Efficiency, Fairness, and the Economic Analysis of Tort Law
New York University School of Law
April 29, 2009
THEORETICAL FOUNDATIONS OF LAW AND ECONOMICS, Mark D. White ed., Cambridge U. Press, 2009
NYU School of Law, Public Law Research Paper No. 09-26
NYU Law and Economics Research Paper No. 09-21
Throughout its history, the economic analysis of tort law has been largely limited to one question: How should tort rules be formulated so as to minimize the social cost of accidents? Throughout its history, the economic analysis of tort law has also been controversial. The two phenomena are related. It is highly controversial whether tort law should minimize accident costs to the exclusion of fairness concerns, which in turn has fostered the belief that the economic analysis of tort law is controversial.
The most forceful critique has come from those who maintain that tort liability is best justified by the principle of corrective justice. This principle is based on an individual right that imposes an obligation or duty on another individual. A duty-holder who violates the correlative right has committed a wrong, creating a duty to repair or correct any wrongful losses suffered by the right-holder. This rights-based principle of justice purportedly rules out the economic analysis of tort law.
Such sweeping claims about the irrelevancy of economic analysis must be understood in context. If the appropriate rationale for tort liability is a rights-based principle such as corrective justice, then the justification for a liability rule does not depend on whether it is allocatively efficient. Economic analysis is “ruled out” for being irrelevant to the rights-based justification for tort liability.
Allocative efficiency does not need to be the norm of tort liability in order to make economic analysis relevant. Economic analysis is not limited to issues of allocative efficiency and cost minimization. It is an open question whether a rights-based tort system would employ economic analysis, and if so, how.
To address this question, I specify the substantive content of an autonomy-based, individual right that is both allocatively inefficient and fully compatible with the relevant requirements of welfare economics. As I have argued at length elsewhere, such a right also provides a good description of tort law. Thus, the idea that economic analysis is incompatible with or irrelevant to a rights-based principle of justice is mistaken. I conclude by arguing that economic analysis is integral to any plausible rights-based tort system.
Number of Pages in PDF File: 47
Date posted: April 29, 2009