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ECON 1450 – Professor Berkowitz Lectures on Chapter 3

ECON 1450 – Professor Berkowitz Lectures on Chapter 3. Applications of Tort Law 1980-2005; Number of products liability cases filed increases from about 7,000 to about 36,000 These cases a share of all civil cases increases from about 4,1% to 12.65

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ECON 1450 – Professor Berkowitz Lectures on Chapter 3

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  1. ECON 1450 – Professor BerkowitzLectures on Chapter 3 • Applications of Tort Law • 1980-2005; Number of products liability cases filed increases from about 7,000 to about 36,000 • These cases a share of all civil cases increases from about 4,1% to 12.65 • More examples – product liabilities, workplace accidents, environmental accidents

  2. Brief History • 19th century USA – limit producer liability • Mid-19th century – doctrine of “privity” • 1916 – McPherson v. Buick – Judge Cardozo’s ruling • 1944 – Escolav. Coca Cola Bottling – res ispaloquitor • 1960 - Henningtonv. Bloomfield Motors

  3. Current Tort Law • Restatement of Torts in 1965 – Section 402A • Tort and contract theory of contracts converges to a strict liability standard • Law excludes all consideration of producer care (liability is strict) • Privity is eliminated

  4. A Model of Product Liablity • b(q) = aggregate inverse demand for a product • c = marginal cost (constant) • Equilibrium q*: b’(q*) = c • p = probability of an accident • D = damages per unit output if an accident occurs • qpD = total expected damages

  5. Liability Rules • Share of damages borne by manufacturers = s • Share of damages borne by consumer = 1-3 • Strict liability => s=1 • No liability (caveat emptor) => s =0 • 2 or more simultaneous causes?? • Complementary plaintiffs • Remote cause?

  6. Liability Rules, Demand and Supply • Marginal benefit = b(q) – pD(1-s) • Marginal cost = c + pDs • Equilibrium is independent of s: b(q*) = c + pD • Interpret!

  7. Care Choice of Manufacturers • α = extent to which consumers misperceive risk • α > 1 – overestimate risk • α < 1 – underestimate • Producers – are well informed • Equilibrium: b(q*) – (1-s)αpD = c + spD • δb/δα = (1-s)pD • Implications!

  8. Custom as Defense • Safety feature that becomes commonly used in an industry becomes a “custom” • “custom” – potential standard for a negligence rule • Hand Rule

  9. Workplace Accidents • Respondeat Superior: employer is strictly liable for accidents involving his employees’ negligence • Accidents where victim is employee: exception to Respondeat Superior • Contributory negligence • Fellow servant rule

  10. Worker’s Compensation Laws • Turn of 20th century – broad dissatisfaction with common law rules w.r.t. workplace accidents • Many states institute a form of strict owner liability – employer negligence is now longer necessary for injured employees to collect • Contributory negligence and fellow servant rules cannot be invoked.

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