36 Pages Posted: 22 Mar 2023
Date Written: February 20, 2023
The time-honored proverb “one person’s loss is another person’s gain” captures a universal truth: the misfortune of some may be a blessing to others. Surprisingly, this bit of conventional wisdom has been lost in the scholarly discussion of “the most central idea of many first-year torts classes today” (Zipursky, Sleight of Hand, 2007)
According to the conventional definition of reasonableness, commonly known as the Hand formula, a person acts unreasonably (negligently) towards another if they fail to take precautions whose cost for the actor is lower than the expected loss for the other that these precautions can prevent. While law and economics theorists have advocated and courts have often embraced adjustments to both sides of this algebraic formulation, the idea that the expected loss must be compared with the cost of precautions for the potential injurer has remained mostly uncontested. The Article unveils an overlooked yet fundamental flaw in the orthodox understanding and application of the Hand formula, namely the exclusion of the negative externalities of risk-reducing precautions from the analysis. Failing to take precautions typically increases the risk of harm to potential victims (“one person’s loss”) but may also confer benefits on the same people or others (“another person’s gain”). Taking additional precautions might therefore have negative externalities (the lost benefits to people other than the potential injurer). The Article shows that case law and academic literature have mostly ignored these repercussions, advocates their inclusion in the analysis of reasonableness, and explains how and to what extent this can be achieved.
The analysis unfolds as follows. Part I presents the origins of the traditional definition of reasonableness and demonstrates its entrenchment in legal practice and scholarship. It highlights the overlooked feature that has characterized this definition for almost a century: in assessing reasonableness, courts and scholars have consistently compared potential victims’ expected harm with the cost of prevention for the potential injurer, regardless of the negative impact of each precautionary measure on others.
Part II lays the theoretical foundations for the proposed legal modification. It first ascertains the most compelling normative rationale for the traditional definition of reasonableness, namely economic efficiency. It then shows that courts and scholars have regularly endorsed or advocated adjustments to the traditional definition when they realized that it would better serve its underlying goal as a result.
Part III argues that the legal reality depicted in Part I must be changed as per the insights outlined in Part II. It explains that ignoring the costs that precautionary measures impose on people other than the defendant in the assessment of reasonableness might lead to over-deterrence. The economic rationale thus calls for their inclusion in the analysis, as an additional adjustment to the Hand formula. Part III then clarifies whose costs must be considered, explains how these costs should be handled on the legal-conceptual level, and contends that they should be taken into account only if reasonably foreseeable.
Part IV shows that the negative externalities of precautions pose a much greater challenge under strict liability regimes, where traditional tools cannot ensure their internalization by potential injurers, and more radical solutions are required.
Keywords: tort law, negligence, the reasonable person, strict liability, law and economics, precautions
JEL Classification: k00, k13
Suggested Citation: Suggested Citation