Economic Analysis Of Tort Law

Tort Law is the aggregation of the civil laws and regulations concerning the definition and classification of tort act, identification of tort liability, remedy for tort damages. Although the foreign scholars in the field of Law and Economics have been paying great attention to tort law, there are few scholars in China who have given a thorough and systematic analysis and research to tort law using the theories and methods of Law and Economics. Now the National People's Congress is working hard to enact Tort Liability Law, and the study of tort law using the analytical tools of Economics is of realistic significance to the construction of the China's tort law system. In addition, the analysis and argumentation of tort law from an economic perspective, which is used to explain the economic rationalities of the tort rules, provides a new analysis approach and has important theoretical meaning. Therefore, the author analyzes the issues of tort law using the analytical tools of Law and Economics in the paper. The objects of the study is divided into two parts, the first part of which is the substantive rules related to crucial elements of tort act, liability rules and tort damages, and the second part is the choice of law rules in conflict of tort laws. The author proposes some suggestions in the target selection and legislative practice of the construction of the China's tort law system.The paper is structured into seven chapters. After a review of the literatures concerning the economic analysis of tort law and a survey of the relevant theoretical basis and research methods of Law and Economics, the author studies the crucial elements of tort act, liability rules, tort damages and application of law from the perspective of Economics and then gives some suggestions to the construction of the China's tort law system.Chapter one is a review of the literatures related to the economic analysis of tort law. The review is a process of retrospecting the history of the economic analysis of tort law. The author begins with a brief description of theoretical research process in the analysis of tort law and then gives a concise introduction of the relevant scholars' views concerning the crucial elements of tort act, liability rules, tort damages and application of law. We can find that the tort law is a field in which the scholars of Law and Economics have great interested in, and the research in it becomes more and more extensive with the intensive study of Law and Economics. Today, Scholars have done economic analysis research in various areas of tort law. The chapter helps define the research direction and content of the paper.Chapter two is the theoretical basis and research methods in Law and Economics related to the analysis of tort law. The content includes the origin and development, basic theories, basic assumptions and basic methods of Law and Economics. The chapter lays a theoretical foundation and methodological bases for the paper. The author writes the paper on the basis of the assumptions of Economic Man, Maximization of Utility and Scarcity, the theories of Posner Theorem, Pareto Optimality Criterion, Kaldor-Hicks Efficiency Criterion and Rational Choice Perspective. The analytical tools include Individualism Methodological, Positive Analysis, Normative Analysis, Incentive Analysis, Equilibrium Analysis and Game Theory.Chapter three is the economic analysis of the crucial elements of tort act. The author analyzes harm, causation and fault from the perspective of deterrence.Concerning harm, the author addresses two issues from the perspective of deterrence, the first one of which is the pros and cons of the two mechanisms determining tort liability ( should the level of liability be based on the harm to the victim or the gain to the injurer? ) and the second is concerned with the desirability of regulation of safety and liability for harm and the relevant influencing determinants. The author think harm-based liability is superior to gain-based liability. For the second issue, firstly, the desirability of regulation of safety and liability for harm is determined by the difference in knowledge about harm gained by the relevant parties. In addition, because the injurer might be incapable of paying for the full magnitude of harm done and/or would not face the threat of suit for harm done, regulation of safety is more attractive than liability for harm. Finally, the latter is more desirable concerning the factor of administrative cost.Concerning causation, the author classifies the cause into cause-in-fact and proximate cause and analyzes the relationship between causation and the optimal care level, uncertainty over causation and unforseeability. The author argues that a causation restriction needs to be introduced into the structure of liability rules to implement optimal care, the threshold probability criterion and the proportional liability criterion should be united and'liability for uncertainty'should be designed. An injurer who does not foresee a harmful consequence cannot be meaningfully labeled the least-cost avoider and therefore accidents whose probabilities are likely to be underestimated by injurers should be excluded from the scope of liability.Concerning fault, the author begins with the analysis of the marginal meaning and the function contributing to minimize the social costs of accidents of Hand Formula and then analyzes the two