cause in fact, proximate cause, and the hand rule: extending grady's positive economic theory...

r

Cause in Fact, Proximate Cause, and the Hand Rule:

Extending Grady's Positive Economic Theory of Negligence

THOMAS J. MICEEI

University of Connecticut, Storrs, Connecticut E-mail:miceli@uconnvm. uconn.edu

I. Introduct ion

Virtually from its inception, the economic theory of tort law has maintained that causation is not an important factor in assigning liability for accidental damages. For example, Coase (1960) and Calabresi (1961) recognized that both the injurer and the victim must be present for an accident to occur; hence, both are in effect "causes" of the accident. They argued that the assignment of liability should depend instead on efficiency; in particular, the assignment should minimize expected accident costs. Fol- lowing this lead, the formal economic theory of negligence as developed by Brown (1973) was devoid of considerations of causation, except for the implicit notion of causation embodied in the functional relationship between precaution and harm [Cooter (1987)]. More recently, however, in an effort to bring the economic theory more in line with actual negligence law, several authors have sought to define a role for limitations on liability due to causation.l This article follows in that tradition by offering a positive economic theory of the requirement that an injurer's negligence must be the proximate cause of an accident for him to be held liable. The argument is basically an extension of Grady's positive economic theory of negligence and the notion that for plaintiffs to prevail in a negligence case they must propose at least one precaution that the defendant should have taken but did not [Grady (1989)]. The court then judges whether the plaintiff's proposed "untaken precaution" should have been taken by applying the Hand Rule. In addition, the untaken precaution must satisfy the cause in fact and proximate cause requirements. Grady's point is that plaintiffs must make a careful choice of the untaken precaution to satisfy all three of these requirements.

In this context, I will argue, first, that the main difference between cause in fact and proximate cause is that the former is backward looking whereas the latter is forward looking. I will then argue that the economic view of accidents, as embodied by the Hand

I wish to acknowledge the insightful comments of Bill Landes, Bob Cooter, and two reterees of this journal.

International Review of Law and Economics 16:473-482, 1996 © 1996 by Elsevier Science Inc. 0144-8188/96/$15.00 655 Avenue of the Americas, New York, NY 10010 PII S0144-8188(96)00039-7

474 Grady's theory of negligence

Rule, is also forward looking, and, as a result, the H a n d Rule and prox imate cause are in pr incip le r e d u n d a n t tests, each of which is capable of de t e rmin ing liability efficiently. However, as Grady argues, they create oppos ing biases for the plaintiff 's choice of the untaken p r e c a u t i o n - - t h e H a n d Rule is easier to satisfy with a "smal l" un taken precaution, and prox imate cause is easier to satisfy with a " l a rge " un taken precaut ion [Grady (1989); p. 150]. Consequently, I will argue that, by employing both requirements , the cour t can place t ight bounds on the plaintiff 's choice of the un taken precaut ion, thereby (potentially) inducing him or he r to choose the efficient one. Unfortunately, I will conc lude that there does not seem to exist a comparab le efficiency explanat ion for the cause in fact requ i rement , given its backward-looking nature.

II. Cause in Fact

A necessary condi t ion for a plaint iff to recover damage in a tort case is that the defendant ' s negl igence be the cause, in fact, o f the plaintiff 's injuries. The usual test for cause in fact is the " b u t for" test: Would the accident have occur red but for the de fendan t ' s failure to take due care? Determina t ion of cause in fact is therefore a backward-looking, counterfactual inquiry. That is, given the actual circumstances of the case, the cour t asks whether due care by the de fendan t would have preven ted the p la in t i f fs harm. If the answer is no, then recovery by the plaint iff is den ied because the de fendan t ' s negl igence d id not cause the harm.

