Scope of liability: the vanishing distinction between negligence and strict liability

The duty-of-care requirement cannot be used anymore as the touchstone to differentiate negligence from strict liability because it can be found in many forms of the latter. Duty of care is smuggled into strict liability hidden under the scope of liability requirement (traditionally called “proximate causation”). As far as the scope of liability requirement is common to negligence and to many forms of strict liability, there is a fairly large common ground to both liability rules, and consequently the marginal Hand formula is applied to both rules. Indeed, under a negligence rule, the marginal Hand formula is applied twice: first to assess whether or not the defendant did breach his or her duty of care, and, second, to delimit whether or not the defendant’s behavior was a proximate cause of the harm suffered by the victim. However, under a strict liability rule, the Hand formula is applied only once when the proximate causation question is raised. Traditional law and economics analysis has almost always taken the normative question raised by the causation requirement as given, which is a potential major problem due to the importance of scope of liability or proximate causation in legal practice. Defining the scope of liability, that is to say, the boundaries of the pool of potential defendants, is the basic legal policy decision for each and every liability rule. In the normative model presented in this paper, the government first chooses efficient scope of liability, and given the scope of liability, the government then decides the liability rule and damages that guarantee efficient precaution. In the article, most known scope of liability rationales developed by both common law and civil law systems are discussed in order to show the substantial common ground between negligence and strict liability.     

Lender Liability for Environmental Harm: An Argument Against Negligence Based Rules

A firm strictly liable for any harm done will choose an inefficiently low care level if there is a possibility that it goes bankrupt. One possibility to improve care is extending liability to secured lenders, as applied under CERCLA and as currently being discussed in the EU. I compare strict liability, partial liability and vague negligence for lenders in a model with moral hazard and environmental auditing. While auditing is socially valuable only if it increases the firm's care level, the creditor also calculates the reduction in the information rent. Thus, for each possible care level, monitoring is always too high. This effect is aggravated by a vague negligence rule, where the probability that a lender is found liable decreases in the level of auditing. It is demonstrated that partial liability is superior, because the incentive for excessive monitoring is diminished.     

Harmonization of Environmental Regulations When Firms are Judgment Proof

In an environmental setting, we examine different forms of harmonization based on either strict liability or negligence assuming the firm is judgment proof. When there is competition in standard setting then negligence dominates strict liability if there is upward pressure on standards. This upward pressure on standards arises as jurisdictions attempt to raise negligence standards. The desire to raise standards is affected by the degree of judgment proofness.     

Can Strict Criminal Liability for Responsible Corporate Officers be Justified by the Duty to Use Extraordinary Care?

The responsible corporate officer (RCO) doctrine is, as a formal matter, an instance of strict criminal liability: the government need not prove the defendant’s mens rea in order to obtain a conviction, and the defendant may not escape conviction by proving lack of mens rea. Formal strict liability is sometimes consistent with retributive principles, especially when the strict liability pertains to the grading of an offense. But is strict liability consistent with retributive principles when it pertains, not to grading, but to whether the defendant has crossed the threshold from noncriminal to criminal conduct? In this essay, I review the two most plausible arguments supporting an affirmative answer in the context of the RCO doctrine. First, perhaps this doctrine reflects a rule-like form of negligence, akin to a rule that prohibits selling alcohol to a minor. Second, perhaps this doctrine expresses a duty to use extraordinary care to prevent a harm. Neither argument is persuasive. The first argument, although valid in some circumstances, fails to explain and justify the RCO doctrine. The second argument, a duty to use extraordinary care, is also inadequate. If “extraordinary care” simply means a flexibly applied negligence standard that considers the burdens and benefits of taking a precaution, it is problematic in premising criminal liability on ordinary negligence. If instead it refers to a higher duty or standard of care, it has many possible forms, such as requiring only a very slight deviation from a permissible or justifiable standard of conduct, placing a “thumb” on the scale of the Learned Hand test, identifying an epistemic standard more demanding than a reasonable person test, or recognizing a standard that is insensitive to individual capacities. However, some of these variations present a gratuitous or incoherent understanding of “negligence,” and none of them sufficiently explain and justify the RCO doctrine.     

Environmental liability and harmonization in the presence of transboundary effects and hidden assets

Within the context of transboundary disputes, this paper seeks to determine which liability concept, negligence or strict liability, performs better when assets are secure against foreign claims for transboundary damages. Our results indicate that, if assets are hidden from foreign claims, strict liability will not implement the socially optimal outcome, but neither will negligence. However, even though the socially optimal outcome is not always achieved, strict liability weakly dominates negligence. These results suggest that the harmonization of statues that deal with transboundary pollution should be based on strict liability not negligence. JEL classification K32 · Q5 Smith and Eckert both thank SSHRC of Canada for financial assistance. We thank two referees for valuable comments that greatly improved the paper and Matt Smith for his research assistance. All remaining errors are our responsibility.     

