The Legal Analyst: A Toolkit for Thinking about the Law

By Ward Farnsworth | Go to book overview

5 The Least Cost Avoider

The last chapter suggests that the law should penalize people when they fail to act the way a single owner would—in other words, when they don’t act the way they would if they cared the same about all the interests affected by their decisions. But another strategy sometimes gets to the same result more simply: when there’s an expense, just send the bill to whoever could have avoided it most cheaply, either by taking precautions or by switching to some activity less likely to create such expenses. The expenses might arise from an accident, or a misunderstanding, or an agreement that fell through. All those events can be costly, and all might be handled the same way: figure out who was in the best position to prevent it—we will call this person the least (or cheapest) cost avoider45— and make him pay for the result. Sometimes we might hope he will act differently next time, but not necessarily; the point might be just to force him to compare the cost of paying the bills with the cost of taking more precautions, and do whichever is cheaper. The beauty of this approach is that the law doesn’t have to figure out how a single owner would have handled the problem. It tells the least cost avoider to figure it out. Maybe he will decide to let the bad things happen and keep paying the bills, or maybe he will find less expensive ways to prevent them. In either case he will feel the full cost of his decisions and so will make them carefully. This isn’t the answer to every problem, as we shall see, but it is an interesting solution to many of them.

The legal name for this approach in accident cases is strict liability. We have seen this before; it means that the doer of some act pays for all the damage the act causes. We don’t ask whether he did it reasonably or carefully; we simply send him the bills. It is true that when courts decide whether to impose strict liability on a defendant, they don’t ask directly whether he was the least cost avoider of whatever bad thing happened. But when you look at cases where liability is strict, you’ll usually find that the defendant is in the best position to reduce the risk of injuries. Everyone’s favorite case where liability is strict is blasting with dynamite; if you’re using dynamite, you probably are the least cost avoider of any harm the blasting causes to others, since there isn’t much for the

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The Legal Analyst: A Toolkit for Thinking about the Law
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Preface vii
  • Acknowledgments xi
  • Part I - Incentives 1
  • 1 - Ex Ante and Ex Post 3
  • 2 - The Idea of Efficiency 13
  • 3 - Thinking at the Margin 24
  • 4 - The Single Owner 37
  • 5 - The Least Cost Avoider 47
  • 6 - Administrative Cost 57
  • 7 - Rents 66
  • 8 - The Coase Theorem 75
  • Part II - Trust, Cooperation, and Other Problems for Multiple Players 85
  • 9 - Agency with Eric Posner 87
  • 10 - The Prisoner's Dilemma 100
  • 11 - Public Goods 109
  • 12 - The Stag Hunt 117
  • 13 - Chicken 126
  • 14 - Cascades 136
  • 15 - Voting Paradoxes 144
  • 16 - Suppressed Markets with Saul Levmore 152
  • Part III - Jurisprudence 161
  • 17 - Rules and Standards 163
  • 18 - Slippery Slopes with Eugene Volokh 172
  • 19 - Acoustic Separation 182
  • 20 - Property Rules and Liability Rules 188
  • 21 - Baselines 198
  • Part IV - Psychology 207
  • 22 - Willingness to Pay and Willingness to Accept- The Endowment Effect and Kindred Ideas 209
  • 23 - Hindsight Bias 218
  • 24 - Framing Effects 224
  • 25 - Anchoring 230
  • 26 - Self-Serving Bias, with a Note on Attribution Error 237
  • Part V - Problems of Proof 247
  • 27 - Acoustic Separation 249
  • 28 - Standards of Proof 257
  • 29 - The Product Rule 273
  • 30 - The Base Rate 281
  • 31 - Value and Markets 294
  • Notes 305
  • Author Index 329
  • Subject Index 335
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