Part of the difficulty economists have had in incorpora t ing cause in fact into the positive theory of negl igence stems from the fact that an economic analysis focuses on the de fendan t ' s choice of care, which is made before the accident occurs. At that po in t in time, the accident " t echno logy" is summar ized by a probabi l i ty function, p(x), that describes the re la t ionship between the de fendan t ' s choice o f care, x, and the probabi l i ty that an accident will occur, where p ' < 0. 2 The probabi l i ty funct ion thus reflects the fact that the de fendan t does no t know what the actual c ircumstances of the accident will be before its occurrence, and thus he general ly cannot hope to avoid it with certainty, except pe rhaps by an excessively costly choice of care (or by avoiding the risky activity a l together) .

In contrast , once an accident occurs and the case goes to trial, the cour t can observe the actual circumstances su r round ing the accident . Thus, it can employ a counterfactual analysis, given these circumstances, to de t e rmine what act or acts would in fact have preven ted the acc ident with certainty. It can then compare that set of acts with the actual behavior of the de fendan t to de te rmine whether he was in fact the cause of the plaintiff 's injuries. Figures 1 to 3 provide a graphical i l lustration of this analysis. Figure 1 shows the probabi l i ty funct ion p(x) that confronts the de fendan t before occur rence of the accident . It is drawn as a cont inuous, decreas ing funct ion, ref lect ing the fact that greater care reduces the l ike l ihood of an accident , but in the case depic ted , no (reasonable) level of care reduces it to zero due to ex-ante uncer ta in ty over the circumstances of the case. 3 In contrast, Figure 2 illustrates the real ized value of p once the accident has occurred. It equals 1 for x < x' and zero for x > x'. The occur rence o f the accident , and its su r round ing circumstances, has thus perfectly par t i t ioned the defendant ' s care into those acts that would have avoided the accident (x > x') and those that would not have (x < x'). Obviously, because the accident d id in fact occur, the defendant ' s actual care choice falls in the lat ter range, at Xl, say. Finally, Figure 3 shows the situation when there is some residual uncer ta in ty over causation after the accident [Cooter (1989)]. In this case, p = 1 for x < x' and p = 0 for x > x j', but between x' and x" causation is still probabilistic.

T.J. MICELI 475

p(x)

p(xO i

P(x9

I

I X t X 2 X

FI(;. 1. Ex-an~ view o f c a u s a t i o n .

Now suppose that an accident has occurred and the injurer 's care level was x,. If it is de te rmined that xi represents a breach of duty (i.e., negligence), the next question is whether the defendant ' s failure to take due care was cause in fact. If the due care level, x*, is greater than x' in Figure 2 (at xz, say), then the defendant ' s failure to take addit ional care of x~ - x~ is a cause in fact of the accident. The reason is that, given the realized circumstances sur rounding the accident, a care level of x 2 would have prevented the accident. However, if x ' i s between Xa and x', then the defendant ' s failure to take addit ional care of x * - x I is not cause in fact because the extra care in this case would not have prevented the accident.

In contrast to this ex-post view, Figure 1, shows that a n y x~ 2 > x 1 reduces the ex -an te

probability of an accident (i.e., p(x~2) < p(xl)). 4 However, without the benefi t of hind- sight, we cannot say with certainty how much additional care, or how much of a reduc-

p(x)

1

X 1 X' X 2 X

FIG. 2. Ex-post view o f c a u s a t i o n wi th n o r e s i d u a l u n c e r t a i n t y .


p(x)

1

i i

X 1 X' X )) X

FIG. 3. Ex~ost ~ew of causation with residual uncertain~.

t ion in p, would be necessary to avoid the accident al together . All we can say is that addi t ional care of a~ 2 - xl would reduce the l ike l ihood of an accident by p(x l ) - p(x,2). Finally, note that the case in Figure 3 combines the previous two cases (the ex-post and the ex-ante views). First, if x* > x", then the de fendan t ' s failure to take care of x* - Xl is cause in fact, but if xl < x* < x' it is not. However, if x' < x* < x", then we cannot say with certainty, even ex post, whether addi t ional care of x* - xi would have avoided the accident .

