On the Transformation of Economic Analysis of Tort Law

Abstract

The Research Handbook on the Economic of Torts (Edward Elgar, 2013), edited by Jennifer Arlen, contains a very impressive collection of contributions written by leading tort scholars. The major theme that runs through the Handbook's diversified chapters is that the economic analysis of tort law has developed, as it should have, from ideal and generalized models into more realistic, informed and context-related analysis. The traditional, canonical, models were ideal and generalized in the sense that they tended to focus on two parties (victim and injurer), in a world of perfect information, of optimal courts, of no litigation costs and of no insurance. They assumed that the threat of tort liability can induce due (efficient) care by both (solvent) injurers and victims, and that same economic analysis models are applicable to different types of accident and harms. More recent and more mature economic analysis, it is demonstrated, has acknowledged, and has been adjusted to, the realities of imperfect and asymmetrical information, courts' errors, significant litigation costs, the complexity of multi-party litigation and the limits of tort law as an efficient deterrent given cognitive biases, limited ability to control inadvertence and insolvency. Economic analysis according to this theme has developed to be much more sensitive to context, to insurance, to institutional liability, to the importance of experimental research and empirical data, and to the alternatives to tort liability. Other traits of the mature economic analysis are recognition, even by its proponents, that actual tort law is sometimes inefficient, and that different economic models have to be synthesized. This review has two major parts. The first part illustrates, by comparing different topics and contributions, how important factors that were previously disregarded or understated are integrated into present economic analysis. These factors are: imperfect and asymmetrical information, adjustments of the deterrent effect of tort liability, institutional liability, context-based analysis, and experimental legal studies and their implications on tort reforms and tort theory. The second part comments on and criticizes the Chapters on medical malpractice, causation, fault and insurance, challenging some of the claims and proposals made there. It concludes with two reflections on the economic analysis of tort law.