Negligence Regime Research Articles

Should Maryland Change from Contributory Negligence to Comparative Negligence?

Maryland is one of the few remaining states that still evaluates accidents using the contributory negligence approach. There is a movement within the state to change to the comparative negligence approach, but so far this reform effort has not succeeded. This short piece analyzes the issues involved and concludes that Maryland should enact legislation that would change its contributory negligence regime to one of comparative negligence. Among the reasons this piece gives are optimal compensation of victims, optimal deterrence of accidents, enhanced respect for the rule of law in the minds of the citizenry, and fairness. The article briefly provides an analysis of each of these issues and also contains citations to the relevant literature.

A revised model of unilateral accidents

This paper suggests and justifies a revised formulation of the unilateral accident model based on relaxing two assumptions of the standard model: the precaution function and the harm function. The revised model is, therefore, more general and corresponds better to various situations. A resulting trait of the generalized model is its account for the interaction between the injurer’s care and activity levels, which was implicitly assumed away so far. The revised model is examined using a few standard issues in tort and the analysis brings new results and insights for the unilateral accident case. For example, the view that, under a negligence regime, due care can be defined regardless of the optimal level of activity holds under very restrictive assumptions. In general, due care must be defined simultaneously with the optimal activity level. In addition, the common view suggests that underestimation of the level of actual damages under strict liability would induce injurers to take insufficient care and to engage excessively in a risky activity (and vice versa, for overestimation). This paper shows that underestimation of actual damages may counter-intuitively lead to insufficient activity or excessive care levels. Similarly, the results of underestimating harm under a negligence regime prove to be different than commonly thought. In addition, the revised model questions the intuitive similarity between the underestimation of harm and the judgment-proof problem, and provides some new results for the latter problem.

A New Perspective on an Old Problem: Negligence, Strict Liability, and Non-Legal Sanctions

In this article, I compare negligence and strict liability regimes with respect to their different abilities to generate the imposition of non-legal sanctions on defendants in torts. I evaluate the relative desirability of the two regimes from the perspectives of efficiency, distributive justice, and other justice considerations, while distinguishing between reputation loss produced by the litigation process and that produced by the defendant's underlying activity that caused the accident. My analytical framework is grounded in the following insights: First, non-legal sanctions can be value-destroying, value-preserving, or value-creating. However, it is hard to empirically determine the extent to which a given finding of liability produces any of these effects. This difficulty affects the ability to normatively evaluate the two regimes. Second, non-legal sanctions have a dual character - on the one hand, as a type of sanction imposed in response to the damage caused by the defendant and, on the other hand, as possibly an undesirable social cost (when the non-legal sanctions are value-destroying) or a desirable social benefit (when the non-legal sanctions are value-creating). Third, and most important, any given finding of a defendant as liable in torts is likely to subject her to greater non-legal sanctions if reached under a negligence regime than if reached under a strict liability regime. However, it is not clear which regime will produce greater non-legal sanctions overall, since a strict liability regime is likely to produce more findings of liability. The main distinction between the rival regimes' respective potential to generate non-legal sanctions derives from the fact that, in findings of liability, a strict liability regime pools together negligent and non-negligent defendants. At both the allocative and distributive levels, this pooling effect is likely to lead to a reduction in the investment made by high-risk professionals in precaution costs. Low-risk professionals might either increase their investment in precaution (as the flip-side of this adverse selection coin) or, like the high-risk professionals, reduce that investment in a tragedy-of-the-commons. A strict liability regime might serve as a hedging mechanism for low-risk professionals against the significant reputation loss involved in being found liable under a negligence regime. At the aggregate level, a strict liability regime will produce greater non-legal sanctions if market participants overestimate the proportion of faulty defendants out of the pool of defendants found liable under that regime. Finally, the paper critically examines the assumption that a negligence regime is superior to strict liability in terms of signaling.

Distributive Aspects of Legal Standards

Externality-generating behavior is typically controlled by legal standards of behavior. A negligence tort regimes sets due care standards; a regulatory regime dictates regulatory standards of behavior. The principal purpose of these legal mechanisms is to control individual behavior. This study shows that, typically, these legal mechanisms generate an additional, incidental, distributive outcomes. In reality, tort victims as well as externality victims are heterogeneous in the potential harm they would suffer if injured, but potential injurers cannot observe ex ante individualized harm (for example, in cases of car accidents or pollution). Therefore, a uniform, rather than individualized, legal standard of behavior is applied in tort or under regulatory schemes. This paper shows that a negligence (or regulatory) regime with a uniform care standard redistributes among potential victims, whereas an equally (second-best) efficient strict liability regime does not. This overlooked observation instigates several normative implications.

