Econ 522 Economics of LawLast Wednesday…An example of regulation and liabilitySlide 3Vicarious LiabilitySlide 6Slide 7Joint and Several LiabilitySlide 9Comparative NegligenceComparative Negligence and Evidentiary UncertaintyComparative negligence and evidentiary uncertaintySlide 12Perfect compensationSlide 15One other odd feature of compensatory damages…Slide 16What’s a life worth?Kip Viscusi, The Value of Risks to Life and HealthSlide 20Slide 21Summary of Viscusi’s findings – 24 studies based on wage differentialsSummary of Viscusi’s findings – 7 studies using other risk-money tradeoffsSummary of Viscusi’s findings – 6 studies based on surveysSlide 25Slide 25Inconsistency of damagesPunitive damagesSlide 29Example of punitive damages: Liebeck v McDonalds (1994) (“the coffee cup case”)Liebeck v McDonalds (1994)Slide 32What is the economic purpose of punitive damages?This suggests…Slide 34U.S. tort systemSlide 37Slide 38Slide 39VaccinesMass tortsCooter and Ulen’s overall assessment of U.S. tort systemTo wrap up tort law, a funny story from Friedman…Econ 522Economics of LawDan QuintSpring 2010Lecture 192Defined the Hand Rule for determining negligence“Negligence depends on whether B < P x L”Or, “If precaution would have been cost-justified (efficient) and you didn’t take it, you were negligent”Examined the effect of errors (in setting damages and determining liability)Talked briefly about what happens when the assumptions of our model are violatedIrrational consumersJudgment-proof defendantsRegulation in addition to liabilityInsuranceCostly litigationLast Wednesday…3An example of regulation and liabilitysource: http://abcnews.go.com/Blotter/west-va-coal-company-deadly-explosion-fined-millions/story?id=102936914Today:more twists on liability5Vicarious liability is when one person is held liable for harm caused by anotherParents may be liable for harm caused by their childEmployer may be liable for harm caused by employeeRespondeat superior – “let the master answer”Employer is liable for unintentional torts of employee if employee was acting within the scope of his employmentVicarious Liability6Gives employers incentive to...be more careful who they hirebe more careful what they assign employees to dosupervise employees more carefullyEmployers may be better able to make these decisions than employees……and employees may be judgment-proofVicarious Liability7Vicarious liability can be implemented through…Strict liability rule: employer liable for any harm caused by employee (as long as employee was acting within scope of employment)Negligence rule: employer is only liable if he was negligent in supervising employeeWhich is better? It depends.If proving negligent supervision is too hard, strict vicarious liability might work betterBut an example favoring negligent vicarious liability…Vicarious Liability8Suppose you were harmed by accident caused by two injurersJoint liability: you can sue them both togetherSeveral liability: you can sue each one separatelySeveral liability with contribution: each is only liable for his share of damageJoint and several liability: you can sue either one for the full amount of the harmJoint and several liability with contribution: the one you sued could then sue his friend to get back half his moneyJoint and Several Liability9Joint and several liability holds under common law when…Defendants acted together to cause the harm, or…Harm was indivisible (impossible to tell who was at fault)Good for the victim, because…No need to prove exactly who caused harmGreater chance of collecting full level of damagesInstead of suing person most responsible, could sue person most likely to be able to payJoint and Several Liability10Negligence with a defense of contributory negligence was dominant liability rule in common law countriesNegligent injurer is liable, unless victim was also negligentExample: a car going 60 mph hits a car going 35 in a 30-mph zoneSince victim was also negligent, injurer is not liableLast 40 years, most U.S. states have adopted a comparative negligence ruleUsually through legislation, sometimes through judicial decisionAppealing from fairness point of viewBut any negligence rule leads to efficient precautionSo how do we explain the move?Comparative Negligence11Evidentiary uncertaintyGiven a legal standard for negligence, xn……and an actual level of precaution taken, x…still uncertainty in whether the court will find negligenceEvidentiary uncertainty, like random errors in setting xn, leads to over-precaution……but comparative negligence partly mitigates thisComparative Negligence and Evidentiary Uncertainty12Comparative negligence and evidentiary uncertaintyx$p(x) Awxwx + p(x) Ax*Comparative negligence mitigates effect of evidentiary uncertaintyAny negligence ruleSimple negligence, evidentiary uncertaintyComparative negligence, evidentiary uncertainty13PerfectCompensation14Perfect compensatory damages (D = A)Returns victim to original level of well-being(Works like insurance)And sets correct incentive for injurersBut in some cases, hard to determine levelMight be no price at which you’d be willing to give up a legCertainly no price at which a parent would be indifferent toward losing a childPerfect compensation15Recommended jury instructions, Massachusetts:“Recovery for wrongful death represents damages to the survivors for the loss of value of decedent’s life. There is no special formula under the law to assess the plaintiff’s damages…It is your obligation to assess what is fair, adequate, and just.You must use your wisdom and judgment and your sense of basic justice to translate into dollars and cents the amount which will fully, fairly, and reasonably compensate the next of kin for the death of the decedent.You must be guided by your common sense and your conscience on the evidence of the case…”And from California:“…You should award reasonable compensation for the loss of love, companionship, comfort, affection, society, solace or moral support.”Perfect compensation16Most people would rather be horribly injured than killedWhich means killing someone does more damage than injuring someoneBut compensatory damages tend to be lower for a fatal
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