Table of Contents

Research Handbook on the Economics of Torts

Research Handbook on the Economics of Torts

Research Handbooks in Law and Economics series

Edited by Jennifer H. Arlen

This pioneering Handbook contains specially-commissioned chapters on tort law from leading experts in the field. This volume evaluates issues of vital importance to those seeking to understand and reform the tort law and the litigation process, taking a multi-disciplinary approach, including theoretical economic analysis, empirical analysis, socio-economic analysis, and behavioral analysis. Topics discussed include products liability, medical malpractice, causation, proximate cause, joint and several liability, class actions, mass torts, vicarious liability, settlement, damage rules, juries, tort reform, and potential alternatives to the tort system. Scholars, students, legal practitioners, regulators, and judges with an interest in tort law, litigation, damages, and reform will find this seminal Handbook an invaluable addition to their libraries.

Chapter 9: Economic policy and the vicarious liability of firms

Reinier Kraakman

Subjects: economics and finance, law and economics, law - academic, law and economics, law of obligations

Extract

This chapter addresses the legal and policy issues arising from the vicarious liability of organizations (“firms”) for the torts of their agents. After reviewing basic aspects of tort liability from a law-and-economics perspective, I offer an analysis of vicarious liability with particular attention to the liability of large firms. In particular, this chapter focuses on two clusters of related issues. The first concerns the likely social costs and benefits of vicarious liability, considered as a rule of tort liability. For example, how exactly does a corporation’s liability for the carelessness of its agents reduce the social costs of torts—or why do we think that it does? Do the benefits result in part because tort damages are too blunt a tool to influence the corporate agents who actually cause torts? Or do we believe that these agents are simply insensitive to tort liability, perhaps because they lack sufficient assets to pay tort damages or perhaps for some other reason such as ignorance or cognitive bias? These questions aim at assessing the merits of vicarious liability as a liability rule. By contrast, a second cluster of issues addressed here relates to the scope and implementation of vicarious liability when the principal is a firm rather than an individual.

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