Monday, August 31, 2009

Guest Blogger Keith Hylton: "Is Tort Law Economically Efficient?"

A great deal has been written about the economic efficiency of the law,  and of tort law in particular.  There are arguments to be made on both sides, and I will not repeat all of them here.

The argument for efficiency of tort law was first set out explicitly by Richard Posner, though it was suggested one hundred years earlier by Holmes, who referred to the common law as largely determined by "convenience”.  Posner never said precisely how this efficiency property came about.  Paul Rubin offered a mechanism: litigants would tend to challenge inefficient rules more than efficient rules, and as a result the inefficient rules would be overturned more often than would efficient rules.  Rubin’s answer has been challenged by later articles (yes, I’ve taken part in this too).  Now, it appears that the most fashionable thing to say about the topic is that the tort law may be efficient sometimes.

The funny thing I find about this literature is that the simplest argument for tort law efficiency (whether you agree with it or not is another thing) has not been explored in the literature.  I guess that is because it is so simple that it would not look intellectually challenging enough to attract the interest of a peer review journal, and it may also be too simple to be spun out into a long-winded law review paper.  The simplest argument is that judges can look at the case in front of them and figure out the social costs of alternative
rulings.  Once they do that, most are likely to adopt the decision that leads to the lowest social costs.  And a judge doesn’t have to be an expert in economics to figure out which of several alternative decisions will result in the lowest social costs.  Over time, that tends to make tort law, and much of common law, economically efficient.

When I used to teach a class in law and economics in a program for judges at Brookings, I used to offer them this simple hypothesis to see how they would react.  I thought they would find the hypothesis controversial – and judges are quick to let you know if they disagree with you.  I found that they always agreed and treated as it as if it were noncontroversial, even obvious.

I don’t think this was a case of sample selection.  The judges who signed up for the program often expressed great skepticism in economic analysis.  As a group, however, they were far more receptive to the common law efficiency hypothesis than are law teachers.

Keith N. Hylton
Honorable Paul J. Liacos Professor of Law
Boston University

http://lawprofessors.typepad.com/tortsprof/2009/08/guest-blogger-keith-hylton-is-tort-law-economically-efficient.html

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