THE ECONOMICS OF TORT LAW
This chapter extends in several directions the basic accident model from the previous chapter. The first concerns the impact of litigation costs, or the costs that victims and injurers incur in resolving an accident claim through the legal system. Consideration of these costs is important, not only because they represent a substantial expenditure of resources, but also because they potentially affect the incentives for care created by the liability system. As we shall see, litigation costs tend to reduce the incentives for injurers to take care, though the effects differ under strict liability and negligence. Thus, litigation costs introduce an extra dimension along which to compare liability rules in terms of their ability to reduce the social costs of accidents.
The second extension of the basic model concerns the impact of uncertainty on the operation of the liability system. I first consider the impact of uncertainty by injurers about what the due standard of care is under a negligence rule. I then consider the impact of uncertainty by the court both about whether a given injurer violated the due standard care, and whether he was the cause of an accident. Finally, I consider the impact of uncertainty by injurers about whether the products they are producing or the activities they are engaged in pose a risk of injury in the first place.
The final topic I examine in this chapter is sequential-care torts, or torts in which the injurer and victim choose their care levels sequentially. Although accidents of this sort have not received extensive treatment in the law and economics literature, they are of interest because they are fairly common, and also because they create the potential for strategic behavior by the parties. As a result, we shall see that they present unique problems for the design of efficient liability rules.
The economic analysis of accidents to this point has ignored the costs of litigation (except for general references to administrative costs). In this section I briefly