Tort Law - Economics of Law - Lecture Notes, Study notes of Economics and Law

Download Tort Law - Economics of Law - Lecture Notes and more Study notes Economics and Law in PDF only on Docsity! Econ 522 Review 3: Tort Law, Criminal Law, and the Legal Process Fall 2012 This document is by no means comprehensive, but instead serves as a rough guide to the material we have discussed on tort law, criminal law, and the legal process. I would suggest that you use other study aids as well (such as the lecture slides, discussion handouts, textbook, and exams from previous semesters) in your study for the final. 1 Tort Law • In contract law, we studied situations where people reach an agreement in advance, and then one harms another by breaking the agreement. • But in tort law, we study situations where people can’t reach agreements in advance, and then one harms another without having made any agreement. • Tort law mainly covers accidental harm, and seeks to achieve the efficient number of accidents. 1.1 Terminology • The plaintiff is the person who brings the lawsuit (the victim) • The defendant is the person who is being sued (the injurer) • Precaution is any step that can be taken beforehand to reduce the risk of an accident 1.2 Classic Theory of Torts In the classical theory of torts, either two or three elements must be present for there to be a tort: • Harm–the plaintiff needs to have been harmed • Causation–the defendant needs to have caused the harm to the plaintiff • Breach of Duty–the defendant needs to have failed to take the required standard of care (required only with a negligence rule) 1 Docsity.com Liability rules with perfectly calibrated compensation and standard of care Precaution Activity Liability Rule Injurer Victim Injurer Victim No Liability None Efficient Too High Efficient Strict Liability Efficient None Efficient Too high Simple Negligence Efficient Efficient Too High Efficient Comparative Negligence Efficient Efficient Too High Efficient Simple Negligence with Efficient Efficient Too High Efficient Defense of Contributory Negligence Strict Liability with Efficient Efficient Efficient Too High Defense of Contributory Negligence 1.3 Tort Liability Rules • No Liability–the injurer is never liable • Strict Liability–the injurer is always liable • Simple Negligence–the injurer is only liable if he or she did not take the required standard of care • Comparative Negligence–like simple negligence but if both parties are negligent then damages are less than if only the injurer is negligent • Simple Negligence with Defense of Contributory Negligence–if both parties are negli- gent, damages are zero • Strict Liability with Defense of Contributory Negligence–the injurer is only liable if the victim was not negligent 1.4 How a Negligence Rule Works The problem with strict liability and no liability rules is that they do not induce precaution by the victim and injurer simultaneously. To do this, we need a negligence rule. How does this work?1 • The discontinuity in the injurer’s cost at the efficient level means that the injurer takes efficient precaution. • Anticipating the injurer’s decision to take efficient precaution, the victim perceives that he will bear the residual risk, so he takes efficient precaution as well. 1.5 Errors • Under strict liability, random errors in setting damages have no effect, and systematic errors in setting damages too high (too low) result in inefficiently high (low) precaution by the injurer 1To see more on this subject (including graphs!) see lectures 16 and 18. 2 Docsity.com • Discovery system requires parties to reveal private information they would otherwise choose to withhold. This corrects relative pessimism (making settlement less likely) and makes threat points more clear (making settlement more likely). • Who pays costs? – British rule: loser pays both parties’ expenses – American rule: each party plays their own expenses – Federal Rule 68: if one party offers a settlement more than 10 days before trial, and the other party refuses, the offeree is responsible for legal fees if the judgement is less favorable to them than the settlement offer; gives parties more incentive to make and accept serious offers 2.4 Unitary and Segmented Trials • Unitary trial considers liability and amount of damages at the same time • Segmented trial considers liability first, damages second • In the U.S. the type of trial is up to the judge 3 Criminal Law 3.1 Differences from Civil Law • Criminal intent (guilty mind, latin mens rea) • Plaintiff is the government–no victim required • Harm to society as a whole in addition to private citizens • Higher standard of proof–beyond reasonable doubt instead of preponderence of the evidence • (Costly) punishment instead of damages • Intent is to prevent all crime instead of just the inefficient ones 3.2 Why Criminal Law? Criminal law may work better than tort law to deter crime: • Perfect compensation may be impossible • If not all criminals are caught, deterrence requires punishment more severe than the crime • Criminals may be judgment proof 5 Docsity.com 3.3 Optimal Deterrence • Marginal social cost of increased enforcement may be positive (by increasing the num- ber of criminals punished) or negative (by reducing crimes committed and number of criminals punished) • Optimal punishment sets (expected punishment)=(harm to victim)-(marginal cost of deterrence) • Two effects of harsher punishments: deterrence (more costly to commit crime) and incapacitation (criminals are already locked up) • Empirically, increased probability of being caught has a greater deterrant effect than increased severity of punishment 3.4 Punishment • In the U.S., the most common punishment is imprisonment. In addition to deterrence, this has the effect of incapacitating criminals; this added effect is only effective when the supply of criminals is inelastic. Imprisonment tends to be inefficient: putting someone in prison is costly and makes them worse off. • In Europe, many crimes are punished by fines. Fines are efficient, but create the potential for abuse, since the money must go somewhere. • In the U.S. the death penalty is extremely expensive due to additional legal safeguards; it’s currently more expensive in the United States to execute someone than to imprison them for life. • Additional punishment for crime: Stigma – People don’t want to hire convicted criminals; having a conviction on your record is an extra punishment – In the absence of wrongful conviction, stigma has negative social cost, since it gives people information about criminals’ proclivity to commit crime. – However, stigma increases the cost of wrongful conviction, since in this case it gives people bad information. This suggests that criminal cases should have a higher burden of proof than civil ones. 6 Docsity.com