Law amid Flux: The Economics of Negligence and Strict Liability in Tort

TLDR: In this paper, the authors analyze the economic aspects of a system of strict liability and conclude that efficiency is impossible as a goal for tort law, and that both the normative and positive justifications for the efficiency approach to tort law must be rejected.

Abstract: THE economic efficiency approach to the analysis of the common law, particularly the law of torts, has been growing rapidly in recent years and shows no sign of abatement. Nevertheless, some very fundamental analytic problems have not even been recognized in this literature, much less solved. It is the purpose of this essay to raise these problems in the context of the perennial conflict between negligence and strict liability. The first and major part of this paper will consist of a detailed study of the efficiency rationale for negligence law. Next, we shall analyze some of the economic aspects of a system of strict liability. The overall conclusion is that efficiency, as normally understood, is impossible as a goal for tort law. The law cannot and should not aim toward the impossible. Consequently, both the normative and positive justifications for the efficiency approach to tort law must be rejected. Our reasons for this conclusion can be divided into static and dynamic considerations. The most important by far, however, are the dynamic factors: Precisely because we live outside of general competitive equilibrium and in a world of unpredictable flux, the efficiency case for negligence must fail. In such a world, it is impossible to compare alternative liability systems in terms of judicial cost-benefit analysis or "fine tuning." Instead, they must be analyzed in terms of institutional efficiency-the certainty and stability that these rules impart to the social framework. A static world of general equilibrium would make an efficient tort law possible, and yet render it unnecessary; in such a world, markets would be universal. A dynamic world, however, demands the certainty and simplicity of static law.