Strict Liability Versus Negligence

Abstract

Strict liability and negligence are the basic rules that courts apply to affirm tort liability and award damages. Law and Economics is concerned with the efficiency of the rules and therefore compares strict liability and negligence based on the incentives they provide accident parties to minimize total accident costs. To analyze the implications of the two liability rules for economic efficiency, a distinction is made between unilateral accidents, in which only the injurer can affect the probability of accident occurrence and the magnitude of the accident losses, and bilateral accidents, in which both accident parties can affect the probability of accident occurrence and the magnitude of the losses. Provided that damages are perfectly compensatory and that the due care level is set to be equal to the optimal level of care, both rules induce optimal precaution in unilateral accident settings; however, only the rule of strict liability induces the injurer to engage in the optimal activity level. In bilateral accident settings, all rules besides the rule of simple strict liability induce both accident parties to take optimal care; however, none of the rules can simultaneously create both accident parties incentives to engage in the optimal activity level. The litigation costs per trial are higher under a negligence rule and its variations because courts have to determine if the injurer and/or the victim complied with the set level of due care. In accident contexts where a preexisting market relationship exists between the injurer and the victim, such as in the case of a defective product, a critical factor is whether consumers (victims) are aware of the risk level of the product. If they are, all liability rules create the injurer optimal precaution incentives; if they are not, only the rule of strict liability with a defense of contributory negligence creates optimal care incentives. Today, the rule of negligence is the most commonly used rule of tort liability.