Al though cause in fact limits the in jurer ' s liability, Grady (1983) and Kahan (1989) have shown that, in the case where ex-post causation is certain (Figure 2), the in jurer ' s costs are still minimized at the due-care level. The reason is that the s tandard economic theory of negl igence without causation creates a discontinui ty in the in jurer ' s expec ted costs at the due care level, given that the injurer can avoid all liability by taking due care. 5 The impact of in t roducing the cause in fact l imitat ion is to e l iminate the discontinuity but not to change the min imum cost point. Thus, incentives for efficient care remain intact. In the case where there is some residual causal uncer ta inty expost (Figure 3), Cooter (1989) has a rgued that cause in fact does not entirely e l iminate the discontinuity at the due-care level. Thus, efficient incentives remain intact afortiori in this case. It follows that the cause in fact l imitat ion on a de fendan t ' s liability, though backward looking, does not distort incentives for care u n d e r the s tandard economic mode l of negligence. It remains, however, to examine the impact of a fur ther l imi ta t ion- -namely , that the in jurer ' s negl igence must also be the proximate cause of the victim's damages for the victim to recover.

III. Proximate Cause

In addi t ion to being cause in fact of the victim's injuries, an in jurer ' s negl igence must also be the p rox imate cause for the injurer to be he ld liable. The idea beh ind the proximate cause l imitat ion is that the re la t ionship between the de fendan t ' s negl igence and the victim's injuries canno t be " too remote . " Al though there are several concepts of p rox imate cause, for cur ren t purposes, I will adop t the " reasonable fores ight" ap- proach. 6 The relevant test is, could the de fendan t have reasonably foreseen the ha rm that resulted from his negl igent act? Note that, in contrast to cause in fact, this test for

T 0. MICELI 477

prox imate cause has an ex-ante or ienta t ion in that the answer depends on what the de fendan t could have foreseen at the po in t when he made his care choice. Analytically, then, p rox imate cause analysis is based on the ex-ante probabi l i ty funct ion in Figure 1. For example , one way to formalize the above test is to ask i fp (x l ) - p(x2) > T, where 7" is a threshold represen t ing reasonable foreseeability. That is, d id the de fendan t ' s failure to take addi t ional care of ~2 - Xl increase the l ike l ihood of an accident enough that a reasonable person could have foreseen it? Examinat ion of proximate cause therefore proceeds f rom the same po in t of view as the examinat ion of breach of duty [Grady (1989), p. 152]. In fact, I will show in the next section that the de te rmina t ion of proximate cause as fo rmula ted above is analytically equivalent to the de te rmina t ion of negl igence according to the Hand Rule.

IV. The Hand Rule

According to the H a n d Rule for de te rmin ing negl igence, a de fendan t who failed to take due care is j u d g e d negl igent if the bu rden of taking the addi t ional care, B, is less than the expec ted damages from the accident , P L - - t h a t is, if B < PL- -where P i s the increase in the probabi l i ty of an accident result ing from the de fendan t ' s failure to take due care, and L is the victim's lOSS. 7 Referr ing again to Figure 1, if we let x 1 be the de fendan t ' s actual level of care and xe be the level that the plaintiff claims was due, then ~e - x~ represents the "un t aken p recau t ion" that potential ly consti tutes a breach of duty by the defendant . It follows that the P in the H a n d formula is given by p(xl) - p(x,e) and B is given by c(~: z - Xl), where c is the constant cost per uni t of care. 8 Now, if we rewrite the H a n d Rule as P > B / L and let 7"= B/L, then the above condi t ion for x~ e - x 1 to be proximate cause of the accident , P > 7, is identical to the condi t ion for it to be a breach of duty according to the Hand Rule, namely P > B/L.

