Remote Risks and the Tort System
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Description
remote risks and the tort system. The economic view of tort law provides that legal rules should define the scope of liability in a manner that induces individuals to take precautions that are ‘reasonable’, defined in terms that compare the expected cost of accidents (costs that will materialize should the accident occur, discounted by the probability of the accident) to the cost of precautions that would prevent the accident or ameliorate its effects. Since the function of economic analysis is to provide actual incentives to individuals, and not simply to state some ideal test that cannot be achieved, this calculus assumes the ability of target actors (those who are expected to act reasonably) to make ex ante calculations of appropriate conduct, and the ability of fact-finders (judges and juries) to determine ex post whether the target actors complied with the standard. Standard cases of tort law—for example, automobile accidents or slip-and-fall cases—involve situations in which human experience is sufficiently rich and the relevant knowledge sufficiently accessible, that we believe that both target actors and fact-finders will perform the relevant calculus with relative accuracy. A potential problem arises for this analysis when the relevant actors are ignorant of the costs, probabilities, or precaution costs related to an accident, even though those actors have invested optimally in the search for that information. Imposing liability in such cases may induce target actors to take more precautions than can be justified under the economic conception of tort law, or might encourage target actors to withdraw from socially desirable activities. Liability might be justified in such a case if we believed that the target actor was best positioned to determine the optimal investment in safety and to demonstrate that it had made the optimal investment. But there may be cases in which that showing is itself so subject to uncertainty that there exists serious doubt about the proper scope of liability. These issues become particularly salient where risks are remote, that is, where they occur with low frequency. The remoteness of the risk suggests that either target actors or fact finders could be ignorant of the information necessary to perform the relevant calculus. In addition, low probability either may be the source of or may aggravate heuristic devices that individuals use to deal with bounded rationality. These heuristics may systematically skew the decision making process about risk and thus prevent individuals from making the kinds of calculations that are necessary for optimal investments in risk avoidance. The mere fact that individuals act under conditions of bounded rationality, however, does not of itself suggest that liability is inappropriate. Whether a target actor should be liable when a remote risk materializes may depend on the source of ignorance, the relative capacity of parties to compensate for ignorance, and the capacity of decision makers to adjudicate the reasonableness of the target actor's decision.
Source Publication
New Palgrave Dictionary of Economics and the Law
Source Editors/Authors
Peter Newman
Publication Date
1998
Volume Number
3: P-Z
Recommended Citation
Gillette, Clayton P., "Remote Risks and the Tort System" (1998). Faculty Chapters. 733.
https://gretchen.law.nyu.edu/fac-chapt/733
