Law and Economics Classics - Law Amid Flux
At Grove City College, I teach Law and Economics--a course that explicitly examines how "people expand their options by cooperating." It therefore lies at the heart of "mere economics." In this sermon series, I'll be posting a summary of classic L&E papers over the coming weeks.
Rizzo, Mario J. "Law amid flux: The economics of negligence and strict liability in tort." The Journal of Legal Studies 9, no. 2 (1980): 291-318.
The classic “Austrian” paper on the then-emerging Law and Economics paradigm. Rizzo first critiques the prevailing “efficiency” standard in law and econ. This approach is most clearly seen in tort law where “negligence” is assessed on the basis of some Kaldor-Hicks dollar maximization standard. The clearest example is the Hand Rule. This approach also shows up in certain readings of Coase (1960). The so-called “normative Coase Theorem” would have judges decide in property disputes as if they were the market—that is, to allocate to the party who would come to possess the property right if transaction costs were negligible. This is the context for Rizzo’s critique.
The basic claim is that courts cannot engage in the cost-benefit analysis that standard L&E would have them do due to the Austrian problems of uncertainty, subjective value, and the passage of time. As a result, Rizzo recommends substituting the bright-line rule of strict liability for negligence regimes. Rizzo examines a few classic cases—Bolton v. Stone, Re Polemis, Vincent v. Lake Erie Transportation, and Rylands v. Fletcher—to illustrate the difficulties in applying the conventional efficiency standard. The substitution of strict liability makes causality the primary question in any tort case. It makes first-possession the primary question in any property dispute.
Once the problems of uncertainty, subjective value, and time passage are accounted for, ironically, a universally-applied strict liability regime is more efficient than is the typical efficiency standard that attempts to weight negligence (tort) or divine the party with the highest willingness-to-pay (property). Such an approach allows for what Rizzo elsewhere calls “praxeological coherence” (in contrast to the “logical coherence” of the standard approach). As he puts it:
- “In a dynamic world in which the uncertainties of technological change, the ambiguities of foreseeability, and the absence of a unique objective measure of social all conspire to make the efficiency paradigm a delusion, the importance certainty in the legal order is clear. Strict liability obviates or minimizes the need for courts to grapple, if only implicitly, with such impossibly elusive problems as foreseeability, cheaper-cost avoider, social cost, and second best. It provides a series of basically simple, strict presumptions. The prim facie case is based on straightforward commonsense causal paradigms whereas the defenses and later pleas minimize the number of issues which must be considered in a given case.”
Similarly, on the classic Coasean example, Rizzo notes:
- “Consider the famous case of the railroad operating near a farmer's land. The farmer has decided to let crops grow right up to the edge of his property even though this means that the sparks emitted by the train will destroy some of the crops. Should the farmer be allowed to recover for the damage to his crops? In a system of strict liability, there is no need for a problematic cost-benefit analysis of the value of more food versus the value of faster train service. The railroad's use of its property oversteps the physical bounds of that property by the emission of particles in the form of sparks. The farmer's use does not similarly overstep the physical bounds of his property, and his conduct can be taken as constant.”