A Revised Model of Unilateral Accidents

This paper suggests and justifies a revised formulation of the unilateral accident model, based on relaxing two assumptions of the standard model: the precaution function and the harm function. The revised model is, therefore, more general and corresponds better to various situations. A resulting trait of the generalized model is its account for the interaction between the injurer's care and activity levels that was implicitly assumed away so far. The revised model is examined using a few issues and gives new results and intuitions in the unilateral accident case. For example, the view that under a negligence regime due care can be defined regardless of the optimal level of activity holds under very restrictive assumptions. In general due care must be defined simultaneously with the optimal activity level. In addition, the common view suggests that underestimation of the level of actual damages under strict liability would induce injurers to take insufficient care and to engage excessively in a risky activity (and vice versa, for overestimation). This paper shows that underestimation of actual damages may counter-intuitively lead to insufficient activity or excessive care levels. Similarly, the results of underestimating harm under a negligence regime prove to be different than commonly thought. In addition, the revised model questions the intuitive similarity between underestimation of harm and the judgment-proof problem, and provides some new results for the latter problem.

Legal Regimes, Damage Apportionment Rules, and Auditor Independence - Theory and Experimental Evidence

This paper reports the results of four laboratory experiments designed to examine whether an appropriate legal system, which is a combination of legal regime (strict vs. negligence) and damage apportionment rule (joint-and-several vs. proportionate), may serve as an effective mechanism to enhance auditor independence. I adopt the laboratory experiments to test a series of hypotheses derived from a one-period game theoretic model in which the auditor may commit either a technical or an independence audit failure. Several important findings are documented. First, the experimental results confirm the analytical model's prediction that there is a trade-off among auditor's effort, audit failure, and firm's new investments. This trade-off implies that no single legal system can induce higher audit quality, reduce technical audit failure, improve auditor independence, and encourage firm's investment simultaneously. For regulatory purpose, a strict legal regime together with a proportionate damage rule can effectively decrease technical audit failure, improve auditor independence, and encourage firm's investment despite the fact hat audit quality also decreases. This trade-off also accentuates the importance of incorporating auditor's independence strategy into the examination of auditor's legal liability. Second, the auditors' independence is impaired less often than the model prediction because they recognize the compromise of independence to be unethical. In addition, the auditors exert more high effort under the proportionate rule than under the joint-and-several rule because they perceive the former to be relatively fair in the occurrence of a technical audit failure. Finally, an emphasis on damage apportionment rule is by itself not enough to improve auditor independence and motivate firm's investment. A replacement of the negligence regime by a strict regime seems to be more useful than a replacement of the joint-and-several rule by a proportionate rule in achieving these goals.

The Externality of Victim Care

This essay identifies a flaw in the model currently employed to evaluate the economic consequences of common law liability rules in a joint care setting. The conventional model, it is shown, does not account for the externality of victim care, that is, the cost of victim care induced by injurer activity in a joint care setting. Recognition of this externality has important implications. In particular, the article demonstrates that neither negligence nor strict liability with a defense of contributory negligence will cause injurers to internalize the externality of victim care. Thus, neither liability rule will induce optimal injurer activity, even in those instances in which joint due care eliminates accident risk. Absent imposition of a Pigouvian tax, neither regime will induce efficient activity choices by the injuring party. Identification of the externality of victim care suggests the existence of a second externality, the externality of injurer care. Neither negligence nor strict liability with a defense of contributory negligence will cause victims to internalize this cost when making activity choices. Absent imposition of a Pigouvian tax, even a negligence regime will not induce optimal activity choices by the victim. The essay also offers some observations about the source of the oversight identified here as well as the implications of that oversight for the positive economic theory of tort law. The failure previously to identify the externality of victim care may reflect undue reliance on the farmer-railroad exemplar as a vehicle for examining the effects of various liability rules. Restrictive assumptions associated with this example, it is shown, inadvertently conceal the externality of victim care and produce conclusions that are not generalizable. Relaxation of these assumptions reveals this externality and allows construction of a model that can produce generalizable conclusions. Moreover, recognition of this externality may actually bolster the positive economic theory by, for instance, explaining the absence of a contributory negligence defense to torts premised on strict liability.

