The Allocative Efficiency of Shifting from a 'Negligence' System to a 'Strict-Liability' Regime in Our Highly-Pareto-Imperfect Economy : A Partial and Preliminary Third-Best-Allocative-Efficiency Analysis

This Article exemplifies third-best-allocative-efficiency analysis by showing the way in which the allocative (economic) efficiency of shifting from negligence to strict liability will be influenced by the fact that a wide variety of Pareto imperfections will generate divergences between the private profitability and allocative efficiency of avoidance-moves for both potential-avoider injurers and potential-avoider victims under negligence and under strict liability. The Pareto imperfections considered include imperfections generated by tort doctrines that are not first-best-allocatively-efficient; imperfections generated by the private transaction cost of dispute-settling and the possibility that tort participants, judges, and juries may make errors; and imperfections that are not generated by tort law or tort-dispute-processing realities (e.g., imperfections in seller competition, tax law, and "innovation" law). The Article also examines the way in which various Pareto imperfections affect the allocative transaction cost of shifting from negligence to strict liability. In addition, the Article executes partial and preliminary third best-allocative-efficiency analyses of making the decision whether to reject a tort claim on "proximate cause" grounds depend on the standard of injurer liability as well as of the alleged common-law practice of making members of an industry strictly liable in tort when it is in its infancy and liable only if negligent when it is mature. The "proximate cause" analysis criticizes Steven Shavell's study of this issue, including his treatment of the relevance of the "crushing liability" that our law's dichotomous approach to the cause-in-fact issue can generate in some cases. The "infant versus mature industry" analysis comments on and criticizes various aspects of Posner and Landes' study of this issue. Both the critique of Shavell and the critique of Posner and Landes focus in part on their failure to deal adequately with The General Theory of Second Best