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Dari-Mattiacci, Giuseppe; Parisi, Francesco --- "Liability rules: An economic taxonomy" [2015] ELECD 902; in Bussani, Mauro; Sebok, J. Anthony (eds), "Comparative Tort Law" (Edward Elgar Publishing, 2015) 122

Book Title: Comparative Tort Law

Editor(s): Bussani, Mauro; Sebok, J. Anthony

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781849801416

Section: Chapter 6

Section Title: Liability rules: An economic taxonomy

Author(s): Dari-Mattiacci, Giuseppe; Parisi, Francesco

Number of pages: 22

Abstract/Description:

The predominant view among law and economics scholars is that “minimizing the social cost of accidents” is the principal purpose of tort law (Trimarchi, 1959a, 1959b, 1961, 1967; Calabresi, 1961, 1970). Unlike criminal activities, which society deems wholly unwanted and therefore impermissible, potentially tortious activities are ordinarily desirable. For example, driving cars, manufacturing, operating stores and restaurants, and practicing medicine are valuable activities that only incidentally create the potential for harm. The economic approach is to distribute those accident costs efficiently, so that the expected benefits of those activities, balanced against the expected costs, is maximal. Assuming the benefits of potentially tortious activities are fixed (an assumption we will later reconsider), the economic approach seeks to minimize the cost of accidents. We may analyze the “cost of accidents” as arising from three sources: (i) precautions, (ii) the harm itself, and (iii) litigation (Calabresi, 1970). Ordinarily, these costs are shared between three parties: tortfeasors, who bear the costs of their precautions, liability, and a share of court costs; victims, who likewise bear the costs of their precautions, harm, and a share of court costs; and taxpayers, who bear some portion of court costs. Notice that because neither the potential tortfeasor nor the potential victim bears the full expected cost of accidents, neither party will be fully incentivized to minimize those costs. It is this misalignment of incentives – between the private incentives of the parties and the social objective – that law and economics scholars have treated as the central problem of tort law.