The Optimal Allocation of Burden of Proof and its Effect on Precaution Behavior

The economic perspective views tort law as a mechanism to internalize externalities borne by prohibitively high transaction costs. Tort law has been 'reformed' on two different bases of reasoning. Since the producers have a larger bargaining position to manipulate for underinvestment as measures for precaution, strict liability will increase incentives for them to reduce accidents. The other basis of reasoning concerns business environmental dynamics. Sophistication of products and services, urbanization and globalization of business operations rapidly aggravate the costs associated with precaution and the burden of proof. In this research we investigate such impact on the optimal design of the burden of proof. We model both liability cost (substantive law)and the procedural cost of burden of proof with an integrated model. We investigated the impact of business environment dynamics that enterprise liability defenders identified to justify the reform, and power imbalance that set forth the concept of enterprise liability for fairness beyond efficiency. Our result shows that such dynamics do not unidirectionally allocate burden to the injurer. When the court considers the power unbalance, the burden will be allocated more to the manufacturer. It is also interesting that a fractional allocation of the burden of proof can be socially optimal under the intermediate range of precaution cost when the court favors the manufacturer