Economics of Tort Law

Chapter 3 discusses economic analysis of optimal tort liability, focusing on the use of liability where private parties cannot provide optimal incentives through private ordering, and information is costly. It shows that the central motivations for tort liability—imperfect contracting and costly information—alter its optimal structure and incentive effects, both as applied to individual injurers and risk-imposers operating within organizations. Section 2 examines optimal tort liability in the context where liability is needed: where injurers and victims are “strangers” who cannot bargain over optimal risk prevention or responsibility for losses. Section 3 examines tort liability when injurers and victims are in a market relationship, as with products liability and medical malpractice. Section 4 extends the analysis of optimal tort liability to the situation where risk-imposers respond to information costs by conducting their activities through organizations, as is generally the case most important torts other than automobile accidents.