4.2.1 Dual functions of accident law; It has been held that tort liability in general, as
distinguished from penal sanctions to punish the wrongdoer, is imposed for dual purposes:
compensation o f harm caused and deterrence against future recurrence. Some writers
place emphasis on the compensatory f u n c t i o n , while others stress the deterrence role.*°^
Both the arguments have their own limits to their logic, since compensation may also be made through social insurance, while the deterrence goal can be achieved through criminal sanctions. In any case, moral blameworthiness or condemnation may not take the primary role, ^ O'* since tort law does not address itself to every harm and the amount of damages is often related not to the degree of fault but to the extent or effect o f the harm inflicted.
We will postulate for purposes o f this work that the primary goal and function of tort law lie more in the reasonable adjustment of economic risks in society and less in the
expression of certain absolute moral principles. It is to control efficiently the behaviour
o f those engaged in risky activities. As long as liability rules induce those who can avoid accidents to take adequate care, the compensatory goal of accident law can be regarded as secondary.**)^ Indeed, liability rules do affect safety levels*®^ and can economise on
^8. Shavell, 297.
Landes & Posner, Tort Law as a Regulatory Regime for Catastrophic Personal Injuries, at 434; ch 4; 2.4.1 below.
Shavell, Liability for Harm Versus Regulation of Safety, 365; id, 285-86; Cane (1993) 368-69 (in the context o f the driver's incentives to wear seat belts); sec 7.4.4 below.
G Williams, The Aims of the Law o f Tort. 4 Cur Leg Probs (1951) 137; Winfield & Jolowicz (1989), 1-2; Cane, 5.
Cane. 518; Salmond and Heuston, On the Law of Torts, 29. They saw torts law as having a regulatoiy and distributional character aimed at shifting and spreading the costs o f injuries.
E.g. Drion, paras 9-12; Shavell, 298. Holmes. The Common Law, 144-45.
A certain level of noise or pollution is taken for granted. Holmes, 144-45; Cane (1993) 149.
W G Friedmann, Social Insurance and the Principles of Tort Liability, 63 Harv LR (1949) 241, 261. Shavell. 297. Even in the absence o f accident liability, the compensation goal can be achieved by private or social insurance.
different transaction cost f a c t o r s . T h i s line of arguments is further substantiated by the increasing scope of applicability of strict liability and by the widespread availability of liability insurance.*^® This is why some authors argue that the function o f tort system can be reduced to that o f private insurance markets.'^'
4.2.2 Cost minimisation through efficient risk/loss allocation, incentive creation and least administrative costs: In competitive markets where transactions costs are small, efficiency is achieved when resources are assigned to their best value as measured by the willingness to pay. In involuntary transactions as in court judgements, the efficiency o f a liability rule is assessed by its ability to promote efficient risk/loss allocation, incentive
creation and administrative cost r e d u c t i o n . viewed from this perspective, tort law in
general and aviation accident law in particular are no more than a conduit for internalising accident costs in the cheapest way possible by attributing them to the parties involved. Thus, a distinguished author in accident law argues that the principal function o f accident
law is to minimise the sum of accident costs and accident avoidance costs. Stated
differently, the proper and principal function of tort law is to promote optimal resource assignment and optimal deterrence by setting rational standards o f c o n d u c t . A s such, risk shifting and spreading through governmental or societal intervention will not be the efficient allocation of resources and would vitiate the deterrence goal.^^^ It should, nonetheless, be noted that to say that the goal of the law o f torts is deterrence is not the same as saying that it actually does deter.
4.2.3 Liability on the cheapest cost avoider: From the above, it should be clear that the efficient resource allocation can best be achieved when assigning the losses to the party who can better assess the risk and avoid it at least costs (cheapest cost avoider).*^* If the risk is allocated to the cheapest cost avoider, he will allot his resources to their best value to minimise accident costs. He will be induced to spend on appropriate precautions to reduce expected losses until reaching the point where the cost o f taking an additional unit
R N McKean, Products Liability: Implications of Some Changing Property Rights, 84 Quart J Econ (1970) 611, 616-24; Ogus & Veljanovski, UOjf.
^ James, Accident Liability. Indeed, there is no point in aiming at retribution against the insurer. Cane, 471; B S Markesinis, La perversion des notions de responsabilité civile délictuelle par la practique de I'asssurance, 35 Rev int dr comp (1983) 301.
Danzon, Tort Reform and the Role of Government in Private Insurance Markets; Epstein, Products Liability as an Insurance Market; id. The Legal and Insurance Dynamics o f Mass Tort Litigation.
^ Secs 2.2.1 & 3.2.3 above.
Posner, 179; Calabresi, Some Thoughts on Risk Distribution, at 505-06 & n.24. Calabresi. 24. 26-31.
See Calabresi & Hirschoff, Toward a Test, at 1081-82.
See Goldberg v. Kollsnian Instrument Corp., 12 NY 2d 432, 191 NE 2d 81 (1963), per Burke, J (dissenting) (dismissing strict product liability based on "risk spreading" rationale).
Williams, n.lO l above, at 149.
of care would outweigh the reduction in expected harm or loss.*^^ In this way, he will reflect expected cost in the price of his service and adjust his activity to the efficient level, while passengers will be led to buy the efficient amount of air travel (price deterrence mechanism). In cases where it is not easy or costly to identify the cheapest cost avoider, the risk/loss allocation issue cannot be determined and the preferred legal rule depends on whether a rule gives the parties an adequate incentive to take optimal care. Still, if the rule which creates proper deterrence is not identifiable, the desirable legal rule would be the one which minimises the administrative costs of determining it, given the high costs of administering the tort system.