Model of Costs Flashcards
How could we then view tort law?
As a means for bringing about the best practical consequences, rather than for correcting wrongs.
What is Coase’s basic argument?
The proper aim of the law is not to protect from harmful activities.
The law must determine which interest should be protected over another.
We cannot achieve both interests all the time.
Give an example for Coase’s basic argument.
Increasing the minimum wage protects the income security of those at work.
But at the expense of job creation.
Who should decide which activity is most beneficial according to Coase? What is the issue with this?
The parties themselves are best placed to decide which activity is most beneficial.
This is achieved by striking a mutually beneficial deal.
The issue is that transaction costs make it difficult for people to make deals with eachother.
What is Coase’s core example? What does he say about this case?
Sturges v Bridgman - if there were no transaction costs between the doctor and confectionary-producer, the parties would have struck a better deal.
The issue with the decision is that they are locked into a suboptimal outcome.
It could have been better for the doctor to move his practice into the front room and the producer can still make his confectionary.
What was Coase’s important idea on Sturges v Bridgman?
If the transaction costs between doctor and confectioner were zero, they would strike a mutually beneficial deal, notwithstanding what the court says.
This deal is good, no matter who has the legal rights.
Why are legal rules important to Coase?
Legal rules are substitutes for what the parties would have achieved if transaction costs were zero.
We will not know who we run down in the street in advance.
Because of transaction costs, we will not be prepared to sue coca cola in advance before we drink a can of coke.
Outline Coase’s ideas.
Absent transaction costs, parties would decide their matter in the most mutually beneficial way possible.
Of course this optimal position is unobtainable due to transaction costs (parties may not know or trust eachother).
Legal rules are in place as substitutes for this mutually beneficial agreement.
Tort law therefore aims to get as close to this result as possible.
What does Calabresi say about the costs of accidents?
There are three types of cost;
Primary Cost - the cost to the victim of the accident (and maybe the tortfeasor too i.e. damage to my car).
Secondary Cost - the effect that accidents have on future conduct - the risk of accidents can make drivers drive more slowly.
Tertiary Cost - the costs of administering the legal system i.e. hiring experts and lawyers.
How can parties avoid these costs according to Calabresi?
- Taking precautions.
2. Taking out insurance.
What is Calabresi’s chief thought?
We should place liability on the person who is best placed to decide on the most efficient way of avoiding these costs.
‘The Cheapest Cost Avoider’.
What two ways can we protect consumers from getting injured according to Shavell?
Tort rules - Imposing liability on producers so they take better precautions.
Regulatory rules - Using the force of regulation to ensure that certain production methods are performed correctly.
Why is regulation good according to Shavell? What is an example of this?
Regulation can reduce both the incidence and costs of accidents.
Requiring compulsory insurance can limit costs.
The state has special knowledge of the risks of certain activities and so is well placed to regulate certain dangerous activities.
What is the Learned Hand formula?
There is a limit to the appropriate standard of care i.e. we do not have to stop driving to avoid accidents.
We must reach a balance between acceptable risks - by asking whether the burden of precautions is smaller than cost x probability.
What is wrong with the Learned Hand formula?
It is true that there is a limit to what precautions we need to take.
He does not tell us who should be required to take precautions - should C or D take precautions? Both parties could cost-effectively take out insurance against getting run over.
The judge applies this test, not the parties.
