More Liability Issues. Was: Re: Products Liability and Innovation.

[georgemw at speakeasy.net]

On 13 Aug 2001, at 13:33, Black Unicorn wrote:


> The theory is that if your goal is to reduce accidents and claims you allow
> the market to incorporate that sort of risk (which in early innovation looks a
> lot like an externality) into the innovation process.  Activities, it is
> argued, which cannot be made sufficiently safe to be economically viable in
> the market will not be undertaken because the market will not support such
> activities.

Strikes me as being a circular argument, since  which activities
are "sufficiently safe to be economically viable" depends on
the size of the awards.   

>  Proponents of products liability point to this in justifying the
> policy.  (Critics primarily point to the unfairness of assigning liability to
> actors who have not acted negligently).
> 

Less misanthropic ones,  maybe.  We more misanthropic
critics are more likely to complain about being prevented from
engaging activities which we know damn well contain an
element of risk,  a risk we are willing to assume  because
in our judgement the benefits outweigh the risks.

 


> The showing for a plaintiff for products liability works something like this,
> although admittedly this is very simplified:
> 
> 1.  Plaintiff used the product according to directions.
> 2.  Plaintiff was injured.
> 
> That's pretty much it.  This is why safety is a big deal in automobile design
> and why gun manufacturers have managed to duck major products liability issues
> for the most part (misuse).   Since automobile design flaws of sufficient
> magnitude can cause death and big money law suits, the market has incorporated
> that component of the risk into the design cost of the product either ex ante
> (during the design process) or ex post (by compensating the aggrieved
> parties).  Costs are shifted onto the market when they are passed on (ex ante
> or ex post) in the form of product cost.


I had to read this about a dozen times before it made sense to me,
here's why:  there's an implicit assumption here that the "damages"
awarded in liability lawsuits acurately reflects the actual damages
suffered by the plaintiff.  The impression I get is that awards tend to
be orders of magnitude larger than they should be.
> 
> This is the way that strict liability specifically, and the legal process in
> general, tends to spur on innovation.
> 
> > >The effect is to make safety profitable- or more accurately,
> > > to make unsafety unprofitable.
> >
> > Right.  Safety at all costs.  The cost of safety is already too
> > high in most industries IMNSHO.
> 
> Well, I would argue that it is self adjusted by the market when we are talking
> about products liability.  The market has put a price on safety by forcing
> producers either to design safe, and limit ex post costs incurred by
> litigation in favor of ex ante costs, or minimize safety spending and catch
> the costs ex post.  Either way the costs are spread over the market and at
> least mostly linked to the actual effect of safety provisions in reducing
> harm/accidents/etc.  If a mini-van is too costly to make "safe" then it will
> not be produced.  That's the point of strict liability.  Force the actor to
> spend more time evaluating the wisdom of the action.  This often necessitates
> more R&D and hence more innovation.  (Faster airbags, better seat belts, etc.)
> Saying "the cost of safety is already too high" is probably misplaced- at
> least in this isolated example of automotive manufacture.
> 

I really don't think so.  I think we're at the point where around 10-50 
million dollars are spent per life saved,  and I don't think most 
people are worth anything near that.  I wouldn't even value my
own life that highly;  that is to say,  I probably wouldn't take certain 
death for 50 million, because I'm not sure what I'd spend the money 
on if I were dead, booze and hookers would do me no good,  but
I'd probably take a 10% chance of death for 5 million.

I suspect when you do the economical analysis,  if you
assume your damages awarded actually equal damages suffered,
with strict liability you end up with the same products on the
market and the same corporate profits as you would in a world 
where you assume no strict liability but that assume customers 
are able to correctly evaluate risks in their purchasing decisions,
the main difference being that with strict liability the costs are 
smeared over all consumers and without it the costs are 
born solely by the ones that suffer mishaps.  

George