What this analysis shows is that the p rox imate cause and breach of duty inquiries in an accident case are potent ial ly r e d u n d a n t in that both are ex ante in nature (in contrast to cause in fact), and both are " t h r e sho ld" rules. This conclusion seems to re inforce the view of those scholars who have a rgued that causation is all unnecessary c o m p o n e n t of a tor t case, at least as far as the goal of efficiency is concerned . Fur ther , it suggests why positive economic theories of tort law have such a hard time expla in ing the role of causation as a dist inct inquiry in tort cases. 9

In the r ema inde r of this article, I will propose a distinct role for proximate cause in the positive theory of negl igence deve loped by Grady. That is, beg inn ing with Grady's a rgumen t that it is up to the plaintiff to def ine the de fendan t ' s "un t aken p recau t ion , " I will argue that p roximate cause and the Hand Rule are both necessary e lements of a tort case if the objective of the cour t is to induce plaintiffs to choose the " r igh t " (i.e., efficient) untaken precaut ion on which to base their suit. In o ther words, I will suggest that by appropr ia te use of the proximate cause and Hand Rule l imitat ions on defendant ' s liability, the cour t can induce plaintiffs to "zero- in" on the efficient untaken precaut ion. In doing so, I hope to reconci le Grady's theory, which suggests that courts are not necessarily conce rned with identifying cost-minimizing care in genera l but only in evaluating the cost effectiveness of the par t icular un taken precaut ion that the plaintiff presents, with the s tandard economic theory, which suggests that identifying cost- minimizing care is at least one of the court ' s objectives.

V. The Plaintiff's Choice of an Untaken Precaution

Accord ing to the s tandard economic theot-y of negl igence, an acc ident case involves two steps. First, the opt imal (i.e., cost-minimizing) s tandard of care is de t e rmine d (using the


Hand Rule in its marginal form), and then the de fendan t ' s actual care is c o m p a r e d to the opt imal s tandard. The de fendan t is j u d g e d negl igent if his actual care falls short of opt imal care. Accord ing to Grady (1989), however, courts do not p roceed in this manner. Instead, they rely on the plaint iff to suggest what specific precaut ion(s) the defen- dan t failed to take and then de t e rmine if the p roposed un taken precaut ion was cost just i f ied using the discrete version of the Hand Rule. If so, the de fendan t ' s failure to take the p roposed precaut ion consti tutes negligence.

The s tandard theory therefore differs from Grady's theory in two key respects. First, the s tandard theory implicitly assumes that care is a perfectly divisible variable whose opt imal value can be de t e rmined by the cour t by examin ing marginal changes. In contrast, Grady's theory supposes that the cour t under takes the more modes t task of examining the cost effectiveness of discrete " q u a n t a " of care. Second, in the s tandard theory the opt imal s tandard is calculated and actual care is c o m p a r e d to this s tandard, whereas in Grady 's theory the pla in t i f f p r o p o s e s the un taken precaut ion and the cour t then evaluates its cost effectiveness. Because the plaint iff ra ther than the cour t chooses the un taken precaut ion, there is no reason to believe that the lat ter will choose the un taken preca t ion in a socially opt imal manner . Instead, she will likely do so to maxi- mize he r probabi l i ty of winning the case. Thus, unless the cour t can somehow induce the plaintiff to choose the " r igh t " un taken precaut ion, a s tandard o f care may emerge that is systematically inefficient. In the next section I will suggest how the combina t ion of proximate cause and the H a n d Rule permits the cour t to do this.

