Document Type

Article

Publication Title

Michigan Law Review First Impressions

Abstract

Within the law and economics field, there often surfaces a near hypnotic attraction to the Hand formula as the one and only tool that drives tort law toward economic efficiency. Hand’s intuition was, of course, that the test for efficiency requires a balancing of three variables. The burden of taking particular precautions is compared to the expected loss from some activity, which in turn consists of the likelihood of some particular harm multiplied by its anticipated severity. Liability attaches only where the burden of precautions is lower than the anticipated accident costs. By forcing cost-effective precautions and no others on potential tortfeasors, so the story goes, tort law weeds out desirable from undesirable conduct. It is against this background that it is appropriate to evaluate the distinctive contribution of Gilo and Guttel’s Article, which shows, with some instructive numerical examples, the weaknesses of the Hand formula in dealing with activity levels that, as the authors argue, may be too low as well as too high. The argument in the paper builds on the classic work of Steven Shavell, who showed, under the conventional economic framework, that the Hand formula does not lead to efficient results because it only takes into account the level of care conditional on entering into a given activity. Shavell pointed out that activity levels are also key to understanding risk creation. For example, drivers who travel longer than optimal distances create more unreasonable accidents even if they exhibit the proper care levels. Yet so long as their care levels are appropriate, they will escape liability because the tort system is unable to monitor their excessive activity levels. Suppose it could be proved, for example, that a given defendant drove ten percent more often than appropriate. The actual cause in fact turns out to be intractable because the injured plaintiff cannot prove at trial that her injuries took place during a period of excessive driving. So while some cases hint that it may be negligent to conduct certain activities at a certain location at all, most courts are not keen to use the Hand formula to treat as negligent decisions to operate refineries, place power lines over ground, or to sell outdoor swimming pools. In contrast, the strict liability system does not ignore activity levels. A strict liability system apportions liability solely based on outputs, not inputs, so the plaintiff need only show the violation, say, of a rule of the road to recover. Care levels and activity levels are irrelevant to the trier of fact on the issue of liability, but will be taken into account by the actor who is subject to liability. In some unstructured environments, a plaintiff wins by showing that she was struck by the defendant or fell into a trap of his creation. In other more regulated environments, the touchstone of liability is conformity with the rules of the road. The defendant who engages in more activity will create more harms, all of which he will be responsible for. The internal corrections against excessive activity and insufficient care thus operate silently in a strict liability system without placing huge informational demands on courts to make ex post assessments of the proper levels of ex ante risk. So why use the Hand formula at all in the unilateral accident cases analyzed by Shavell? The strict liability system adjusts to both variables in all cases.

First Page

37

Volume

108

Publication Date

2009

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