Victim or injurer, small car or SUV: Tort liability rules under role-type uncertainty

In this paper we modify the standard tort model by introducing role-type uncertainty. That is, we assume that neither party knows in advance whether she will be the victim or the injurer when an accident occurs. When the standards of care of the two parties are set at the socially optimal levels, only pure comparative negligence and the equal division rule guarantee efficiency, while the rules of simple negligence, contributory negligence, and comparative negligence with fixed division (other than a 50:50 split) may produce inefficient equilibria. Since pure comparative negligence splits liability between negligent parties according to each party's degree of fault, it makes the accident loss division independent of one's role-type. This produces its efficiency advantage.We extend the model to the choice of vehicle size, as a factor determining who will be the injurer and who the victim in motor vehicle collisions. In the extension we analyze various standard negligence-based liability rules, and tax rules, as instruments to mitigate inefficiency resulting from the vehicle size “arms race.” We also examine two strict liability rules, one of which incorporates a comparative negligence feature; this rule prevents inefficiency from both role-type uncertainty and from the “arms race.”     

Victim interdependence in the accident setting

This paper considers the case in which potential victims affect each other by taking care. Analyzing standard liability rules, we show that the rule of strict liability with a defense of contributory negligence is in the best position to induce the efficient outcome, i.e., this liability rule ensures efficiency if victims affect each other negatively, that is care by one victim increases the accident exposure of other victims. This rule also makes attainment likely if victims affect each other positively, that is if care by one victim decreases the accident exposure of other victims. In contrast, other standard liability rules fail to induce first-best care.     

过失责任与严格责任的整合解释——一个信息费用的视角

过失本质上是一个具有经济学内涵的定义。过失责任与严格责任均致力于实现事故预防费用、事故损失与制度运作的行政成本之和的最小化。信息费用决定着它们达成目标的能力和运作成本。过失标准客观化的原因在于节省信息费用。过失责任受制于确定过失的信息费用,严格责任受制于评估预测事故损失的信息费用。经济学的逻辑而非道德理论为这两种归责制度及其变迁提供了一个融贯简约而又富有说服力的解释。     

On judgment proofness in the case of bilateral harm

This paper defies the widely held belief concerning the unambiguous superiority of negligence in settings of judgment proofness. We analyze a set-up with bilateral harm, bilateral care, and potential judgment proofness by one party to the accident. We establish that strict liability with a defense of contributory negligence can perform better than simple negligence and negligence with a defense of contributory negligence. It is shown that the former liability rule can better establish a discontinuity in individual costs conducive to inducing efficient care than the other rules.

Strict liability versus negligence when the injurer's activity involves positive externalities

In this paper, I assert that, if the potential injurer’s activity involves externalities unrelated to accidents, the strict liability rule minimizing only the social cost associated with accidents does not induce the social optimum. I also demonstrate that if the externalities are positive, the negligence rule can perform better than the strict liability rule by selecting the due care appropriately, whereas it cannot if the externalities are negative. This argument can be applied to the product liability law. JEL Classification K13     

Limited Liability and Imperfect Information—On the Existence of Safety Equilibria Under Products Liability Law

In the literature on the economics of tort law the Cournot-Nash equilibrium concept has been undisputed. In particular, the existence of a Cournot-Nash safety equilibrium has been taken for granted, given the usual convexity assumptions. In this paper a simple model of strict liability with the defence of contributory negligence is considered. Liability is assumed to be limited. It is shown that for a certain range of liability limits no Cournot-Nash safety equilibrium in pure strategies exists. A mixed strategy equilibrium exists but it turns out to be suboptimal.     

The reasonable person standard: a new perspective on the incentive effects of a tailored negligence standard

This paper compares the effects of a uniform reasonable person standard to a due care standard that is tailored to individual capabilities. This is done in a framework in which potential injurers can invest in developing greater capability. I show that the uniform reasonable person standard may induce better or worse investment incentives, depending on whether greater capability is represented by reduced precaution costs or reduced accident costs. In so doing, I show that recent results showing that the reasonable person standard creates better investment incentives are not general, but depend on the model of injurer capacity used. I go on to show the availability of “over-tailoring” of the negligence standard as a novel form of subsidy for investment in care technology. In some circumstances, holding an injurer to a lower standard of care than would be optimal in a perfectly static world can result in a trade-off between dynamic and static efficiency that is superior to that generated by either a uniform or tailored standard of care.     