VI. Proximate Cause and the Hand Rule Combined

The above analysis suggested that p roximate cause and the H a n d Rule were substitutes in that both are ex-ante tests, and both can be fo rmula ted as threshold tests for P, the amoun t that the de fendan t ' s fai lure to take a par t icular precaut ion increases the probability of an accident in an ex-ante sense. Recall in par t icular that if T, the threshold for proximate cause, equals B / L , the ratio of the cost of the un taken precaut ion to the loss from the accident , then the tests are identical . However, the two tests do differ in an impor tan t respect, which relates to the fact that, according to Grady 's theory, it is the plaintiff, no t the court , who proposes the un taken precaut ion that will be evaluated. To see this difference, consider Figure 4, which graphs the ex-ante probabi l i ty of an accident , p(x), and the ratio of the cost of care to the loss f rom an accident , cx/L. Suppose that an acc ident has occur red and x 2 - x 1 is the un taken precaut ion that the plaintiff claims consti tutes negl igence on the par t of the defendant . Accord ing to the H a n d Rule (as fo rmula ted above), the cour t would f ind that the de fendan t ' s failure to take care of g2 - Xl const i tuted negl igence if P > B / L or, according to Figure 4, i f p ( x 0 - p(x~) > c(x 2 - X l ) / L . The thing to notice is that this condi t ion is more likely to be satisfied the smaller is x2 - xl, given that p(x) is dec l in ing at an increasing rate (i.e., there is a decreas ing marginal effectiveness o f care) , whereas c x / L is increasing at a constant rate. Intuitively, the more modes t is the un taken precaut ion p resen ted by the plaintiff as evidence of negligence, the easier it will be for the cour t to conclude that it was a cost-justified act (according to the H a n d Rule). Thus, to satisfy the Hand Rule for negligence, the

10 plaint iff has an incentive to propose small values for x2 - Xl. Now cons ider p rox imate cause. Recall that the condi t ion that must be satisfied is that

P > T, or in this case, p(xa) - P(~2) > T, for some threshold T. If we treat Tas a variable outside of the control of the plaintiff, then it should be clear from Figure 4 that p rox imate cause is more likely to be satisfied the largeris x~ - Xl, because, given Xl, p(xl)

TJ. MmELI 479

t cxJL . . . . . . I 1 B / L P ( X 0 - - - I I

I t

,,

I x I x 2 x

untaken precaution

FIG. 4. Comparison of the Hand Rule and proximate cause.

- p(x~) is increasing in ~2. Intuitively, the more significant is the un taken precaut ion, the more likely it is that the de fendan t ' s failure to take it will be seen as proximate cause of the accident . Thus, the plaintiff has an incentive to propose a large un taken precaut ion to establish p rox imate cause. I

The p reced ing compar ison of the Hand Rule and proximate cause shows that they are not equivalent once it is recognized the the plaintiff makes the choice of the un taken precaut ion to be evaluated by the court. As Grady notes, an untaken precaut ion that satisfies the H a n d R u l e - - a n d hence represents a breach of duty by the d e f e n d a n t - - might fail to be j u d g e d proximate cause of the accident, and vice versa [Grady (1989); pp. 150-153). Thus, if the plaint iff is to prevail in a tor t suit, she must choose the " r igh t " un taken precaut ion, where r ight in this case means the one most likely to pass both tests and result in victory.

The economis t ' s not ion of the " r igh t " un taken precaut ion, in contrast, is the one that would have minimized expec ted accident costs in an ex-ante sense, and Grady offers no reason to believe that this will be the same untaken precaut ion that maximizes the p la in t i f f s chances of victory. In the r ema inde r of this section, however, I will suggest how an appropr ia t e implementa t ion of both the H a n d Rule and prox imate cause allows the cour t to induce the plaintiff to "zero- in" on the one that (approximately) mini- mizes expec ted costs.

The a rgumen t follows directly from the above compar ison of the p la in t i f fs incentives unde r the H a n d Rule and proximate cause. If the Hand Rule a lone were used to de t e rmine the de fendan t ' s liability, we saw that the plaintiff maximizes he r chances of victory by choosing a small x 2 - xt, because, as the un taken precaut ion increases in magni tude , it is less likely that the Hand Rule will be satisified. Thus, we would expect that, on average, plaintiffs will tend to choose un taken precaut ions that fall short of the opt imal level, x* - x I. Notice, for example , that the H a n d Rule will always be satisfied ( ignor ing measu remen t error) for un taken precaut ions that fall short of the due-care level, but it may no t be satisfied for untaken precaut ions that " s t r add le" due care. Thus, the H a n d Rule a lone will result in courts always f inding defendants negl igent for untaken precaut ions that fall short of efficient care, but not necessarily for un taken precautions that surpass efficient care. This bias may cause defendants to infer a due s tandard that is lower than the efficient s t anda rdJ 2

