Consider
market for products sold by merchants
1 = equilibrium before accident with total S = mainland
S + island S
2 = equilibrium after accident w/ S = mainland S only
| DCS | |
| DPS mainland | |
| DPS island | |
| Dsocial welfare |
V. Tort law
D. Liability
4. Joint liability (cont'd.)
Sindell v. Abbott Laboratories, 26 Cal. 3d 588 (1980)
illustrates
probabilistic causation
P1: the action caused the injury
other causes are possible and there is no direct proof of responsibility for the specific
injury under litigation
P2: the defendants include the injurer
other possible injurers exist
| Defendant(s) (P2) | -->Alleged cause (P1) | -->Harm |
| Other possible injurers (1-P2) | ||
| Other possible causes (1-P1) |
Preponderance of evidence => P1 * P2 > 50%.
Remedies for P1:
Friedman: assemble a large enough group of victims so that
there is a > 50% chance that one of them was harmed by the alleged cause.
If the alleged cause raises probability of cancer by 10%,
then get at least 7 cancer patients to sue for 1 incident of cancer from the
alleged cause ((1-0.1)7 = 48% => P1 = 52%)
Posner's remedy in a nuclear radiation example: "[T]ort law might be well advised to consider defining the injury as the increased risk of death from cancer, rather than as the cancer itself. Then the whole population exposed to the burst of radiation would be able to sue when the accident occurs, using the class action device ... to economize on the cost of litigating many small claims." (P184-5)
Sindell v.
Abbott Labs focuses on P2--no direct proof of injurer identity
"There is an important difference between the situation involved
in Summers and the present case. There, all the parties who were or could have been
responsible for the harm to the plaintiff were joined as defendants. Here, by contrast,
there are approximately 200 drug companies which made DES, any of which might have
manufactured the injury-producing drug."
But "Should we require that plaintiff identify the manufacturer
which supplied the DES used by her mother or that all DES manufacturers be joined in the
action, she would effectively be precluded from any recovery."
Court
remedy for P2:
(1) sue "a substantial percentage" of all possible suppliers
(2) make each defendant's damage share = its market share
Postscript: The
follow-up trial also reached the California Supreme Court:
Brown v. Superior
Court (Abbott Labs),
44 Cal. 3d 1049, 245 Cal. Rptr. 412, 751 P.2d 470, (1988)
another opinion written by Stanley Mosk: court supported a
trial court peremptory ruling that the labs could not be held strictly liable
for the harm (appealed by the plaintiffs)
The court ruled for the defense that "a defectively designed drug
should not be measured by the standards of strict liability ... because of the public
interest in the development, availability, and reasonable price of drugs..." Drug
manufacturers should instead be subject to a negligence standard which "would impose
liability on a drug manufacturer only if it failed to warn of a defect of which it either
knew or should have known."
V. Tort law
E. Damages (D)
This is where the Posner
thesis is least convincing
There are many deficiencies in the way the common law handles damages
But the economics is messy too, complicated by irreconcilable
differences
1. The economics of damages
a. Efficiency issues
incompatible efficiency goals:
Goal 1: efficient precaution by injurer: Damages (D) = loss (L)
If probability
of being found liable (Pl) < 1
=> Expected damages = Pl x D
Efficiency => Pl x D = L
=> D = (1/Pl) x L
where 1/Pl = "probability multiplier"
Example: Pl =
0.5 => probability multiplier = 2
=> If L = $100K, then D should = $200K
In general, If Pl<1, then efficiency => D > L
Goal 2: efficient precaution by victim: D = 0
D > 0 => moral hazard
D > L => incentive to be a victim
Goal 3: encourage enforcement through private suits
D = opportunity cost of victim (time + legal exp.)
There are three good reasons for giving the right to prosecute to the victim.... One is that the victim is the person most likely to know that the tort occurred.... A second is that the victim is likely to be an important witness.... A third reason is that the victim has an additional incentive to prosecute: [to] deter future offenses.... (F212)
overall: an impossible task--one tool for 3 purposes
b. equity issues
equity goal:
compensation to the victim
=> "enough to
make the victim whole," ... as well off as if the injury had not occurred.
(F219)
=> tort law as insurance
accident
insurance is likely more efficient for compensation
<-- cheaper to administer
c. Valuation issues
(1) Temporary versus permanent damages
--Temporary
damages (periodic-payments): easier to estimate
But: court remains involved over time
creates disincentive
for victim to recover from injury
--Permanent damages:
| D1 | D2 | Dn | |||
| present value formula: | ------ | + | ------- | + ... + | ------- |
| (1+r) | (1+r)2 | (1+r)n | |||
Many variables
to estimate:
stream of future damages
time horizon of harm
appropriate discount rate
Frontloads damages => incentive for victim to exaggerate extent and duration of harm
(2) Valuing intangibles
(a) Life
Option 1: PV of future earnings
overlooks nonpecuniary benefits: leisure,
companionship, pleasure
also => rich "worth more" than
poor
Option 2: implicit valuation
parallels the Hand formula:
|DP/DS x L| = MCs
=> |L| = MCs / |DP/DS|
Example: people buy smoke alarms
Cost = $100
Reduced Pr(death by fire) = .0001 (1/100th of
1%)
Implicit value of life = $100 / .0001 = $1M
In practice, this is very
conservative since it is reliable only over a small reduction in risk.
