Econ 522 Economics of LawSlide 1In this class, we generally ask two distinct questionsSlide 4Slide 4Vicarious LiabilitySlide 7Slide 8Joint and Several LiabilitySlide 10Comparative NegligenceComparative Negligence and Evidentiary UncertaintyComparative negligence and evidentiary uncertaintySlide 13Perfect compensationSlide 16One other odd feature of compensatory damages…Slide 17What’s a life worth?Kip Viscusi, The Value of Risks to Life and HealthSlide 21Slide 22Slide 23Viscusi’s findings: papers using wage differentialsSlide 25Viscusi’s results: papers using other tradeoffsViscusi’s results: papers using survey dataSlide 27Inconsistency of damagesPunitive damagesSlide 31Example of punitive damages: Liebeck v McDonalds (1994) (“the coffee cup case”)Liebeck v McDonalds (1994)Slide 34What is the economic purpose of punitive damages?This suggests…Slide 36U.S. tort systemSlide 39Slide 40Slide 41VaccinesMass tortsCooter and Ulen’s overall assessment of U.S. tort systemTo wrap up tort law, a funny story from Friedman…Econ 522Economics of LawDan QuintFall 2009Lecture 192Midterm 2Question 3a“Explain why expectation damages lead to efficient breach”3In this class, we generally ask two distinct questionsWhat do we expectpeople to actually do?What actionswould be efficient?vs.Promisor’scost of performingvs.Promisee’s benefit from performancePromisor’scost of performingvs.Promisor’s liability from breachExample: promisor’s decision to perform on contractExpectation damages: set promisor’s liability = promisee’s benefitOr, make private benefit from performance = social benefitPromisor “internalizes the externality” caused by breachThis way, promisor’s action matches the efficient oneSocialCostSocialBenefitvs.PrivateCostPrivateBenefit4In this class, we generally ask two distinct questionsWhat do we expectpeople to actually do?What actionswould be efficient?vs.Cost of injurerprecautionvs.Reduction in expected harmCost of injurer precautionvs.Reduction in expected liabilityAnother example: injurer precaution under strict liabilityStrict liability + perfect compensation: injurer’s liability = actual harmAgain, private benefit from precaution = social benefitInjurer internalizes the externality caused by accidents he causesAnd so injurer’s level of precaution matches the efficient oneSocialCostSocialBenefitvs.PrivateCostPrivateBenefit5Back to work:more twists on liability6Vicarious 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 Liability7Gives 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 Liability8Vicarious 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 Liability9Suppose 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 Liability10Joint 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 Liability11Negligence 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 Negligence12Evidentiary 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 Uncertainty13Comparative negligence and evidentiary uncertaintyx$p(x) Awxwx + p(x) Ax*Comparative negligence mitigates effect of evidentiary uncertaintyAny negligence ruleSimple negligence, evidentiary uncertaintyComparative negligence, evidentiary uncertainty14PerfectCompensation15Perfect 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 compensation16Recommended 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
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