480 Grady's theory o f negligence

Now include proximate cause as a necessary condi t ion for recovery by the plaintiff. Because the bias created by prox imate cause runs in the o the r direct ion, the plaint iff is more likely to prevail on this count by choosing a larger un taken precaut ion. That is, the larger is a=~ - Xl, the more likely it is that p(x I) - p(~2) > 7, given T as set by the court. Notice, therefore, that by appropr ia te choice o f the threshold T the cour t can set a lower b o u n d on the choice of an un taken precaut ion by the plaintiff as a way of offsetting the downward bias created by the Hand Rule. In part icular , suppose that the cour t chooses 7' so that the smallest un taken precaut ion that satisifies proximate cause is (approximately) x * - xl . This will ensure that plaintiffs will not systematically choose untaken precaut ions that are too small. Moreover, the built-in downward bias of the Hand Rule, which must also be satisified, will ensure that plaintiffs will not systematically choose un taken precaut ions that are too large. ~3

As an i l lustration of the foregoing argument , consider the case of H a f t v. Lone Pa lm Hotel. 14 The plaintiff sought damages for the drowning of her husband and son in the de fendan t ' s pool based on the fact that no l i feguard was oil duty and no sign to that effect had been posted. Let us consider these two candidates for the un taken precau- t i o n - n o l i feguard and no s ign - - in light of the above theory, and, for sake of the argument , let us assume that the efficient level of precaut ion was to have a l i feguard on duty. Presumably, the plaint iff could easily satisfy the Hand Rule with respect to the failure to post a sign, but not so easily with respect to the failure to have a l i feguard on duty. Thus, if the Hand Rule a lone were sufficient to establish liability the plaintiff would be incl ined to choose the absence of a sign as the un taken precaut ion. (This reflects the downward bias of the H a n d Rule.)

To forestall this strategy, the cour t could j u d g e that the absence of a sign was not proximate cause of the victims' deaths based on the a rgumen t that the hotel could not have reasonably foreseen that failure to post a sign saying " n o l i feguard on duty" would result in a drowning. For example , the hotel could (and did) argue that the absence of a l i feguard was obvious without a sign saying so. 15 On the o ther hand, the cour t could f ind that it was reasonable for the hotel to foresee a drowning as a consequence of not having a l i feguard on duty. In this way, the proximate cause r equ i r emen t provides a means for the cour t to induce the plaint iff to choose the larger (and more efficient) un taken p r e c a u t i o n - - i n this case, the absence of a l i f eguard- -as the basis for her claim.

VII. Cause in Fact Again

The analysis of cause in fact above showed that, like p rox imate cause, it establishes a lower b o u n d on the set of un taken precaut ions with which the plaint iff can prevail. Thus, the concepts seem substi tutable in this regard. However, cause in fact differs from prox imate cause in an impor t an t respect. Because proximate cause is based on an ex-ante view taken before the occur rence of the accident, the cour t has discret ion over the choice of the appropr ia t e threshold (as a rgued above). In contrast, because cause in fact is based on an ex-pos tv iew, " n a t u r e " de te rmines the threshold. That is, after the fact, the actual circumstances of the case dictate the set of acts that one can claim did and did not actually cause the accident. Thus, in contrast to p rox imate cause, cause in fact cannot serve as a "pol icy tool" for courts to induce plaintiffs to select the r ight untaken precaut ion to serve as the basis for their case. In fact, there may arise some cases in which cause in fact prevents the cour t from induc ing the opt imal choice by the plaintiff. For example , in cases where x * - x a is the efficient un taken precaut ion but x* < x' in Figure 2, the cour t cannot set the "eff ic ient" threshold for p rox imate cause

