| Abstract: |
In the traditional model of the law and economics of torts, harm accrues
proportional to use. This has the remarkable implication for
products-generated torts that product performance concerns (e.g., issues of
care and of liability for harm) can be considered independently of market
performance concerns (e.g., market structure and competition). Moreover, the
classical analysis finds that all liability regimes (strict liability, no
liability, and negligence based on the socially-efficient due care standard)
yield the same choice of care by the firm in the unilateral care tort model.
We modify the standard model to allow for cumulative harm (that is, the
per-unit expected harm is increasing in the level of use); examples from
pharmaceuticals, environmental risks, privacy, food products, and mechanical
systems are provided. We show that, when expected harm is cumulative, the
separation between the level of care and the level of output does not occur.
We further show that the different possible liability regimes now produce
different outcomes and yield different implications for social efficiency.
This implies an interaction between law concerned with liability and law
concerned with market performance. Since these generally governmental (and
private law) responsibilities are divided among relevant agencies and
institutions, and are the subjects of different bodies of law, this presents a
challenge to the correct design of rules for agents in the economy. We argue
for selection among alternative liability regimes based upon what we refer to
as “resilience:” a resilient policy is robust to the incentives for agents to
undermine it and flexible with respect to outside influences (e.g., from
antitrust authorities or regulators). Strict liability is a resilient policy;
no liability and negligence are not resilient. Thus, we provide a new argument
for strict liability with respect to product-generated harms. |