All bilateral precaution rules that we have encountered struggle with a common dilemma. An increase in care level (or a reduction of activity level) for one party makes an accident less likely to occur. However, each party’s precautions make the accident less likely to occur also for the other party. There is no feasible and cost effective mechanism in tort law to induce victims and tortfeasors to internalize the benefits and costs of their behavior in all dimensions.
In spite of this common ontological problem, in this paper we have shown an important qualitative difference between the rules that apportion liability on the basis of negligence and those that apportion liability on the basis of activity levels. Negligence-based rules can induce optimal choices of care for both parties because
of the existence of a point of discontinuity in the liability function (which usually coincides with the socially optimal level of care for both parties). When the focus shifts on activity levels, there is no discontinuity, since the identification of socially optimal activity levels requires information on the private value of the activity for each party: a quite formidable finding for a third-party decision-maker. This explains the benefit of the comparative causation approach, which combines the advantages of the care-driven discontinuities while allowing a loss-sharing result in equilibrium.
This further explains the historical emergence of comparative causation rules, applied in conjunction with negligence and comparative negligence standards. Such mixed application of the rule permitted loss sharing in equilibrium, without undermining the underlying incentives for optimal care. The comparative causation criterion avoids the need of identifying a critical value of care or activity level, as it imposes no discontinuity in the liability faced by the parties. This induces both parties to internalize a positive share of the social cost and benefits of their care and activity level in equilibrium.
When combined with negligence standards, the comparative causation incentives induce the parties to adopt efficient care levels and close-to-efficient activity levels, without the need for a third party decision-maker to investigate unobservable costs and benefits. Such rule, while an improvement to known liability rules with respect to at least one of the four relevant margins, spreads the residual incentives to control activity levels between both parties. The overall performance of the rule depends on the synergies and complementarities between the parties’ efforts.
These findings help us understand the historical evolution of comparative causation rules and the peculiar scope of application of the rule in historical and contemporary legal systems. Different, but converging, rationales seem to motivate the early applications of the rule. Some of the applications of the comparative causation rule appear to be driven by loss-sharing considerations. Whenever it is desirable to spread the loss between the parties, such that the injurer and the victim could truly expect to share the loss, comparative causation may be a better legal instrument than comparative or contributory negligence. Under comparative or contributory negligence, there is only the threat of sharing damages between the parties. In equilibrium, however, sharing of loss never happens. Thus comparative causation is ex ante more appealing when parties are highly risk-averse. Other applications are driven by practical necessity or when the all-or-nothing outcomes of a case are not politically or diplomatically viable, such as for the international responsibility of sovereign states. Yet in other cases the practical considerations are also driven by the need to maintain efficient incentives where the fault driven liability appears to be unviable, such as for the responsibility of incapable individuals. In all such cases, although social optimum could not be obtained, the comparative causation rule allowed the imposition of liability, inducing an equilibrium that approximated in several dimensions the ideal, but unobtainable, social optimum.
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