The Externality of Victim Care

Abstract:     
This essay identifies a flaw in the model currently employed to evaluate the economic consequences of common law liability rules in a joint care setting. The conventional model, it is shown, does not account for the externality of victim care, that is, the cost of victim care induced by injurer activity in a joint care setting. Recognition of this externality has important implications. In particular, the article demonstrates that neither negligence nor strict liability with a defense of contributory negligence will cause injurers to internalize the externality of victim care. Thus, neither liability rule will induce optimal injurer activity, even in those instances in which joint due care eliminates accident risk. Absent imposition of a Pigouvian tax, neither regime will induce efficient activity choices by the injuring party.

Identification of the externality of victim care suggests the existence of a second externality, the externality of injurer care. Neither negligence nor strict liability with a defense of contributory negligence will cause victims to internalize this cost when making activity choices. Absent imposition of a Pigouvian tax, even a negligence regime will not induce optimal activity choices by the victim.

The essay also offers some observations about the source of the oversight identified here as well as the implications of that oversight for the positive economic theory of tort law. The failure previously to identify the externality of victim care may reflect undue reliance on the farmer-railroad exemplar as a vehicle for examining the effects of various liability rules. Restrictive assumptions associated with this example, it is shown, inadvertently conceal the externality of victim care and produce conclusions that are not generalizable. Relaxation of these assumptions reveals this externality and allows construction of a model that can produce generalizable conclusions. Moreover, recognition of this externality may actually bolster the positive economic theory by, for instance, explaining the absence of a contributory negligence defense to torts premised on strict liability.

JEL Classifications: K13

Working Paper Series