The Hand Rule and United States v. Carroll Towing Co. Reconsidered

Judge Learned Hand’s opinion in United States v. CarrollTowing Co. (1947) is canonized in the law-and-economics literatureas the first use of cost-benefit analysis for determining negligenceand assigning liability. This article revisits the case in whichthe Hand formula was born and examines whether Judge Hand’sruling in that case would provide correct incentives for efficientlevels of precaution. We argue that the negligence test as usedby Judge Hand is somewhat different from the Hand test as usedby modern law-and-economics theorists. With a game theoreticanalysis of the case, we show that Judge Hand’s negligencetest could in fact produce games with inefficient equilibria,or with liability determinations opposite Judge Hand’s.