Law and Economics-Charles W. Upton Other Issues in Tort Law

Five Issues Rationality Regulation Insurance Bankruptcy Litigation Costs

Other Issues in Tort Law Rationality Suppose decision-makers cannot understand the system.

Other Issues in Tort Law Rationality Suppose decision-makers cannot understand the system. –Ms Jones should be careful, but cannot comprehend what that means. –How can she be efficient risk bearers?

Other Issues in Tort Law Rationality Suppose decision-makers cannot understand the system. Liability should be shifted to party capable of making rational decisions.

Other Issues in Tort Law Rationality Suppose decision-makers cannot understand the system. Liability should be shifted to party capable of making rational decisions. –Seat belts –Children

Other Issues in Tort Law Regulation Potential injurers are subject to regulation as well.

Other Issues in Tort Law Regulation Potential injurers are subject to regulation as well. A store may be required to have fire extinguishers as well as be liable for damages due to fire.

Other Issues in Tort Law Regulation Does meeting the regulations mean meeting the prudent standard of care?

Other Issues in Tort Law Regulation Does meeting the regulations mean meeting the prudent standard of care? –In other cases, the regulations have been set for other purposes (excluding competition) and the prudent standard is higher.

Other Issues in Tort Law Regulation Does meeting the regulations mean meeting the prudent standard of care? –In other cases, the regulations have been set for other purposes (excluding competition) and the prudent standard is higher. –In still other cases, the regulation defines prudent care (a speed limit).

Other Issues in Tort Law Regulation Do we need both systems?

Other Issues in Tort Law Regulation Do we need both systems? Cooter and Ulen suggest that there are cases in which the answer is yes.

Other Issues in Tort Law Regulation Do we need both systems? Cooter and Ulen suggest that there are cases in which the answer is yes. It looks like overkill to me.

Other Issues in Tort Law Insurance If you are insured, why worry about liability at all? –This is the moral hazard argument.

Other Issues in Tort Law Insurance Insurance companies try to induce optimal behavior. –Your auto rates depend on your driving record.

Other Issues in Tort Law Insurance There is also the question as to who should be insured. –Injurer –Victim

Other Issues in Tort Law Bankruptcy Should I insure against a potential risk of $100 million?

Other Issues in Tort Law Bankruptcy Should I insure against a potential risk of $100 million? Suppose the insurance company will charge $500,000 and I have assets of only $100,000.

Other Issues in Tort Law Bankruptcy Should I insure against a potential risk of $100 million? Suppose the insurance company will charge $500,000 and I have assets of only $100,000. I am better off going naked.

Other Issues in Tort Law Bankruptcy Should I insure against a potential risk of $100 million? Suppose the insurance company will charge $500,000 and I have assets of only $100,000. I am better off going naked. The liability system breaks down.

Other Issues in Tort Law Litigation Costs Litigation is expensive.

Other Issues in Tort Law Litigation Costs Litigation is expensive. Just as transactions costs may alter the conclusions of the Coase Theorem, allowing for liability costs may invalidate some of our assumptions, derived under the assumption of costless litigation.

Other Issues in Tort Law Litigation Costs Litigation is expensive. Just as transactions costs may alter the conclusions of the Coase Theorem, allowing for liability costs may invalidate some of our assumptions, derived under the assumption of costless litigation. I suffer a wrong of $50, but it will cost several hundred to litigate. I cannot justify the suit, and that reduces the injurer’s incentives to invest in precautions.

Other Issues in Tort Law End ©2004 Charles W. Upton