People will pay much more for a large reduction in risk.
(b) Pain and suffering
Loss of enjoyment of
life.
=> can take a lot of money to restore utility since a
disabling injury
=> each dollar provides less utility after the injury than
before
2. Damages under the law
a. Actual versus expected damages
Vosburg v. Putney, 80 Wis. 523 (1891)
illustrates that "[a] tortfeasor takes his victim as he finds him." (F217-8)
"The rule of damages in actions
for torts[:}... the wrong-doer is liable for all injuries resulting directly
from the wrongful act, whether they could or could not have been foreseen by
him. ...
=> responsible for
actual damages
give[s] potential tortfeasors the right average incentive to take
precautions (F220)
Friedman notes that this contrasts with Hadley v. Baxendale which denied unforeseen damages--loss of profits due to broken mill shaft
What was the incentive gain from the Hadley v. Baxendale decision?
Note the difference: much lower information costs in a contract than in possible tort situations.
Rickards
v. Sun Oil Co., 23 N.J. Misc. 89 (1945)
Ex: a boat disables the only bridge to an island
Court denied damages for lost profits by island merchants
|
Posner is critical of this decision, rightly so (but
his economic analysis is flawed)
Consider
market for products sold by merchants |
|
||||||||
|
|||||||||
|
Inconsistent
results:
Vosburg v. Putney -- awards damages for
unforeseen harm
Rickards v. Sun Oil and Palsgraf v. Long
Island RR do not
As noted in critiquing Palsgraf, foreseeability is relevant to assessing negligence, but not to computing damages once negligence has been determined
Undercompensation => underdeterrence
b. Damages for intangibles
(1) wrongful death
Wycko
v. Gnodtke, 361 Mich. 331
(1960)
Ex: A negligent driver kills a 14-year old pedestrian
illustrates damages for pecuniary loss in the event of death
= lost income minus victim's living expenses
As noted in dissent: "It is undisputed that at common law there was no right of action for damages for negligently or feloniously causing the death of a human being."
Rationale: impossible to compensate the victim (claim dies
with the victim)
[What is the
value of life?] "The traditional common
law answer, oddly enough, was "nothing." This may have been ... a result of
viewing tort damages as compensation to the victim rather than disncentive to the
tortfeasor.... Legal reforms in the mid-nineteenth century made it possible for your wife
and children to sue for the cost to them of your dying, roughly speaking for your future
income minus the amount of it that you would have spent on yourself." (F96)
Statutes allow damages for pecuniary loss:
present value of lost earnings minus victim's living expenses
=> perverse incentive: if you run over a pedestrian, back
up
since if victim survives disabled, damages = present value of
total foregone earnings including living expenses
Results of common law approach: Overlooks other victims through loss of
companionship
+ Risks substantial potential underdeterrence
Friedman proposes that we allow individuals to benefit from their future death benefits through reverse insurance: sell off future claims for tortious loss of life, and let the buyer collect.
Why do these institutions not exist; why is there no market on which you can sell your future claims for the tortious loss of your life?... The first [answer] is that ... traditional common law did not award you or your estate damages for the loss of your life, on the principle that the claim dies with you.... The second and related reason is that the common law does not treat tort claims as transferable property.... [Y]ou cannot sell your claim to future damage payments. (F100)
My additional concern: I worry about the incentive effect of putting others in a position in which they have a financial stake in my untimely demise
(2) pain and suffering
Hunt v. K-Mart Corp. 981 P.2d 275 (1999)
A products liability case. Plaintiff fell from a defective office chair. At the trial, Plaintiff presented evidence from a psychologist and an economist who valued her damages from loss of enjoyment of life. These experts calculated Hunt's hedonic damages by assessing a percentage of loss suffered by her in each area of her life on a "loss of pleasure of life scale" and then inserting those percentages into a formula which translated the losses into actual dollar amounts. According to the expert testimony, the monetary value of Norma's loss of enjoyment of life was $228,526.The Supreme Court of Montana upheld the introduction of this evidence.
illustrates hedonic damages for pain and suffering--personal value of loss of enjoyment of life
not clear how the
court would have ruled if K-Mart had challenged hedonic damages earlier.
No systematic progress in this direction, but an emerging
trend
So, recent trend toward more generous damage awards
Common law tradition has been to undercompensate
(1)
defines damages narrowly:
no compensation for pain and
suffering
not counting the value of life to the
deceased
(2)
does not apply a probability markup
"punitive damages" allowed
only for "deliberate or reckless" torts
(3) Under the "American Rule," victims pay their own legal costs
So victims are not made whole
Benefit: it is not profitable to be a victim, so potential victims retain an incentive to take some precautions
All things considered: the common law in many respects promotes efficiency but it falls short in some important respects as well.