Jacob and Shapira, ‘An Information-Production Theory of Liability Rules’

As a matter of law, the negligence versus strict liability debate is over, and negligence has clearly won. Yet the fact that our accident compensation system is fault-based continues to attract much opposition in populist sentiment and academic circles. Standard economic analysis views strict liability as preferable to negligence, as it is easier to administer and leads to better risk reduction: strict liability induces injurers not only to optimally invest in precaution but also to optimally adjust their activity levels. Standard analysis thus views the prevalence of negligence as unjustifiable on efficiency grounds. This Article challenges the conventional wisdom and clarifies an efficiency rationale for negligence, by spotlighting the information-production function of tort law. Tort litigation affects behavior not just directly, through imposing sanctions, but also indirectly, through producing information on how the disputants behaved. Third parties can then use information from litigation to decide whether to avoid the defendant or not. And the choice of liability rules dictates the magnitude and scope of these informational effects: negligence produces more valuable information on the behavior of market actors than strict liability does …

Jacob, Assaf M and Shapira, Roy, An Information-Production Theory of Liability Rules (August 22, 2021) 89 University of Chicago Law Review, forthcoming.

First posted 2021-09-16 10:00:08

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