Risk-Utility Analysis and the Learned Hand Formula: A Hand that Helps or a Hand that Hides?
61 Pages Posted: 3 Jun 2010
Date Written: 1990
Judicial inconsistencies in balancing costs against benefits in legal determinations, sometimes referred to as the Learned Hand Formula, indicate that the implications are not fully understood. The incorporation of more formal economic cost-benefit analysis by some courts has only served to increase the confusion and wariness about fostering such guidelines for social behavior.
This article's purpose is threefold. One is to demonstrate how the use of cost-benefit analysis necessarily imparts the moral and/or political values of the user into his or her decisions. While the cost-benefit technique is itself value-neutral, its application, as will be shown, requires that some moral choice be made for the cost-benefit implementation. Though the very existence of an underlying value-choice is often obscured by scholars' and judges' presentations of “objective” cost-benefit conclusions (whether deliberately or naively so), the value choices are in fact there and should be elucidated and discussed.
The second goal of this article, therefore, is to shed sufficient light on the dimensions of using cost-benefit reasoning so that the reader, whether or not in support of a particular application, can venture knowledgeably into a debate of the value choices attending any cost-benefit argument that might arise.
The third purpose of this article is to demonstrate that cost-benefit reasoning as an adjudicatory process is one that grows naturally out of legal jurisprudence and is not merely an intrusion by another social discipline. Because of the furor created by a particular brand of cost-benefit reasoning (primarily by the adherents of the Chicago School), cost-benefit analysis is often viewed as a callous derivative of economic theory insensitive to our notions of fairness and equity, rather than the tool it can be for facilitating existing constitutional values and mores.
Parts II and III cover a more detailed history of negligence standards showing the evolution from the avoidable accident approach to one of weighing and balancing, thereby demonstrating that cost-benefit reasoning is, in fact, organic legal doctrine and not the foreign construct of another discipline. However, these sections can easily by skipped without loss of continuity, if the reader should so desire.
Keywords: negligence, cost-benefit analysis, Chicago School, "avoidable accident", risk-utility analysis, Carroll Towing formula, Learned Hand Formula
JEL Classification: K13, K29, K39, K49
Suggested Citation: Suggested Citation