The Economics of Strict Liability

Professor Rizzo examines the efficiency rationale for negligence law and analyzes some of the economic aspects of a system of strict liability. He concludes that, since efficiency is an impossible goal for tort law and since the law cannot and should not aim for the impossible, we must reject both the normative and positive justification for the efficiency approach to tort law. Consequently a system of strict liability is preferable to one of negligence.

In a dynamic, real world the uncertainties of technological change, the ambiguities of foreseeability, and the absence of an objective measure of social cost make the efficiency paradigm an illusion. The strict liability standard introduces certainty in the legal order since courts do not have to grapple with such elusive problems as foreseeability, cheaper-​cost avoider, social cost, and second best (all of which Rizzo discusses and illustrates as components in the dynamics of negligence). A system of strict liability, which holds a defendant tort feasor liable for damages proximally caused irrespective of the reasonableness of his behavior, is said to be superior to cost benefit analysis or judicial “fine tuning.” This is the case because we live in a dynamic world in which the information by the “fine-​tuners” is not available.

Rizzo contends that strict liability would not necessarily increase the scope of liability. Since it is based on straightforward, commonsense causal paradigms, it would minimize the number of issues which must be considered in a given case. It should promote greater certainty about the locus of responsibility in accidents. This greater certainty promotes efficiency in the basic institutional sense because property rights become more clearly defined. By simplifying the grounds on which cases are decided, the parties to a dispute are more likely to agree on the probabilities of the outcome. This would result in less litigation and more out-​of-​court settlements.