Motor Vehicle Crash Fatalities and Fatality Rates (per Hundred Million Vehicle Miles Traveled), 1899-2009
B. Cost / Benefit Calculations and the Learned Hand Formula
4. The Logic of Cost-Benefit
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intuitions and to establish that the two cases are genuinely different in principle. But they aren’t. In this sense, a moral heuristic... leads to errors.
And this objection does not bear only on ingeniously devised hypothetical cases. It suggests that a moral mistake pervades both commonsense morality and law, including constitutional law, by treating harmful omissions as morally unproblematic or categorically different from harmful actions.
Is there anything to be said to those who believe that their moral
judgments, distinguishing the trolley and footbridge problems, are entirely reflective, and embody no heuristic at all? Consider a suggestive
experiment designed to see how the human brain responds to the two problems (Greene et al. 2001). The authors do not attempt to answer the moral questions in principle, but they find “that there are systematic variations in the engagement of emotions in moral judgment,” and that brain areas associated with emotion are far more active in contemplating the footbridge problem than in contemplating the trolley problem. An implication of Greene et al.’s finding is that human brains are hard-wired to distinguish between bringing about a death “up close and personal” and doing so at a distance. Of course, this experiment is far from decisive;
emotions and cognition are not easily separable (Nussbaum 2002), and there may be good moral reasons why certain brain areas are activated by one problem and not by the other. Perhaps the brain is closely attuned to morally irrelevant differences. But consider the case of fear, where an identifiable region of the brain makes helpfully immediate but not entirely reliable judgments (Ledoux 1996), in a way that suggests a possible physical location for some of the operations of [our moral heuristics]. The same may well be true in the context of morality, politics, and law (Greene
& Haidt 2002).
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Company’s lines, east and west along Valley Street, crossed the telephone cable at right angles and some eight or ten feet above it. These lines were not insulated.
Shortly after midnight, during a heavy storm, several of the Public Service wires over the intersection of Valley and Taylor Streets broke and fell to the ground. One of them came into contact with the telephone messenger. This particular wire of the defendant carried a voltage of about 2300. Consequently an arc was created, which burned through the messenger and nearly half through the cable before the current was shut off. . . .
When the contact of the wires occurred, the plaintiff was standing at the telephone, engaged in a long-distance conversation. The contact created a violent agitation in the diaphragm of the receiver and a loud explosive noise. The plaintiff fell to the floor. She has since suffered from what her physicians describe as traumatic neurosis, accompanied by loss of sensation on the left side.
Apparently there is no claim that the negligence of the defendant caused the wires to fall. The plaintiff’s sole claim is that the defendant could have anticipated (1) that its wire might fall for a variety of reasons, which is true; (2) that a telephone subscriber in such case might hear a great noise, which also is true; (3) that as a result of fright thereby induced the user of the telephone would suffer physical injuries, which, as we have seen, is a rare contingency, though it may be anticipated. It is urged that the defendant’s consequent duty was to maintain such devices at cross-overs as would prevent one of its falling wires from coming into contact with a telephone wire.
The devices suggested are two. The first is a wire-mesh basket suspended from the poles of the defendant at the point of cross-over, above the cable and below the defendant’s wires. Two forms were suggested. One would be about six by eight feet. The other would be of an unassigned width and would stretch the full distance between defendant’s poles. In either case the basket would be insulated. The theory is that falling wires, though alive, would remain harmless in the basket. . . .
There was evidence that baskets and similar devices were used by the Telephone Company, some years ago, for the protection of their wires at cross-overs. But the verdict establishes its lack of duty thus to protect its customers in this particular instance. There was no evidence that electric light companies ever erected baskets or insulated wires in such situations, and there was positive evidence that standard construction practices do not require either. The plaintiff cannot claim that the defendant maintained a system less carefully devised than one conforming to accepted practice. It is conceded, however, that due care might require some device better than the usual one. If the plaintiff and persons in her situation could be isolated, and duties to others ignored, due care might require the use of such devices as are here urged.
But the same reasoning that would establish a duty to do so raises another duty to the people in the street, not to lessen the protective effect of their circuit-breaking device. . . .
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In the case before us, there was danger of electrocution in the street. As long as the Telephone Company’s safety devices are properly installed and maintained, there is no danger of electrocution in the house. The only foreseeable danger to the telephone subscriber is from noise-fright and neurosis. Balancing the two, the danger to those such as the plaintiff is remote, that to those on the ground near the broken wires is obvious and immediate. The balance would not be improved by taking a chance to avoid traumatic neurosis of the plaintiff at the expense of greater risk to the lives of others. To the extent that the duty to use care depends upon relationship), the defendant’s duty of care towards the plaintiff is obviously weaker than that towards the man in the street.