Contributory Negligence Applied to Economic Loss: Platform Home Loans and Fancy and Jackson

Section 1 of the 1945 Law Reform (Contributory Negligence) Act provides: 'Where any person suffers damage as the result partly of his own [the claimant's] fault and partly of the fault of any other person [the defendant], a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable shall be reduced to such extent as the court thinks just and equitable having regard to the claimant's share in the responsibility for the damage'. For almost 50 years the 1945 Act was limited to cases of physical damage and its application was largely uncontroversial. In the 1990s recognition that concurrent tort and contractual actions lie and that the contributory negligence regime applies to both, has led to the 1945 Act being applied to cases of pure economic loss. But the process has not been as straightforward as in the case of physical damage. It tends to be clear whether a plaintiff has contributed to his own physical injury. The causation and nature of economic loss is more complex with the result that the plaintiff's conduct may be regarded as contributing to some but not all aspects of the loss. Again, whilst it is clearly negligent for a plaintiff to take a risk with his own physical safety, it may be perfectly sensible for him to run the risk of economic loss in the hope of making a profit. These problems have surfaced in the extensive litigation between lenders and professionals arising from the property recession of the early 1990s. Two recent decisions, Platform Home Loans Ltd v Oyston Shipways Ltd1 and Bristol and West BS v Fancy & Jackson2 focus on the meaning of contribution and negligence in this context, and raise broader questions about the role and impact of contributory negligence in the context of commercial relationships. The property recession resulted in lenders, who had made loans on the security of borrowers' property, claiming losses suffered upon default from valuers responsible for negligently overvaluing the security at the time when the loan was made and/or solicitors responsible for negligently failing to warn of problems concerning the security or the borrower. Initially the courts took the view that the lender could recover all its loss on the transaction from the negligent professional where it would not have entered that transaction had it been given proper advice. In Banque Bruxelles3 Lord Hoffmann considered this transaction loss measure was not 'fair or reasonable'. Rather, in the case of the negligent valuer responsibility should be limited to the consequence of the information being wrong, namely, that the lender made an advance on less security than he had been led to believe by the overvaluation. That lack of security, the amount of the overvaluation, was the

Bankruptcy and Torts

This paper investigates the properties of various legal regimes when there is the opportunity for bankruptcy through debt. The key result is that, for a single tortfeasor, strict liability always yields less than the socially optimal level of care, while negligence will never do any worse than strict liability. When the magnitude of the liability is increased, the firm may increase care and leverage, increase care and decrease leverage, or decrease care and increase leverage. In the case of joint torts, when an increase in liability induces firms to increase their care, a joint and several negligence regime is unambiguously superior. If the converse is true, then joint and several negligence may still dominate, although joint and non-several negligence may be the better regime.

Auditors' Liability, Vague Due Care, and Auditing Standards

This paper expands the set of previously considered liability rules to include a negligence liability rule with a vague specification of due care. Auditors who are negligent in conducting their audit are liable for losses that result from reliance on misstated financial statements. However, what constitutes negligence for auditors is not clearly specified in the law. Consequently, courts often resort to Generally Accepted Auditing Standards (GAAS) and Statements on Auditing Standards (SAS) as benchmarks for determining due care. A liability regime that consists of a vague negligence rule supports and amplifies the credibility of auditing standards. While auditing standards alleviate some of the vagueness that is inherent in the legal standard, they also form a lower bound on due care, since an audit of a quality that is lower than the quality that auditing standards require would be considered negligent. Thus, the vague specification of due care enables auditors to commit to audit quality as pronounced in auditing standards. This paper explores this link between professional standards and auditors' legal liability. It establishes that the commitment to auditing standards could not have been as credible as it is, if auditors' liability was determined based on the strict liability rule, or based on a negligence rule with a clearly specified due care, since under these two liability rules courts would not need to refer to auditing standards to establish fault. The paper also demonstrates that a legal regime where audit standards are used as a benchmark to evaluate negligence is not the same as a legal regime where due care is defined clearly. Therefore, previous studies that assumed a negligence regime with clear due care may have overstated the effort level that is induced by legal liability.

Efficient standards of due care: Should courts find more parties negligent under comparative negligence?

We show that negligence standards should differ under comparative and contributory negligence regimes. If due care standards are allowed to vary with the laws of a jurisdiction, then comparative and contributory negligence may be equally efficient, even in a model with evidentiary uncertainty. It is commonly observed that jurors are naturally inclined to be more lenient to plaintiffs on the issue of plaintiff negligence in contributory negligence jurisdictions. We show that such lenience may actually be efficient in addition to satisfying jurors' senses of equity. A similar conclusion applies to defendants. (This abstract was borrowed from another version of this item.)

