A. The economics of tort liability

    2. Complication 2: unobservable precautions

    What if the efficiency of some classes of precautions is observable by the actor but not the court?
    The usual example is "activity level." The court may be able to observe how many trips drivers take, but not how much each trip is worth.
    Another example would be how much attention drivers pay to their driving.

Under a negligence rule, you take the optimal level of the observable precautions     you will therefore not be found negligent     you therefore ignore costs to other parties in choosing the level of the unobservable precautions.     First-best remedy:     fine the injurer under strict liability     pay no damages to the victim     that's how criminal law works     Advantage: efficient precautions by both sides     Disadvantage: enforcement costs        --relies on public enforcement

    When we convert the damage payment into a fine we also convert the offense from a tort to a crime and must shift the enforcement mechanism from private law suits to enforcement by the state (F204)

    Second-best remedy:
    assign default liability to the party with more options for unobservable precautions
    apply negligence rule to the party with the fewest options for unobservable precautions.
    the other party will have an incentive to take all efficient precautions
    the only loss will be the unobservable precautions by the party with the fewer options to take them
    Stated in the reverse: [I]f Posner's conjecture that the common law is efficient is correct, courts should tend to impose strict liability for torts where potential tortfeasors vary a great deal.... I do not know whether such a pattern exists.... (F205)

    Application: Who has more options for unobservable precautions?
    (1) victim: apply negligence rule to injurer
    (2) injurer: assign strict liability to injurer in the absence of contributory negligence by victim

    Ex: drugs
    manufacturers have a lot more information about drug safety
    consumers who do not follow warning labels are negligent and cannot collect for adverse effects
    if you follow directions and still get injured, then you have a case
    it reverses negligent party: the drug company pays unless the customer was negligent

    Recap:
    Observable behavior = OB
    Unobservable behavior = UB

    3. The economics of tort litigation

    a. Why is anyone found liable for negligence?

    With perfect information, this would never happen, but we lack perfect information

    Injurer error (true negligence)

• miscalculates cost-efficient precautions
• gambles on escaping detection and/or liability
• unintended mistake

    Court error (false negligence)

• miscalculates cost-efficient precautions
• applies a "reasonable person" standard
      if you are a better than average driver, your cost-efficient speed might exceed the speed limit
      => you will be liable for harm even though you are not truly negligent and are behaving efficiently

    Court errors have an uncertain effect on incentives --it depends on what sort of errors the court makes, and we don't know the answer to that question

• Completely random court errors --> under-precaution (since you escape liability some of the time)
• Perfect information about the precautions you did take but court error about the precautions you should have taken (efficient precaution) --> over-precaution (since you can reliably reduce the chance of liability with extra precautions)

    All parties will find it in their interest, if an accident occurs and someone is sued, to spend resources trying to generate court errors in their favor. (F204)

    IV. Torts

    B. Harm

        Winn Dixie Stores, Inc. (d) v. Benton (p) 576 So.2d 359  (1991)

1. What are the facts of the case?
2. What did the court decide?
3. You are the judge:
   Suppose that the milk had leaked a few moments before the customer had slipped on it. 
   Would you have awarded damages?
4. Suppose the customer slipped on a wet floor because the manager had just cleaned up the spilled milk?
   Would you have awarded damages?
5. Suppose the plaintiff bases the claim strictly on the fact that the customer had slipped on spilled milk inside a Winn Dixie Store.
   Would you have awarded damages?

    illustrates a standard tort case

    2 parties:
    victim
    injurer = tortfeasor

    Impossible to isolate the 4 ingredients we are examining--harm, cause, liability, and damages--since by definition we must have them all in order to have a tort, but this case provides a good illustration of a basic harm

    A harm moves you to a lower indifference curve

    Harms are not always torts

    1. With a negligence rule, a tort => a harm in which the injurer does not exercise "reasonable care"

    Analogous to nuisances and external costs: Per Coase: "to quote Posser on Torts, a person may make use of his own property or . . . conduct his own affairs at the expense of some harm to his neighbors. He may operate a factory whose noise and smoke cause some discomfort to others, so long as he keeps within reasonable bounds. It is only when his conduct is unreasonable, in the light of its utility and the harm which results [italics added], that it becomes a nuisance." (Coase 11)

    Likewise with torts, some of the harms we suffer at the hands of others turn out to be efficient
    an efficient harm = an accident instead of a tort

    This option for escaping from liability encourages the victim to exercise reasonable care too.

    an inefficient harm = a "wrongful" harm = a tort

    2. a tort => a net social loss

    Recall the school owner who filed suit to block a rival: "One schoolmaster sets up a new school to the damage of an [existing] school, and thereby the scholars are allured from the old school to come to his new." (Eng. 18th c. judge citing 1410 case)
    Entry harms existing producers, but the harm is a pure transfer
    Society as a whole gains from the competition
    => Competition is not a tort

    In Winn Dixie, the loss suffered by Benton is not offset by a matching gain to Winn Dixie stores

    3. a tort => high ex ante transaction costs
    recall: using my car by taking it. Transaction costs are not high, so I am protected by a property rule. You must bargain with me in advance (ex ante).
    crashing into it. Transaction costs are high, so I am protected by a liability rule. You must pay damages after the fact (ex post).