T.J. MICEL! 481

b e c a u s e t h e d e f e n d a n t ' s f a i lu re to d o x * - x 1 is n o t cause in fac t o f t h e a c c i d e n t (i.e., t h e a c c i d e n t w o u l d have h a p p e n e d anyway). T h u s , t he p l a in t i f f w o u l d n o t r e c o v e r by pro- p o s i n g x * - xt. R a t h e r , s he w o u l d have to p r o p o s e s o m e " l a r g e r " u n t a k e n p r e c a u t i o n , t6 In th is case, c ause in fac t is t he b i n d i n g c o n s t r a i n t , a n d it m i g h t b e i m p o s s i b l e fo r t he p l a in t i f f to f i n d a n u n t a k e n p r e c a u t i o n t h a t is b o t h cause in fac t a n d also satisfies t he H a n d Rule . T h e r e is n o r ea s on , however , to e x p e c t th is o u t c o m e to o c c u r systematical ly, b e c a u s e in m o s t cases t he d e f e n d a n t ' s n e g l i g e n c e will b e cause in fact.

G r a d y ha s a r g u e d t h a t cause in fac t d o e s serve a n e c o n o m i c p u r p o s e w h e n c o u r t s a n d / o r d e f e n d a n t s m a k e e r r o r s in e s t i m a t i n g t he e f f i c i en t level o f ca re [Grady (1983) ] . Specif ical ly, t h e fac t t h a t cause in fact resu l t s in c o n t i n u o u s e x p e c t e d costs fo r i n j u r e r s (as n o t e d above ) m a k e s t he c o n s e q u e n c e s o f e r r o r s by t he c o u r t less severe by r e d u c i n g t he i n c e n t i v e fo r i n j u r e r s systemical ly to b e ove rcau t ious . Neve r the l e s s , it is p r o b a b l e t h a t cause in fac t is p r i m a r i l y a i m e d at ob jec t ives o t h e r t h a n ef f ic iency in a c c i d e n t cases, such as t h e view t h a t d e f e n d a n t s s h o u l d n o t b e h e l d l iab le for d a m a g e s t h a t they d id n o t " i n f a c t " cause.

Notes

1. See, e.g., Epstein (1973), Shavell (1980), Landes and Posner (1981), Grady (1983), Burrows (1984), Wright (1985), and Kahan (1989).

2. See, e.g., Cooter (1987). I consider only unilateral care accidents, so the defendant's (injurer's) care alone enters the probability function. I also assume, for simplicity, that the damages from an accident are independent of care.

3. Of course, it is possible that p(x) reaches the horizontal axis for large enough x. In that case, the doctrine of res ipsa loquitur may be applicable. Specifically, if the due-care standard lies in the range where p(x) = 0, then an injurer who meets the standard avoids an accident with certainty. In this case, occurrence of an accident is itself proof of negligence, as well as proximate cause and cause in fact. Thus, there is no need for the plaintiff to [)rove these. See Grady (1989).

4. This assumes no "flat" sections in p(x). But see note 15 below. 5. Cooter (1982) was the first to examine fully the implications of this discontinuity. 6. Grady (1984) distinguishes two doctrines: the "direct consequences" doctrine and the "reasonable

toresight" doctrine, both of which arose out of the famous case PaL~'affv. Long Island R.R., 248 N.Y. 339, 162 N.E. 99 (1928) (the former front Andrews's dissenting opinion, and the latter from Cardozo's majority opinion).

7. U.S. v. Carroll Towing, 159 F.2d 169 (1947). 8. I continue to assume that the damage, L, is constant (i.e., independent of x). 9. As a result, some writers have suggested that causation serves goals other than efficiency [Epstein

(197:3); Wright (1985); and Cooter (1987)], or that it represents an older way of conducting efficiency analysis [Grady (1989), p. 156; and Henderson and Pearson (1988), pp. 523-524).

