The Economics of Tort Law

Activity-Level Externalities

“…In this case, in fact, the injurer does not have to pay a sum of money to the victim, but can undertake their own activity and has to pay a tax, the total of which is equal to the expected damage. By doing so both subjects are the residual bearer; both therefore act only if the benefits deriving from a h i g h e r activity level are greater than the amount of the expected damage and the cost of the precautions (Parisi and Dari-Mattiacci 2006). In other words, if it is true that the residual bearer adopts an efficient level of precautions and a n efficient activity level, the result is a minimization of the social costs in a system of Pigovian taxation, where both subjects incur the cost of the expected damage.…”

“…Both books and scientific articles highlighted the fact that, given a unilateral accident model, the rule of strict liability induces the injurer to adopt efficient precaution and activity levels (Shavell 1980a and b, Miceli 1997, Cooter and Ulen 2004, Parisi and Dari-Mattiacci 2006;…”

Tort law and probabilistic litigation: How to apply multipliers to address the problem of negative value suits

“…For instance, if there is no credible threat of facing financial repercussions, too few potential tortfeasors invest adequately in precaution, leading to higher overall accident rates. 5 Especially if tortfeasors are in a position to prevent certain accident losses at low costs, the absence of a reasonable expectation of facing a lawsuit is problematic. In such circumstances, creating positive value suits can lead to substantial welfare gains.…”

“…4 Burbank (1987). 5 An inadequate amount of lawsuits may occur because a plaintiff does not adequately take into account the positive effect of his lawsuit on the deterrent function of the tort system. This problem will be acute when the social benefits of a lawsuit outweigh the private gains of the plaintiff (Shavell, 1982) A RAND study estimates that only 1 in 10 injuries result in attempts to collect liability compensation.…”

Technology and torts: Memory costs, nondurable precautions and interference effects

“…In doing so, we rely on Mark Grady"s important, yet often overlooked article, in which he distinguishes between various types of precautions created by technology (1988). 6 Certain technology prescribes one-time investments in precaution (durable acts of precaution), while other technological advancements require precautionary measures that involve multiple acts of foreseeing, complying, or remembering (nondurable acts of precaution). 7 Generally speaking, technology increases the scope of liability exposure.…”