An Economic Analysis of a Hybrid Liability Rule

By Winter, Harold | Economic Inquiry, October 2002 | Go to article overview

An Economic Analysis of a Hybrid Liability Rule


Winter, Harold, Economic Inquiry


I. INTRODUCTION

In an economic model of torts, of primary concern is the efficiency of liability rules with respect to the care levels of (potential) injurers and victims. A liability rule is said to be efficient with respect to care when it provides incentives for both the injurer and victims to take due care, that is, the levels of care that minimize a social loss of accidents function that typically includes costs of care to both parties and the expected damage of the accident. It is well established in the standard tort model that a care-based rule, such as negligence, is an efficient liability rule. (1) Under the negligence rule, the injurer avoids liability by taking due care (i.e., by not being negligent), and the victim takes due care to minimize his or her personal accident loss when liable for damages. (2) It is also well established that rules that are not care-based, such as strict liability or no liability, are not efficient. With strict liability, the injurer is always liable and, therefore, the victim has no i ncentive to take any care. With no liability, the opposite is true and the injurer has no incentive to take care. Strict liability can be efficient in an accident setting in which the due care level for the victim is zero, just as no liability can be efficient in setting where the due care level for the injurer is zero.

What appears to be overlooked in the literature on liability rules is an examination of a hybrid liability rule. For the purpose of this article a hybrid liability rule is defined as a rule that incorporates properties of both a care-based and non-care-based rule, such as negligence and no liability. Fortunately, this does not have to be a completely abstract exercise. Such a hybrid rule does exist, as found in child trespassing cases.

Trespassing may present a setting in which no liability is an efficient rule. Adult trespassers are generally not owed any duty of care from landowners. If not trespassing is due care for an adult, due care for the landowner is to take no care at all. This must be so because if it is efficient for an adult not to trespass, any additional resources used to make the land safe would be wasted when the adult is taking due care. Child trespassers, however, are sometimes protected by a doctrine known as attractive nuisance. There appears to be no mention of attractive nuisance in the economics analysis of law literature, other than a passing comment by Landes and Posner (1987, 95-96):

Children frequently are attracted to dangerous conditions on land, such as railroad turntables and swimming holes. As trespassers they would under conventional tort principles be barred from recovering damages if injured by one of those conditions.... But by the virtue of the attractive nuisance doctrine, the landowner's negligence is not excused by the child's status as a trespasser. The costs to the children--more realistically, to their parents--of avoiding the lure of the attractive nuisance are often greater than the costs to the landowner of fencing out the children.

Landes and Posner (1987) correctly point out that landowners generally owe no duty of care to trespassers. But if it is the case that with respect to child trespassers it is efficient for landowners to take a positive level of care, no liability is not an efficient rule. This introduces an efficiency rationale for attractive nuisance, as they point out in their last sentence. But other than this brief mention of the doctrine, there is no discussion of whether or not attractive nuisance is in and of itself an efficient liability rule with respect to care levels.

This article examines the attractive nuisance doctrine in the context of a simple economic model of torts. Attractive nuisance is a uniquely defined and often applied legal rule. In its application, it acts as a hybrid liability rule--it applies the negligence rule to accidents involving some types of children, and the no-liability rule to accidents involving other types of children.

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