10. This tendency is limited by the fact that the smaller is the untaken precaution, the more likely it is that a court that makes errors will find the defendant nonnegligent.

11. This tendency is limited by reasonablenes~--i.e., a plaintiff cannot propose an excessively large untaken precaution.

12. This assumes that courts set the due standard of care in a given case based, at least in [)art, on reference to earlier, similar cases.

13. Note that this argument implies that the "efficient" threshold for proximate cause will have to be determined in a ease-specific manner. As a resnlt, the choice of T in the current theory in effect takes the place of the choice of an efficient threshold for determing negligence according to the standard economic theory (which ignores causation), given that the proposal of the untaken precaution is in the hands of plaintiffs.

14. 3 Cal.$d 756, 478 P.2d 465 (1970). The facts of this case resemble those of a hypothetical example proposed by a referee. See note 15 below.


15. A referee suggested a hypothetical example with similar facts except that, by hypothesis, harm was equally foreseeable as a result of failure to post a warning sign and failure to undertake a much costlier form of care. Note, however, that in such a scenario, P = p(xl) - p(x2) = 0 over the range between the sign (xl) and the costlier precaution (x~) (i.e., p(x) is flat over this range). Thus, P< B/L, implying that the costlier alternative (x2) is not cost effective according to the Hand Rule. Intuitively, if the sign is cheaper but equally effective in reducing the probability of harm compared to the costlier alternative, then the latter could never be more efficient. On the other hand, if some victims cannot read, then the absence of a sign may no longer be an equally foreseeable cause of harm. In this case, P > 0, and the argument in the text applies.

16. For example, suppose in the pool example that posting a sign was the efficient level o f precaution on average, but that the victims in this particular case could not understand the sign. The absence of the sign therefore is not cause in fact because the accident would have occurred even if one had been posted. The plaintiff's only alternative in such a situation would be to allege the absence of a lifeguard or some other untaken precaution, which may not satisfy the Hand Rule.

References

BROWN, J.P. (1973). Toward an economic theory of liability. Journal of Legal Studies 2:323-349. BURROWS, P. (1984). Tort and tautology: The logic of restricting the scope of liability. Journal of Legal

Studies. 13:399-414. CALABRESI, G. (1961). Some thoughts on risk distribution and the law of torts. Yale Law Journal 70:499-

553. COASE, R. (1960). The problem of social cost. Journal of Law and Economics 3:1-44. COTTER, R. (1982). Economic analysis of punitive damages. Southern California Law Review 56:79-101. COTTER, R. (1987). Torts as the union of liberty and efficiency: An essay on causation. Chicago-Kent Law

Rev/ew 63:523-551. COTTER, R. (1989). Punitive damages for deterrence: When and how much? Alabama Law Review

40:1143-1196. EPSTEIN, R. (1973). A theory of strict liability. Journal of Legal Studies 2:151-204. GRADY, M. (1983). A new positive economic theory of negligence. Yale Law Journal 92:799-829. GRADY, M. (1984). Proximate cause and the law of negligence. Iowa Law Review 69:363-449. GRADV, M. (1989). Untaken precautions.Journal of Legal Studies 18:139-156. HENDERSON, J , AND PEARSON, R. (1988). The Tort Process, 3rd edition. Boston: Little, Brown. KAHAN, M. (1989). Causation and incentives to take care under the negligence rule. Journal of Legal

Studies 18:427---447. LANDES, W., AND POSNER, R. (1981). The positive economic theory of tort law. Geo~ia Law Review

15:851-924. SHAVELL, S. (1980). An analysis of causation and the scope of liability in the law of torts. Journal of Legal

Studies 9:463-516. WRIGHT, R. (1985). Actual causation vs. probabilistic linkage: The bane of economic analysis. Journal of

Legal Studies 14:435-456.

cause in fact, proximate cause, and the hand rule: extending grady's positive economic theory...

Documents