aspects of negligence determination, the first of which is differences among injurers and the second is uncertainty and errors. Fault sets a due level of precaution. It is necessary to confront the level of precaution actually taken by the parties with the due level of precaution. If the former is lower than the latter, the actor is negligent. To the contrary, it means that the actor has taken due care. The law-maker determines the criterion of precaution level through comparing the marginal change between accident costs and benefits.Chapter four is tort rules Vs precaution incentives. The author analyzes the incentives to the care level and the activity level under no liability rule, negligence liability rule and strict liability rule in the unilateral accidents and bilateral accidents respectively and determines whether equilibrium and social optimality is achieved under the above-mentioned three liability rules.Concerning the incentive to care level, the author shows that no liability rule is preferred when only the victim can take precaution and strict liability rule is preferred when the injurer can take precaution in unilateral accidents, that is, under these conditions, neither a rule of no liability nor a rule of strict liability will induce the efficient level of precaution by both parties, and negligence liability rule is preferred in bilateral accidents.Concerning the incentive to activity level, the injurer will choose to engage excessively in his activity and the victim will choose the optimal activity level under no liability rule and negligence rule ( including each form of negligence ) while both the injurer and the victim will choose to engage optimally in their activity under strict liability rule and strict liability rule with a defense of contributory negligence.Chapter five is the economic analysis of tort damages. The author addresses the different rules of tort damages to replaceable losses and irreplaceable losses under the liability rules to determine whether the damage rules can achieve both optimal deterrence and optimal efficiency. And then the author analyzes the economic rationalities of punitive damages.Concerning the replaceable losses, the author argues that the rule of full compensation can achieve optimal deterrence. However, whether the rule of full compensation can achieve the optimal efficiency lies on the liability rules. Under negligence liability rule, it is related to initial endowments while strict liability rule can help achieve optimal efficiency. Concerning the irreplaceable losses, the optimal damage rule depends on the initial allocation of entitlements. It is necessary to implement a system which awards damages only ex post based on the ex ante value of life by estimating value of a statistical life and measuring Willingness to Pay and Willingness to Accept. We can eliminate the conflict between deterrence and risk-spreading by decoupling the injurer's liability from the victim's recovery.The author provides five economic causes explaining the rationality of punitive damages in the last part of chapter five. Punitive damage can help achieve optimal deterrence by raising the probability of suit, rectify the undercompensation caused by errors in estimating the losses, deter the act which can bring injurers the socially illicit utility, promote transaction in the marketplace and achieve the punishment objective.Chapter six is the economic analysis of application of tort law. The author begins with the discussion of the economic theory of application of tort law from the two perspective of private international law, which are private perspective and national perspective. The theories of minimization of accident costs and maximization of substantive policies and regulatory interests are embedded in the selection of the choice of law rules in tort field. Moreover, the author indicates that the practice of Lex Loci Delicti governing with the supplementary of Law of Common Domicile of Parties is superior by illustrating the economic rationalities of Lex Loci Delicti and Law of Common Domicile of Parties respectively. Finally, the author explains the causes why Party Autonomy should be introduced into the application of tort law from the perspective of Economics. However, the author argues that restrictions, which will be illustrated in chapter seven, should be imposed on Party Autonomy in application of tort law.Chapter seven is several enlightenments and suggestions to the construction of the China's tort law system. The author gives three enlightenments on the basis of the foregoing analysis and with the background of the enactment of Tort Liability Law. Guaranteeing optimal precaution, securing optimal risk allocation and realizing minimization of administrative cost should be considered when setting up the targets of the construction of the China's tort law system. In addition, the author brings forward several suggestions to the aspects of liability rules and application of tort law. In the aspect of liability rules, the author advocates that adopting strict liability rule in unilateral accidents while adopting negligence liability rule in bilateral accidents and adding a defense of negligence is necessary according to different special conditions. In the aspect of application of tort law, the author advocates that Party Autonomy should governs in market torts while selecting lex fori by agreement is permitted in non-market torts.