    IV. Torts
    C. Causation

    the goal of examining causation is to try to zero in on the lowest-cost avoider of damages in order to provide that party with efficient incentives
    "The efficiency goal of negligence is to deter uneconomical accidents by allocating the loss to the 'cheapest cost avoider.'" (LEA 27)

    1. Causation criteria

    3 key ingredients to causation:
    (1) the "but for" test
    (2) proximate cause
    (3) foreseeability

    these establish practical considerations to limit the information costs that we expect injurers to incur

    Criterion 1: the "but for" test

    Without action A, does B still occur?
    If not, then A is a cause

    Davies v. Mann, 10 M. & w. 547, 152 Eng. Rep. 588 (1842)
    plaintiff = donkey owner; defendant = wagon owner

1. What are the facts of the case?
2. Who did the judge's opinion favor? (plaintiff)
3. You are the judge:
   Late at night, a driver runs a stop sign and hits a car driven by an unlicensed driver. The unlicensed driver sues for damages.
   Would you award damages?
4. How would you respond to the defendant's argument that the unlicensed driver had no business even being on the road in the first place?

    illustrates the doctrine of "last clear chance"

    components of "last clear chance":
    "(1) That plaintiff has been negligent and, as a result thereof, is in a position of danger from which he cannot escape by the exercise of ordinary care; and this includes not only where it is physically impossible for him to escape, but also in cases where he is totally unaware of his danger and for that reason unable to escape; (2) that defendant has knowledge that the plaintiff is in such a situation, and knows, or in the exercise of ordinary care should know, that plaintiff cannot escape from such situation; and (3) has the last clear chance to avoid the accident by exercising ordinary care, and fails to exercise the same, and the accident results thereby, and plaintiff is injured as the proximate result of such failure.'" (Perin v. Nelson & Sloan (1953))

    (1) plaintiff endangered by own negligence
    (2) a reasonable defendant would recognize the danger
    (3) the defendant fails to exercise ordinary care in a last clear chance to avoid the accident

    => an incentive to always exercise ordinary care
    the negligence of others does not excuse us from that obligation

    Criterion 2 proximate cause

    The "but for" test sets a very low bar: "I wish I had never been born"--makes your parents the cause of all your harms

    For want of a nail, the shoe was lost;
    For want of a shoe, the horse was lost;
    For want of a horse, the rider was lost;
    For want of a rider, the battle was lost;
    For want of the battle, the kingdom was lost;
    And all for the want of a horseshoe nail.

    So, can the blacksmith be sued for the value of the lost kingdom?

    Criterion 2 keeps the search for cause manageable by drawing practical limits on how far back up the line of events it will go.

    proximate cause does not => just the immediate cause

    a "substantial factor" with "a direct connection" and "without too many intervening causes." (Palsgraf v. Long Island Railroad Company (1928))

    Central of Georgia Ry. Co. (d) v. Price (p), 106 Ga. 176 , 32 S.E. 77 (1898)

1. What are the facts of the case?
2. Why does the defendant claim not to be liable?
3. Why doesn't the plaintiff just sue the hotel?
4. Did the court hold the railway liable? no-reversed award of damages
5. Suppose that instead of Mrs. Price being hurt in Montezuma, the accommodations that she should have ended up in in Winchester had been destroyed during the night. Should she reimburse the railroad for the benefit conferred?

    "the injury was occasioned by the negligence of the proprietor of the hotel or his servants in giving her a defective lamp. The negligence of the company in passing her station was, therefore, not the natural and proximate cause of her injury. There was the interposition of a separate, independent agency, the negligence of the proprietor of the hotel, over whom, as we have shown, the railway company neither had nor exercised any control. ... The injuries to the plaintiff were not the natural and proximate consequences of carrying her beyond her station, but were unusual and could not have been foreseen or provided against by the highest practicable care."
   

    illustrates a case of alternative causation

    A question to help pinpoint causation:
    If defendant isn't responsible, then who is?

    Similar situation: coincidental causation
    Berry v. The Bourough of Sugar Notch, 191 Pa. 345 , 43 A. 240 (1899)
    driving too fast and a tree falls on the cable car
    association is not causation

    Palsgraf v. Long Island Railroad Company, 248 N.Y. 339 (1928) -- deferred until after mock trial

    Criterion 3 foreseeability

        Adams (p) v. Bullock (d), 227 N.Y. 208, 125 N.E. 93 (1919)
        p=boy burned by contact with electrical; d=trolley company

1. What are the facts of the case?
2. Did the court opinion hold the defendant liable? Why not?
   "The trolley wire was so placed that no one standing on the bridge or even bending over the parapet could reach it. Only some extraordinary casualty, not fairly within the area of ordinary prevision, could make it a thing of danger."

    producers are not insurers--that's not what the tort system is best suited for

    foreseeability in these cases is used for a different purpose than in Palsgraf

what does unforeseeable mean?     Meaning 1: information costs are too high to make it efficient to discover the unforeseeable harm (Posner)     Bullock passed the negligence test.     the defendants were acting responsibly with respect reasonably foreseeable harm     => total loss is at least as high as foreseeable loss

Meaning 2: The size of the actual loss (L) is stochastic     agents base efficiency of safeguards on expected loss; the particular loss of each specific event is not precisely foreseeable, but the size of the average loss is.

    it is logically consistent to use foreseeable harm to decide whether negligence has occurred and then actual harm to determine case-specific damages

Justice Oliver Wendell Holmes: "the measure of the defendant's duty in determining whether a wrong has been committed is one thing, the measure of liability when a wrong has been committed is another.". . (Palsgraf dissent)