Econ 522 – Lecture 19 (April 14 2009)- The midterm will be returned next Tuesday- HW 2 will be returned today- HW 3 is onlineo not due till April 30, but it’s long!Midterm 2 question 2Two weeks ago, before the midterm, we…- discussed the Hand Rule for defining a legal threshold for negligence- examined the effect of errors and uncertainty on incentiveso we found that under strict liability, injurers do not respond to random errors, but do respond to systematic errors in the level of damages awardedo we found that under negligence, injurers do not respond to small errors in damages awarded, either random or systematic; but they do respond very directly to errors in the application of the legal standard for negligence- we mentioned the paper by Schwartz, on the question of whether it all matters – whether people actually respond to real-life liability rules the way the model says they shouldo his finding: yes, but not as strongly as the model predicts- then we recapped some of the implicit assumptions that went into our basic modelof liability, and what happens when they are violatedo we talked about some of the ways in which people do not always behave rationally, and the effect this can have (we’ll come back to this question later)o we talked about the effect of bankruptcy – that is, when injurers can run out of money and avoid the full cost of damageso we talked about safety regulations, as one solution to judgment-proofnesso we talked about insurance a littleo and finally litigation costsToday, we consider a few other twists on liability- 1 -The first of these is called vicarious liability- These are instances when someone is held responsible for harm caused by someone else- One example of this is parents being held liable for harm caused by their child- The most common version, however, is an employer being held liable for harm caused by an employee- The legal doctrine is referred to as respondeat superior, “let the master answer”- Roughly, an employer will be held liable for unintentional torts of his employees if the employee was acting within the scope of his employment- For example, I hire someone to deliver packages in a company truck- If he speeds on his delivery route and causes an accident; I am held liable- But if I hire someone to deliver packages and he goes quail hunting during his lunch break and shoots another hunter, I am not liableo He was not acting within the scope of his employment when he caused theaccident- (It might have been before your time, but in the early 90’s, Domino’s had a thirty-minutes-or-less guarantee or your pizza was free. A few accidents caused by speeding delivery drivers, a few lawsuits finding Domino’s liable, end of the guarantee.)- A rule of respondeat superior gives employers incentives to take greater care in who they hire, and what they assign them to do- If employers are better positioned to make these decisions than employees, this may result in greater efficiencyo Also, employees might have less money, and therefore be judgment-proofo Respondeat superior gives the employer an incentive to keep an eye on hisemployees and make sure they are behaving responsibly- 2 -Vicarious liability can be implemented through either a strict liability or a negligence rule.- Under strict vicarious liability, an employer would be liable for any harms caused by their employees.- Under negligent vicarious liability, the employer is only liable if he was negligentin supervising the employee- Which rule is better depends on the situation.o Proving negligence is always harder than just proving harm and causationo If proving negligent supervision is too hard, then a rule of vicarious liability is worthless, since it will never be successfully applied.o The book gives the example of a negligent nurse in a hospitalo Proving that the hospital was negligent in supervising the nurse adequatelymight be nearly impossibleo So negligent vicarious liability would lead to no incentives for the hospitalto supervise its staff properlyo Strict vicarious liability would lead the hospital to reduce accidents.For an example favoring a negligence rule, the book gives the following example:“A sailor on a tanker might negligently discharge oil onto a public beach at night.Informing the authorities quickly about the accident will reduce the resulting harm and the cost of the cleanup.The employer might be the only person besides the sailor who knows that the harm occurred or who can prove that pollution came from its ship.Strict vicarious liability gives the employer an incentive to remain silent in the hope of escaping detection.In contrast, a rule of negligent vicarious liability gives the employer an incentive to reveal the harm to the authorities immediately in order to show that it carefully monitors its sailors.”- 3 -The next complication is joint and several liability- Suppose that you are injured in an accident caused by two injurers- For example, a friend and I are drag-racing our cars, and one of us hits you- Suppose the total harm done is $1,000- We are jointly liable if you can sue both of us at once, naming us as co-defendants and recovering $1,000 from us together- We are severally liable if you can sue each of us separatelyo Several liability with contribution is when each of us is only liable for a share of the damage, or your total recoveries are limited to the total harm doneo Several liability without contribution would be if you could sue us each separately for the full $1000, but this is generally not allowed- We are jointly and severally liable if you can sue either one of us for the full amount of damages, $1,000o With contribution would mean that if you sued me and won $1,000, I could then sue my friend to pay me back his share of it.Joint and several liability holds under the common law in two situations:1. The defendants acted together to cause the harm, or2. The harm was indivisible, that is, it’s impossible to tell who was actually at fault. (For example, the two hunters simultaneously shoot the third guy.)There are several advantages to joint and several liability from the victim’s point of view. - First, the victim does not need to prove exactly who caused the harm.- The book gives the example of an anesthetized patient being injured during an operation- Under joint and several liability, he or she could sue anyone in the operating roomat the time- Which is good, since the patient would have no idea what had
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