The defendant’s duty cannot, in the circumstances, be to both. If that were so, performance of one duty would mean nonperformance of the other. If it be negligent to save the life of the highway traveler at the expense of bodily injury resulting from the fright and neurosis of a telephone subscriber, it must be equally negligent to avoid the fright at the risk of another’s life. The law could tolerate no such theory of “be liable if you do and liable if you don’t”. The law does not contemplate a shifting duty that requires care towards A and then discovers a duty to avoid injury incidentally suffered by B because there was due care with respect to A. Such a shifting is entirely inconsistent with the fundamental conception that the duty of due care requires precisely the measure of care that is reasonable under all the circumstances. 2 Restatement Torts, §§ 291-295. . . .
If the duty to the man in the street be forgotten for the moment, the duty to the plaintiff would depend upon anticipation of bodily injuries because of fright at a noise.
Of a defendant in such case it is to be remarked that “the likelihood that his conduct will cause bodily harm involves two uncertain factors, the chance that his act will cause the [emotional] disturbance and the chance that the disturbance if it occurs will result in bodily harm.” 2 Restatement, Torts, § 306, comment c. The chance of physical contact with a live wire in the street, with consequent electrocution, is much less remote and complicated than that. It is clearly more foreseeable and is the controlling one of all the circumstances for present purposes. In this particular case, it could not be found that it would be reasonable to neglect the protection of those more obviously at risk than the plaintiff.
It is not doubted that due care might require the defendant to adopt some device that would afford protection against emotional disturbances in telephone-users without depriving the traveling public of reasonable protection from live wires immediately dangerous to life. Such a device, if it exists, is not disclosed by the record. The burden was upon the plaintiff to show its practicability. Since the burden was not sustained, a verdict should have been directed for the defendant.
Other exceptions therefore require no consideration.
Judgment for the defendant. All concurred.
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1. A Social Endeavor. The plaintiff in Cooley tried to prove negligence by focusing on the costs and benefits of the defendant’s actions in relation to her. Page, J., rejected this argument, demonstrating the courts’ use of cost-benefit analysis as a social—rather than private—calculation; he analyzes the reasonableness of the defendant’s safety technology as applied to all foreseeable plaintiffs. Does this make sense? How well do you think a social cost-benefit analysis fit into the plaintiff-driven, two-party nature of the tort system?
2. Activities and Activity Levels – and the Strict Liability Alternative. The plaintiff in Cooley offers an alternative technology to make operating phone lines safer. But what if the act of operating phone lines with due care is not enough? What if engaging in the activity itself is negligent? Can the tort system deter activities that are unsafe because of the levels of the activity that people engage in? Shavell criticizes the negligence regime for failing to adequately address the problem of over-participation in unsafe activities:
By definition, under the negligence rule all that an injurer needs to do to avoid the possibility of liability is to make sure to exercise due care if he engages in his activity. Consequently he will not be motivated to consider the effect on accident losses of his choice of whether to engage in his activity or, more generally, of the level at which to engage in his activity;
he will choose his level of activity in accordance only with the personal benefits so derived. But surely any increase in his level of activity will typically raise expected accident losses (holding constant the level of care). Thus he will be led to choose too high a level of activity; the negligence rule is not “efficient.”. . .
However, under a rule of strict liability, the situation is different. Because an injurer must pay for losses whenever he is involved in an accident, he will be induced to consider the effect on accident losses of both his level of care and his level of activity. His decisions will therefore be efficient.
Because drivers will be liable for losses sustained by pedestrians, they will decide not only to exercise due care in driving but also to drive only when the utility gained from it outweighs expected liability payments to
pedestrians. Steven Shavell, Strict Liability versus Negligence, 9 J.LEGAL
STUD. 1, 2-3 (1980).
Is there a way to incorporate unsafe levels of activity into a cost-benefit analysis of due care? Calabresi offers another alternative to the negligence regime to address this problem in his classic “The Decision for Accidents”:
There are acts or activities that we would bar in our society regardless of the willingness of the doer to pay for the harm they cause. It is these that we call "useless" and feel that there is no societal loss in deterring them
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specifically. But certainly even if some such activities can be isolated, there are a great many other activities whose undesirability consists only in the fact that they result in accidents and then only to the extent that people would, if they knew the costs of these accidents, prefer to abstain from the activity rather than pay those costs. . . .
The question then is, Can we not deter these acts or activities more effectively than through a system of fault liability which, together with insurance, merely raises somewhat the cost to those who as an actuarial class tend to do these acts or activities? I suggest, and it is not a
particularly original suggestion, that a system of noninsurable tort fines assessed on the individual doer of the "useless" act, together with general nonfault liability, would do a far better job of deterring valueless activities of this type.
