Richard Markovits, ‘Tort-Related Risk Costs and the First-Best Economic Inefficiency of the Hand Formula for Negligence: How To Fix the Formula When It Can Be Fixed and Why It Sometimes Cannot Be Fixed’

Abstract:
The concept of negligence is a core concept of the common law. Judge Learned Hand’s B<↓(PL) formula for negligence is widely accepted in the legal academy and is increasingly used by U.S. common-law courts.

This Article begins by pointing out four facts: (1) tort-loss avoidance-moves will affect not only weighted-average-expected tort losses but also the sum of the risk costs that potential tortfeasors and potential tort victim(s) bear in relation to the relevant tort-loss contingency; (2) the predicted assignment of tort liability will affect the risk costs that potential tortfeasors and potential tort victims respectively bear in relation to the relevant tort-loss contingency as well as the sum of those risk costs; (3) the Hand formula for negligence does not take account of the impact that a tort-loss avoidance-move will have on the tort-loss-related risk costs borne by the potential tortfeasors and potential tort-victim(s); and (4) on standard first-best assumptions, in a significant number of situations, this feature of the Hand formula will preclude its application from securing economic efficiency. The Article then investigates whether a variant of the Hand formula that contains a term that takes account of the impact that an avoidance-move will have on the tort-related risk costs that potential tortfeasors and potential tort victims bear could be developed whose universal, accurate implementation would maximize economic efficiency on first-best assumptions. After pointing out that any such variant of the Hand formula would have to specify whether the ‘change in risk cost’ term it contains is to be calculated on the assumption that the tortfeasor will be found liable or on the assumption that the tortfeasor will be found not liable, the Article demonstrates that (1) in some categories of situations, a relatively-straightforward revision would create a Hand-type formula (that it specifies) whose application would maximize economic efficiency on first-best assumptions, (2) in other categories of situations, the revision that will generate a Hand-type formula whose application will secure economic efficiency on first-best assumptions will be paradoxical—viz, will involve the addition to the right-hand side of the standard Hand inequality of a victim-liable (injurer-not-liable) ‘change in total risk cost’ term that creates a formula under which the injurer will be liable for (will be found negligent for) rejecting the avoidance-move in question and secures economic efficiency not by inducing the potential injurer to avoid but by rendering economically efficient the injurer’s continuing rejection of the relevant avoidance-move, (3) and in still other categories of situations, no risk-cost-related revision can create a Hand-type formula whose application would secure economic efficiency on first-best assumptions.

Richard S Markovits. 2015. Tort-Related Risk Costs and the First-Best Economic Inefficiency of the Hand Formula for Negligence: How To Fix the Formula When It Can Be Fixed and Why It Sometimes Cannot Be Fixed.

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