On Strict Liability: Reply to Hausman and to Schwartz

Abstract

In my paper Responsibility, Liability, and Incentive Compatibility, I develop a concept of strict liability with excuses for lack of agency.' I base the concept on two principles, responsibility and efficiency. These two principles are related to what Alan Schwartz calls the two reigning principles of tort law, as follows.2 From the corrective justice principle, I drop the notion of wrongfulness, and I split responsibility into two parts, responsibility as own-cost-bearing (or the responsibility principle: RP) and responsibility as restitution. I define efficiency, in the standard way in welfare economics, as the principle requiring outcomes to be Pareto optimal. My central claim is that, if we view both the responsibility principle and the efficiency principle as normatively appealing, we are not faced with the dilemma of having to give up some of one to get more of the other. My claim is that the two are complementary. We can get both at once. The idea is that the efficiency principle not only allows but also requires a distributive principle for implementation. I then apply this idea to draw specific conclusions about Pigou, Coase, and the theory of incentive compatibility. Under the assumptions of Pigou and Coase the efficiency principle, requiring Pareto optimality, is reduced to cost minimization. Until recently I had thought that the definition of efficiency as Pareto optimality, thence narrowed to cost minimization, was the same as that in the coreigning theory of tort law, what Schwartz calls the efficiency principle. However, Schwartz has recently told me that he and many other tort theorists further narrow their definition of the efficiency principle by identifying it with the Learned Hand test. If so, this identification is bound to lead to confusion because efficiency neither implies the Hand test nor is implied by it. There are several reasons why the Hand test does not imply efficiency. I discuss one reason, having to do with asymmetric information,