Dangerous Activities: A Law and Economics Perspective

Abstract

This work seeks to identify, in light of the main schools of thought within the field of Law and Economics, some useful criteria for optimal discipline of ultrahazardous activities. From that perspective, we examine potential solutions described by Shavell, Landes and Posner, by Dari-Mattiacci and Parisi. These solutions are likely to induce everyone within a given society, using tort remedies, to implement efficient, decentralized choices, even when there might be a danger of accidents arising out of the exercise of a ultrahazardous activity. Afterwards, we go on to discuss the issue of information that may be disseminated within that context by the potential tortfeasor, underscoring his informational advantage compared to the potential injured parties who, generally speaking, fail to appreciate the risk created by a dangerous activity. The analysis we have undertaken underscores that the potential tortfeasor, in order to reduce the size of the expected damage, may be led to demand excessive precautions, or an equally excessive reduction in activity levels on the part of the potential injured parties. The remedy to that problem could be a provision for an independent tort regarding the disclosure of subottimal informations. We then discuss how a fault-based liability system appears to be preferable, provided that the injured parties sue in a court of law. Indeed, the harm incurred by a single victim – from conforming her conduct to an instruction given by the operator of a dangerous activity – usually is not big enough to warrant filing suit. Therefore, the potential tortfeasor acts as though such independent source of liability does not exist. Punitive damages and class actions, on the other hand, may create incentives for filing suit, thereby disincentivizing the operator of a dangerous activity from requiring excessive precautions or excessive limitations of activity levels.

Keywords: Dangerous Activitiy; Shavell Theorem; Tort Law; Comparative Law and Economics; Activity Level

JEL Classification: K10; K13