This leaves those acts or activities that, as a society, we are unprepared to call valueless—those activities that, subject to some subsequent political reconsideration and modification, we want to permit to the extent that they can pay for their accident costs. I would suggest, though it is not crucial to my analysis, that these comprise the bulk of the decisions as to accidents.
Despite Learned Hand's formulation that negligence is a balancing of the
"danger of an activity" against what must usefully be given up to avoid that danger,' it is altogether too clear that a system of fault liability is designed to deal only with "useless" conduct and not with the more subtle interests involved in measuring the value and danger of an activity. If using a threshold of terrazzo is not deemed careless, then a system based on fault—as an all-or-nothing proposition—will have no effect whatever on this activity. The best way we can establish the extent to which we want to allow such activities is by a market decision based on the relative price of each of these activities and of their substitutes when each bears the costs of the accidents it causes. This can be done by a system of
nonfault enterprise liability, a system that assesses the costs of accidents to activities according to their involvement in accidents. By contrast, our fault system, with insurance, assesses the cost of an activity not according to the number of accidents it causes but according to the number of accidents it causes in which certain predetermined indicia of fault can be attributed to it. This results in a deterrence of only faultily caused
accidents in an area where by hypothesis we are interested in deterring activities not because of some moral implications but because of the accidents they cause.
Guido Calabresi, The Decision for Accidents: An Approach to Nonfault Allocation of Costs, 78 HARV.L.REV. 713, 718-20 (1965).
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Elsewhere, Calabresi makes the point that the nonfault or strict liability standard for accidents would accomplish the same economic goals as Learned Hand’s negligence test:
If we make the assumptions under which the Learned Hand test would work adequately, the fascinating thing is that as good a result in terms of reducing primary accident costs could be achieved by a liability rule which is the exact reverse of the Learned Hand test. Under such a “reverse Learned Hand test,” the costs of an accident would be borne by the injurer unless accident avoidance on the part of the victim would have cost less than the accident. If a reverse contributory negligence test were added, the victim would bear the accident costs only if the injurer could not also have avoided the accident at less cost than the accident entailed. . . .
Guido Calabresi & Jon T. Hirschoff, Toward a Test for Strict Liability in Torts, 81 YALE
L.J. 1055, 1058-9 (1972).
The two approaches – a cost-benefit fault theory and a nonfault theory of strict liability – are not completely identical. “Under the Learned Hand test,” write Calabresi and Hirschoff, “the costs of all accidents not worth avoiding are borne by victims, whereas under the reverse Learned Hand test they would be borne by injurers.”
Moreover, the choice between fault and nonfault liability standards alters the institutional location of the necessary cost-benefit analysis:
When a case comes to judgment under either of the two Learned Hand type tests, a cost-benefit analysis is made by an outside governmental institution (a judge or a jury) as to the relative costs of the accident and of accident avoidance. . . . The strict liability test we suggest does not require that a governmental institution make such a cost-benefit analysis.
It requires of such an institution only a decision as to which of the parties to the accident is in the best position to make the cost-benefit analysis between accident costs and accident avoidance costs and to act on that decision once it is made.
Id. at 1060. Nonfault approaches may not eliminate cost-benefit analysis. In fact, by requiring that private actors bear the social costs of their decisions, they create
institutional incentives for those actors to engage in preemptive cost-benefit analysis. Of course, it may matter a great deal that the actors charged with engaging in the cost-benefit calculus are private actors rather than public actors. For one thing, the allocation of the decision-making responsibility to the private sphere means fewer decisions by the state.
Is nonfault liability thus less interventionist – and more favorable toward the private sector -- than a liability standard that requires a state determination of fault?
3. Cost-Benefit in Practice (I): Does Tort Law Really Deter? For much of the middle of the twentieth century, leading scholars doubted that the prospect of tort liability
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dramatically affected accident rates. Mid-twentieth-century Yale torts jurist Professor Fleming James, for example, believed (as he argued in one especially distinctive article) that people are simply accident prone or not, as the case may be. Incentives, he insisted, were neither here nor there. See Fleming James, Jr. & John Dickinson, Accident
Proneness and Accident Law, 63 HARV.L.REV. 769 (1950). A generation of scholars followed James’s basic idea.