An Experimental Investigation of Alternative Damage-Sharing Liability Regimes with an Auditing Perspective

In this study we use experimental markets to investigate some potential effects of three liability regimes that differ on the issue of damage sharing. In the first, termed an auditor (verifier) negligence regime, the verifier is liable if negligent and only he pays damages. In the second, called the proportionate liability regime, a manager (seller) and a verifier are proportionately liable, given certain actions, and both have sufficient wealth to pay damages. The third regime is also a proportionate liability regime, but only verifiers pay damages because sellers lack the wealth to pay their share. The basic design modifies that used in Dopuch and King [1992] to investigate the effects of negligence and strict liability regimes. Our results complement theirs by providing insights into the effects of various damage-sharing regimes on strategy choices and wealth distribution. One of the ongoing debates of auditors' legal liability is the extent to which auditing firms and their partners should be held jointly and

Products Liability Cases on Appeal: An Empirical Study

AbstractThis article analyzes 1,100 opinions to find the determinants of products liability cases on appeal in state and federal courts. The strongest predictor of plaintiff success on appeal is whether the plaintiff revailed in a jury trial. Other important factors are the defendant’s status as manufacturer, wholesaler, or successor corporation; the plaintiff’s degree of injury; and whether the case involved a failure-to-warn claim. The existence of a comparative negligence regime increases the tendency of appellate courts to affirm lower courts. These results allow rejection of a simple model in which pre- and posttrial settlement behavior filters out cases in which the results are clear. Under such a model, only a residue of close cases remains with no clear reason to expect results highly favorable either to products liability plaintiffs or defendants. Despite the importance of the processes that filter appeals, some identifiable factors still influence appeals.

Litigation Cost Allocation Rules and Compliance with the Negligence Standard

Previous articleNext article No AccessLitigation Cost Allocation Rules and Compliance with the Negligence StandardKeith N. HyltonKeith N. Hylton Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by The Journal of Legal Studies Volume 22, Number 2Jun., 1993 Sponsored by The University of Chicago Law School Article DOIhttps://doi.org/10.1086/468172 Views: 9Total views on this site Citations: 22Citations are reported from Crossref Copyright 1993 The University of ChicagoPDF download Crossref reports the following articles citing this article:Christopher A. Whytock Transnational Litigation in U.S. Courts: A Theoretical and Empirical Reassessment, Journal of Empirical Legal Studies 19, no.11 (Feb 2022): 4–59.https://doi.org/10.1111/jels.12306Sophie Bienenstock, Maxime Charreire Clauses abusives et règles de répartition des frais de justice, Revue économique Vol. 71, no.33 (Jun 2020): 503–525.https://doi.org/10.3917/reco.713.0503Lisa Vanhala Is Legal Mobilization for the Birds? Legal Opportunity Structures and Environmental Nongovernmental Organizations in the United Kingdom, France, Finland, and Italy, Comparative Political Studies 51, no.33 (Jun 2017): 380–412.https://doi.org/10.1177/0010414017710257Thaddeus Mason Pope Certified Patient Decision Aids: Solving Persistent Problems with Informed Consent Law, The Journal of Law, Medicine & Ethics 45, no.11 (Apr 2017): 12–40.https://doi.org/10.1177/1073110517703097Elisabetta Ottoz, Franco Cugno Different Rules of Legal-Cost Allocation and Patent Holdup, (Nov 2015): 143–159.https://doi.org/10.1108/S0193-589520150000027005Sergio J. Campos, Christopher S. Cotton, Cheng Li Deterrence effects under Twombly: On the costs of increasing pleading standards in litigation, International Review of Law and Economics 44 (Oct 2015): 61–71.https://doi.org/10.1016/j.irle.2015.08.005Bruce H. Kobayashi The Law and Economics of Litigation, SSRN Electronic Journal (Jan 2015).https://doi.org/10.2139/ssrn.2613145Sergio J. Campos, Christopher Cotton, Cheng Li Pleading Standards and Deterrence, SSRN Electronic Journal (Jan 2014).https://doi.org/10.2139/ssrn.2416435Elisabetta Ottoz, Franco Cugno Different Rules of Legal-Cost Allocation and Patent Hold-Up, SSRN Electronic Journal (Jan 2012).https://doi.org/10.2139/ssrn.2179019Joshua C. Teitelbaum Allocation Rules and the Stability of Mass Tort Class Actions, SSRN Electronic Journal (Jan 2010).https://doi.org/10.2139/ssrn.1241018Avery W. Katz, Chris William Sanchirico Fee Shifting in Litigation: Survey and Assessment, SSRN Electronic Journal (Jan 2010).https://doi.org/10.2139/ssrn.1714089Hans-Bernd Schäfer, Frank Mueller‐Langer Strict Liability Versus Negligence, SSRN Electronic Journal (Jan 2008).https://doi.org/10.2139/ssrn.2062787Chris William Sanchirico The Economic Analysis of Evidence, Procedure, and Litigation, SSRN Electronic Journal (Jan 2006).https://doi.org/10.2139/ssrn.877979Claudia M. Landeo, Maxim Nikitin Deterrence, Lawsuits, and Litigation Outcomes under Court Errors, SSRN Electronic Journal (Jan 2004).https://doi.org/10.2139/ssrn.587561Keith N. Hylton An asymmetric-information model of litigation, International Review of Law and Economics 22, no.22 (Aug 2002): 153–175.https://doi.org/10.1016/S0144-8188(02)00085-6Jean-Pierre Benoît, Lewis A. Kornhauser Chapter 60 Game-theoretic analysis of legal rules and institutions, (Jan 2002): 2229–2269.https://doi.org/10.1016/S1574-0005(02)03023-0Bruno Deffains, Myriam Doriat-Duban Équilibre et régulation du marché de la justice, Revue économique Vol. 52, no.55 (Oct 2001): 949–974.https://doi.org/10.3917/reco.525.0949Myriam Doriat-Duban Analyse économique de l'accès à la justice : les effets de l'aide juridictionnelle, Revue internationale de droit économique t. XV, 1, no.11 (Jan 2001): 77.https://doi.org/10.3917/ride.151.0077Jean O. Lanjouw, Josh Lerner The Enforcement of Intellectual Property Rights: A Survey of the Empirical Literature, (Jan 2000): 201–224.https://doi.org/10.1007/978-1-4757-3194-1_8Keith N. Hylton An Asymmetric Information Model of Litigation, SSRN Electronic Journal (Jan 2000).https://doi.org/10.2139/ssrn.239325Avery Wiener Katz Indemnity of Legal Fees, SSRN Electronic Journal (Jan 1998).https://doi.org/10.2139/ssrn.57958Clinton F. Beckner, Avery Katz The incentive effects of litigation fee shifting when legal standards are uncertain, International Review of Law and Economics 15, no.22 (Jun 1995): 205–224.https://doi.org/10.1016/0144-8188(95)00007-U