过失相抵与无过错责任简

过失相抵是损害赔偿法中的一项基本规则,适用于所有的损害赔偿之债。在适用无过错责任的侵权行为中,除非法律另有规定,可以适用过失相抵,这是法律之公平精神与自己责任原则的要求。在可以适用过失相抵规则的无过错责任中,对该规则的适用也应有一定的限制。首先,只有当受害人对损害的发生或扩大有重大过失时,才能适用过失相抵,减轻侵权人的赔偿责任。其次,如果受害人是不完全民事行为能力人,无论是受害人本人还是其监护人对于损害的发生或扩大有过错,对侵权人赔偿责任的减轻都不得低于全部损失的一定比例。     

Tacit collusion and liability rules

This paper demonstrates that the likelihood of tacit collusion in a given oligopolistic industry may depend on the kind of liability rule applied to the industry. We study typical settings for the analysis of product liability and environmental liability. For the latter, it is established that tacit collusion is more likely under strict liability than under negligence. However, the two liability rules are equivalent with regard to their effects on tacit collusion in the model pertaining to product liability. This context-dependent impact on tacit collusion can be traced back to a difference in the shape of firms’ cost functions.     

Cost-effectiveness analysis in the courts: recent trends and future prospects

This article provides an initial look at how managed care organizations (MCOs) might incorporate cost-effectiveness analysis (CEA) into their decision-making process and how the courts might respond. Because so few medical liability cases directly involve CEA, we must look at other areas of the law to assess potential MCO liability for applying CEA. In general negligence cases, courts rely on a risk-benefit test to determine customary practice. Likewise, in product liability cases, courts use a risk-utility calculus to determine liability for product design defects. And in challenges to government regulation, courts examine how agencies use CEA to set regulatory policy. The results have been mixed. In product liability cases, CEA has led to some punitive damage awards against automobile manufacturers. But courts have integrated it in negligence cases without generating juror antipathy, and generally defer to agency expertise in how to incorporate CEA. The article discusses the implications of these cases for MCO use of CEA and outlines various options for setting the standard of care in the managed care era.     

Socially optimal liability rules for firms with natural monopoly in contestable markets

This article considers the problem of socially efficient liability rules for firms in contestable markets where natural monopoly prevails due to decreasing average cost. If the fixed cost that pushes the entry-limiting price above marginal cost is large relative to the level of external harm of firms, the negligence regime is socially superior to the strict liability regime. In the opposite case, the strict liability rule may be socially superior.     

Sequential torts and bilateral harm

This paper analyzes care incentives of individuals in a bilateral-harm setting if care choices are sequential. We find that the efficient outcome is not guaranteed under any liability rule considered, irrespective of whether information is perfect or imperfect. Furthermore, it is no longer possible to generally rank liability rules according to their induced social costs. These findings are in strong contrast to the sequential-torts setting in which harm is unilateral.     

A revised model of unilateral accidents

This paper suggests and justifies a revised formulation of the unilateral accident model based on relaxing two assumptions of the standard model: the precaution function and the harm function. The revised model is, therefore, more general and corresponds better to various situations. A resulting trait of the generalized model is its account for the interaction between the injurer’s care and activity levels, which was implicitly assumed away so far. The revised model is examined using a few standard issues in tort and the analysis brings new results and insights for the unilateral accident case. For example, the view that, under a negligence regime, due care can be defined regardless of the optimal level of activity holds under very restrictive assumptions. In general, due care must be defined simultaneously with the optimal activity level. In addition, the common view suggests that underestimation of the level of actual damages under strict liability would induce injurers to take insufficient care and to engage excessively in a risky activity (and vice versa, for overestimation). This paper shows that underestimation of actual damages may counter-intuitively lead to insufficient activity or excessive care levels. Similarly, the results of underestimating harm under a negligence regime prove to be different than commonly thought. In addition, the revised model questions the intuitive similarity between the underestimation of harm and the judgment-proof problem, and provides some new results for the latter problem.     

An attempt to incorporate fairness into an economic model of tort law

This paper incorporates fairness into a simple economic model of tort law and discusses the difficulties of doing so. People are assumed to adhere to either the negligence or the strict norm and to incur a cost if liability is not imposed in accordance with their norm. The optimal standard of negligence is determined in a trade-off between fairness and efficiency. Conditions are derived under which preferences for fairness do not affect the optimal negligence standard. The modeling difficulties concern the ad hoc nature of the fairness norms. They are argued to be inherent to the subject.     

An Economic Analysis of a Swedish Environmental Liability Case

A High Court case illustrates Swedish legal reasoning. The case extends the use of strict liability, although the main liability rule is negligence. The aim of the paper is to show the usefulness of the economic analysis in a practical case. The case concerns liability for damages caused by a leaky, hot-water pipe. The defendant maintained that it should not be held liable because it had not acted negligently, and the district court and the court of appeals supported the defence. Nevertheless, the High Court decided on strict liability. The High Court used a line of argumentation that, partly and implicitly, may have been economically correct. However, the precedence was most limited and unclear. Given an explicit goal of economic efficiency, the precedence would, in this simple and straightforward case, be that strict liability should prevail where the cause is unilateral and the injurer is able to cover and/or insure the loss.