Today, the literature is considerably less skeptical, though some of the most heroic ideas of tort damages as a perfect deterrence device remain far-fetched. Some of the best evidence we have is in the much-studied field of medical malpractice. One recent study examined changes in state common law making the liability standard hinge on compliance with a national physician’s custom rather than a state-level physician’s custom; the author concluded that such state law changes changed physician practice, making them more uniform across regions and bringing them into line with the national standard. Michael Frakes, The Impact of Medical Liability Standards on Regional Variations in Physician Behavior: Evidence from the Adoption of National-Standard Rules, 103 AM.ECON.REV. 257 (2013). The same author finds that reform laws reducing tort damages decrease the number of episiotomies during vaginal deliveries without altering outcomes as shown by newborns’ Apgar test scores. Michael Frakes, Defensive Medicine and Obstetric Practices, 9 J. EMPIRICAL LEGAL.STUD. 457 (2012). The
literature indicates that tort law affects caesarian section rates, though not in the way conventional wisdom imagines. C-section rates are not higher today because of tort liability; to the contrary, reform laws decreasing likely tort damages awards actually increase the rate of caesarian sections, apparently because the prospect of tort damages has the effect of holding c-section rates down. Janet Currie & W. Bentley MacLeod, First Do No Harm? Tort Reform and Birth Outcomes, 123 Q.J.ECON. 795 (2008).
Evidence from other areas has been modest and mixed, but still indicates some deterrent effect. For example, a leading study by Cohen and Dehejia found that transitions to no-fault auto liability (and away from tort) led to a 6% increase in traffic-related deaths in the United States. Alma Cohen and Rajeev Dehejia, The Effect of Automobile Insurance and Accident Liability Laws on Traffic Fatalities, 47J.L.&ECON. 357 (2004). Other studies in the same area have been more equivocal, but the
methodological obstacles are considerable.
4. Cost-Benefit in Practice (II): The Problem of Insurance. Assuming that tort law does deter, at least sometimes, what happens when potential plaintiffs and defendants are insured? How does liability insurance affect the viability of using negligence to deter unwanted and uneconomic acts? Economists and legal scholars call the problem that insurance raises for the behavior of insured actors “moral hazard.” If people are insured, the theory goes, they have less incentive to take reasonable precautions to avoid
accidents, and our negligence deterrence system will fail. Recall, for example, the defendant in Vaughn v. Menlove from chapter 4, who chose to risk a fire because he had purchased property insurance.
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Fleming James, who was skeptical of the significance of rational incentives, concluded that there was no evidence available to prove that increasing rates of insurance led to increased carelessness. Fleming James, Jr., Accident Liability Reconsidered: The Impact of Liability Insurance, 57 YALE L.J.549 (1948). But today many scholars, especially those of an economic orientation, are more likely to credit the significance of moral hazard, at least in some forms. And the empirical evidence suggests that there is some reason to think that the moral hazard effect is at work in modern liability insurance markets. Cohen and Dehejia, for example, found that compulsory auto insurance regimes produced an increase in fatalities; for each percentage point decrease in uninsured
motorists in a state (i.e., for an increase in drivers covered by insurance), they found a one percent increase in traffic fatalities. Cohen & Dehejia, The Effect of Automobile Insurance, supra.
But the connection between insurance and accident rates is not a simple one.
Insurance companies know all about moral hazard, of course. They would go bankrupt very quickly if they did not take it into account in pricing and shaping their policies.
Much of the structure of the typical liability insurance business is designed to counteract the incentives that the fact of insurance will create for their customers. Insurers try to screen out bad risks at the front-end of the process. And once they enter into insurance contracts, they design those contracts to encourage safe behavior; as Professor Tom Baker puts it, insurers seek to create insurance contracts that do “not encourage the wicked to apply or tempt good people to do wrong.” Tom Baker, On the Genealogy of Moral Hazard,” 75 TEX.L.REV. 237, 241 (1996).
One way insurers encourage safety is by developing and disseminating new safety strategies and mechanisms. Insurance companies have powerful incentives—and an ideal institutional position—to aggregate information about risks, to analyze it, and to share it with their policy holders. In one of the most famous examples, firms offering insurance against the catastrophic effects of early steam boilers were almost single-handedly responsible for dramatically reducing the risks of boiler design and maintenance. See John Fabian Witt, Speedy Fred Taylor and the Ironies of Enterprise Liability, 103 COLUM.L.REV. 1 (2003).
Liability insurers also typically adopt “experience rating” for their insurance premiums. Insured policy holders whose conduct generates covered accidents often find that their premiums go up. In insurance areas like automobile insurance, insurers also use information such as traffic infractions to gauge an insured driver’s likelihood of being in an accident. Experience rating can thus generate incentives of its own for insured actors to take account of the risk of harm to others—incentives that are one degree removed from tort law, but which some observers think may be even more powerful deterrents than the prospect of paying tort damages. The close and certain connections between accidents and traffic infractions, on the one hand, and increased automobile insurance rates, on the other, may make the insurance policy incentives for safety much more salient than the highly attenuated and uncertain connection between unsafe driving and the prospect of tort liability. See, e.g., John G. Fleming, The Role of Negligence in Modern Tort Law, 53 VA.L.REV. 815, 825 (1967).