The influence of litigation costs on deterrence under strict liability and under negligence

This paper examines the influence of litigation costs on deterrence under strict liability and under negligence. By deterrence, I refer to the effect of the threat of liability on the care exercised by potential injurers.’ More precisely, this paper takes litigation costs as given and examines the social desirability of the levels of care exercised under negligence and under strict liability.2 The relationship of this paper to the existing literature examining the influence of litigation costs on incentives under a liability system can best be described by comparing its focus to two fairly recent papers.’ Shave11 (1982) examines whether plaintiffs bring suit when bringing suit is socially desirable in a regime in which litigation is costly. Polinsky and Rubinfeld (1988) examine whether the level of liability is socially optimal in a regime in which litigation is costly. This paper examines whether the level of care is socially optimal in a regime in which litigation is costly. The major result presented in this paper is that strict liability leads to underdeterrence when litigation costs are taken into account. The intuition behind this conclusion is straightforward. Optimal deterrence requires that all external costs resulting from the injurer’s failure to take care be “internalized” to the injurer. But if litigation is costly, two types of external cost will not be internalized under strict liability: the litigation cost “imposed” on victims who choose to sue; and the losses suffered by victims who choose not to sue because the cost of litigating exceeds the anticipated damage award. The negligence rule also leads to underdeterrence when litigation costs are taken into account. Specifically, if agents have rational expectations and the jury is perfectly informed, then in equilibrium a negligence regime must underdeter. The

Costly Litigation and Legal Error under Negligence

In this article, private enforcement under negligence when there is legal error and litigation is costly is examined. Ordover (1978) demonstrated that in a negligence regime in which there is no legal error and litigation is costly, equilibrium requires the presence of actors who refuse to obey the due-care standard. Accordingly, in such a negligence regime, an undercompliance equilibrium must result. Since the existence of litigation costs implies that the socially optimal level of care is greater than that required by the traditional Hand formula, which defines negligence as a failure to take care where the cost of taking care is less than the expected loss if the accident occurs, 1 it is a short step from Ordover's undercompliance result to the conclusion that injurers,2 under negligence, exercise less than the socially optimal level of precaution (see Hylton). It is demonstrated that, because of legal error, an undercompliance equilibrium need not result under negligence. In a negligence regime in which courts err and litigation is costly, perfect and overcompliance equilibria are