract are very small, e.g., death or personal injury from using a product (Landes and Posner, 1987, p. 280).
Tort law has several goals, among the most important of which are (1) to deter misconduct and hence injury and (2) to compensate injury victims. There are also other objectives, such as meting out justice and providing a safety valve for airing victims' grievances. These latter objectives are important to maintaining a civil society. However, the deterrence is most directly pertinent for promoting the public's health.
An insight of economics is that optimal deterrence does not require that the injury rate be zero. Rather the socially optimal rate of injuries would only be zero if the cost of averting injuries were zero. Conceptually, the goal of injury prevention is to minimize the total cost of injuries which consists of (1) the costs resulting from the injury and (2) the costs of averting it. Costs resulting from an injury include but are not limited to expenditures on medical care and rehabilitative services, costs associated with reduced longevity, increased disability, pain and suffering as well as losses to property. Costs of averting injuries range from investments in the goods or services themselves and in redundancy (back-up systems to be used in the event of failure) to the time and effort involved in monitoring.
More specifically, let e be a potential injurer's expenditure on accident prevention during a specify time period, p( e) be the probability of an accident occurring, like e defined for a specify time period, and D(e) be the total loss incurred by the accident victim(s) should an accident occur.
Then the social objective is to End the e that minimizes
e + p(e)D(e)x. (2.1)
In Figure 2.1, e is a 45[degrees] line from the origin. The expected loss p(e)D(e) declines monotonically as e is increased but at a decreasing rate of decline. The sum e + p(e)D(e) declines up to the socially optimal investment in prevention e* and increases with further units of e. For this reason, e* is considered to be the socially optimal investment in prevention.
[FIGURE 2.1 OMITTED]
In other words, the total cost of injuries is minimized by investing in injury prevention up to the point at which the marginal cost of injury prevention equals the marginal benefit of such investments, which is the value of reductions in injury cost (Calabresi, 1970). Investing an infinite amount in injury prevention would only be optimal if the costs resulting from the injury were infinite, which is surely not so. In addition, allocating infinite amounts on injury prevention would leave no resources to satisfy other wants. In promoting socially appropriate deterrence levels, the task of tort is to provide signals to private decisionmakers about how much they should invest in injury-prevention activities.
Now suppose potential injurers faced no potential loss from the injuries that they cause. Then from a private standpoint and assuming that accidents cause no damage to oneself, the optimal level of e would be at zero. Potential injurers would allocate much less than the socially optimal amounts to injury prevention.
2.2 Alternative Liability Rules
Tort law operates under specified liability rules. Under a no liability rule, the victim bears all of the injury cost him or herself. Such rules apply in situations in which victims are thought to be well positioned to make decisions about the market transactions in which they engage, and there are... |
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