Agenda for 17th Class

1. Agenda for 17th Class • Handouts • Slides • “History of Gun Rights” handout • Restatement • Priest • Polinsky

2. Assignment for Next Class • Review any questions from today’s assignment that we don’t discuss in class • Read “History of Gun Rights” handout • Questions to think about / Short papers • Everyone should be prepared to discuss all the questions on the last pages of the “History of Gun Rights” handout • Mandatory writing • Group 1. Q 1 • Group 2. Q 2 • Group 3. Q 3 • Group 4. Q 4 • Optional writing -- All questions that are not mandatory

3. Levi and Escola • Levi • Describes traditional view of common law reasoning • Case by case, reasoning by example • Later court tries to formulate holding that explains all (or most of) prior cases • Law changes because • Later court is not bound to prior court’s reasoning and statement of holding • Later court uses its own view of justice and fairness to decide whether outcome in current case requires modification of rule • Policy reasoning is usually implicit • Escola • Court sees itself as deciding between negligence and strict liablity • Not just resolving one case, but setting rule for future cases • Explicit policy/economic reasoning • Strict liability will give manufacturers better incentives to develop safe products • Strict liability will spread risk and provides consumers with insurance • Reflects legal realism – judge as “interstitial legislator” • “legislates” when legislature is silent

4. Negligence • A person or company is “negligent” if it does not take precautions that a “reasonable man” or ordinarily prudent person or company would take. • Failure to check that scaffolding is properly constructed • Failure to test and inspect car wheels before incorporating them into car • What precautions would an ordinarily prudent person or company take? • Sometimes just left for jury to decide without much guidance • Economic interpretation (Hand formula) • Action is negligent if there was an alternative that would have been safer AND the cost of the alternative (B) is less than the reduction in the probability of harm (P) times the average dollar amount of the loss (L) • B<PL • Negligent not to do additional inspect of scaffolding if cost of additional inspection (e.g. $100 of worker time) is less than reduction in probability of harm (e.g. from 11% to 1% =10%) times average harm ($100,000). • $100 < 10% x $100,000=$10,000

5. Strict Liability • Strict liability is liability without proof of negligence • In some situations, the law will impose liability upon proof of harm, without proof that the defendant was negligent • If defendant is using explosives for mining purposes, and the explosions harm a third party, the defendant is liable, even if it took all reasonable precautions • If defendant creates a reservoir of water which bursts and causes harm to people or property below it, defendant is liable, even if it took all reasonable precautions • Strict liability for “ultra-hazardous” activities • Strict liability for patent infringement, even if defendant was unaware of patent and had performed reasonable search • Liability based on negligence is more common • “Absolute liability” is a synonym for strict liability

6. Strict Liability v Negligence • Economists sometimes argue that strict liability and negligence will lead to the same behavior by defendants • Suppose precaution costs $900 and prevents 10% chance of $10,000 harm • If legal rule is negligence • Defendant would take precaution, because defendant would be found negligent ($900 < 10%x $10,000) • Rational defendant would pay $900 to avoid 10% chance of $10,000 damages (Expected value of damages is 10% x $10,000 = $1000) • If legal rule is strict liability, defendant will obviously take precaution • Suppose precaution costs $2000 and prevents 10% chance of $10,000 harm • If legal rule is negligence • Defendant would NOT take precaution, because would NOT be found negligent ($2000 > 10% x $10,000 = $1000) • If legal rule is strict liability, defendant would still not take the precaution • Because better to pay $1000 (expected value of damages) than $2000 for precaution • Persuaded?

7. Design Defect I • Product liability can be based on • Manufacturing defect • Failure to inspect wheels for problems with wood (Macpherson) • Impurities that cause glass bottle to break • Design defect • Putting gas tanks in place where likely to explode in accident • Failure to include reasonable safety feature • Design is defective if “unreasonably dangerous” • What is “unreasonably dangerous” design? • Hotly contested • Probably involves some sort of cost/benefit analysis • Could think of like negligence • Design is defective if there is an alternative design that could have been used that would have reduced or eliminated the probability of injury and • Cost of that design is less than reduction in probability of injury times average cost of injury

8. Design Defect II • Example 1 • Suppose automatic braking costs $1000 • Suppose automatic braking reduces probability of accident over lifetime of car by 5% from 10% to 5% • Average injury costs $100,000 • Medical expenses, lost wages, pain & suffering • Cost =$1000 < $5000 = 5% x $100,000= Expected benefit • So car is defective if does not have automatic braking • Example 2 • If automatic braking costs $3000 • Reduces probability of accident by 2% from 7% to 5% • Cost = $3000 > $2000 = 2% x $100,000 • So car is NOT defective if does not have automatic braking

9. Restatement Second of Torts, §402A • (1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if • (a) the seller is engaged in the business of selling such a product, and • (b) it is expected to and does reach the consumer without substantial change in the condition in which it is sold. • (2) The rule stated in Subsection (1) applies although • (a) the seller has exercised all possible care in the preparation and sale of his product, and • (b) the user or consumer has not bought the product from or entered into any contractual relationship with the seller • Caveat: • The Instituted expresses no opinion as to whether the rules stated in this Section may not apply • (1) to harm to persons other than users or consumers; • (2) to the seller of a product expected to be processed or otherwise substantially changed before it reaches the user or consumer; or • (3) to the seller of a component part of a product to be assembled.

10. Questions • 1. The Restatement expresses no opinion on the question of liability when there is “harm to persons other than users or consumers”? Do you think there should be liability in such cases? An example of harm to persons other than users or consumers would be a car that, because of a defect, spins out of control and injures a pedestrian.

11. Priest & Polinsky • Priest • Strict liability does not reduce accidents, because it does not give consumers incentives to choose safe products, maintain them, and use them properly • Strict liability is not as good a way to provide insurance as first party insurance • Moral hazard • First party insurance has deductibles and co-insurance that give consumers incentives to be careful • First party insurance can vary premia by risk • Strict liability causes poor to subsidize rich • Negligence would be better • “Could this accident have been practically prevented prior to its occurrence” • Polinsky & Shavell • Don’t need product liability for widely sold product • Market forces and regulation ensure safety • Legal costs are very high

12. Questions • 2. Which argument in the articles in this packet did you find most persuasive? • 3. Which argument in the articles in this packet did you find least persuasive? • 4. Do you agree with Priest that product liability should be restricted to situations where there was a “specific cost-effective action that the injurer … could have taken which would have prevented the accident”? • 5. Do you agree with Polinsky & Shavell that product liability should be restricted to products that “are not widely sold.”