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Economic Analysis of Tort Cases Introduction Economic analysis is an effective method of gauging a country’s economic progress. Countries use it to determine the cost of crime cases on their economy and how legal issues in law institutions affect the financial stability of the country. Many legal activities that exist in a society have consequential causes to the people living in the society depending on legal institutions’ decision regarding them. These activities may lie in fields that deal with property, contract, torts, crimes or justice cases. Economics seeks to evaluate the burden and costs of these decisions on the economy and the citizens in the country. This work seeks to demonstrate how a society can apply economic analysis to show the conflict existing between the efficiency of social goals and compensation in Tort cases. Legal institutions have different ways of handling criminal activities in the society that turn to have a noticeable impact on the economy. These activities range from methods used to combat the criminal activities to measures taken in punishing the criminals. All these activities among others consequently affect a country’s economy due to the impact of the costs incurred in implementing them ranging from the court processes to payment of judges involved. When a person intentionally or unintentionally injures another the injury is called a tort. It may be a physical injury, reputational, or damage to property (Best and David 1). These injuries can result from automobile accidents, fraud contracts, malpractice or even defective products. In any society, obedience to the law and the maintenance of order is a requirement for every citizen, and countries spend a lot of private and public resources in the prevention of offenses and apprehension of the offenders (Wittman 272). In the event of a tort, the court may make a ruling that the injurer pays the injured monetary compensation. In order to win compensation, the injured person may prove that the accused caused the damage intentionally. Likewise, the injured may also prove that though the injurer did not intend to cause damage, they failed to take careful action as a requirement of the law (Best and David 1). The two cases constitute to intentional or negligence cases. There are other cases where the person causing damage remains liable to the victim regardless of whether they intended to cause harm. These constitute to strict liability cases. A country’s court has many cases to handle ranging from criminal cases to civil cases, among many others. Among the many cases the court handles are tort cases. The court seeks to administer justice to those involved through compensation as well as they look for ways of deterring further occurrence of torts (Best and David 8). Sometimes, compensation for losses incurred becomes the core function of tort law, and contributes to its development. Although the primary function of tort law can be described as the need to determine the required compensation. However, prevention and punishment measures too are important factors that help prevent further tort cases. This is because as the court looks for compensation of the injured, it also looks to send a warning to the offender. When a court makes its decisions on the case and defendants understand they may have liability in the case, it may act as a deterrent measure on further tort cases. However, research shows that goals of compensation and deterrence of future damage may differ in some cases as the court may favor one side than the other (Best and David 8). When courts in the U.S started undertaking tort cases, they considered compensation and deterrence as the main goals of concern. However, compensation became easier to perceive than deterrence and courts expanded tort law focusing on compensation. Later, economic hardships that hit the country largely affected the court's decision to follow compensation (Best and David 9). Impact of legal issues on economy Economic analysis of legal attentions of criminal activities deals with evaluating the costs incurred on types of resources and punishments used to enforce different legislative measures. It also evaluates why these law enforcements differ within various legislations (Basedow 146).When an individual commits a crime, the government incurs costs in trying to catch and convict the criminal, and the type of punishment offered to the offender, either in prison terms or fines. Likewise when courts want to administer justice to a victim of damage or injury, they undergo many processes in seeking either compensation for the injured or deterrence of future damage. The U.S citizens however, complain about the country’s tort systems arguing about the economic impact of the processes involved in the system’s activities (CBO 7). The following are some of the concerns they have. First, they complain of the high transaction fees paid to the attorneys. These costs strain the society since they have an effect on the economy. Secondly, benefits of punishment or compensation for damages are awarded arbitrarily without benefiting safety. This does not effectively benefit the society’s economy. Thirdly, the combination of claims covering the same facts into a one large case by plaintiff’s attorneys is abusive. They also claim that medical malpractice lawsuits hike the liability insurance cost for physicians such that some of them prefer retiring from the practice. Lastly, the court spends too much time and money on people who show no signs being physically impaired (CBO 7). Economic analysis of Tort law In order to assess the tort system, economic analysis helps understand how well it minimizes the costs, which include firstly, the cost of injuries- these include medical cost, secondly, the cost of efforts towards preventing or avoiding injuries- making safe products which raises consumer prices, and opportunity costs of goods and services that people fear to take to market out of lawsuits (CBO 9). Thirdly, administrative and implementation costs- these include fees for attorneys and the administrative insurance costs that individuals pay, and lastly are the costs to the economy resulting from industry closures and bankruptcies. Tort law may require insurers to compensate those affected in case of an accident. This means that the individual who caused the accident becomes fully liable for all the costs incurred. This applies in cases where an accident results from the sale of a default quality of products, for example medicines, and affects the economic progress of a country. When firms dealing with these vulnerable products fail to take liability of the accidents involved, it may affect the economy in a number of ways. The firm risks losing customers in the case where the retailers who are customers know the risks involved with the product (Shavell 213). This is because the customers understand that they are liable for any losses caused. When customers understand that the firm takes no liability for its products, they opt to go elsewhere to look for the products from competitor firms, which consider taking optimal care. Therefore when tort law requires compensation for victims by offenders, who are a firm’s customers, it consequently affects the economy in that the competition force experienced will make every firm take optimum care even when there is no liability (Shavell 213). As firms take optimal care under strict liability with the defense of contributory negligence and under negligence rules, customers will also take optimal care in their use since they continually purchase the products and in larger quantities. Tort law brings strain on the economy when compensating a victim of an accident or working towards preventing further occurrence of accidents because the used means are expensive as they consume many resources through the judicial system (White 246). When compared against insurance, insurance seems a bit cheap and quicker, and if people have to seek for compensation it becomes better to pay insurance as opposed to relying on tort law. The other aim of tort law; deterrence, however expensive, proves to be more efficient because it gives the injurer the correct motivation to avoid accidents. For example, a taxi driver can pose a potential injury to a passenger though; the driver too can drive at a lower speed to avoid the possibility of the accident. Likewise, a physician can injure a patient, but at a careful identification of the best therapy for the patient, the physician can prevent the possibility of errors. In all the above examples the person with the potential of causing the accident can decide on the precaution they can take prevent the accidents and they bear the costs of the decision. Mechanism of analysis The mechanism compared effects of the cases on involved parties and the entire economy. As pointed out earlier, the social goal of Tort law is to achieve compensation for accidents caused to an individual and also aims at deterring future occurrences. The law involves two agents of information; the injurer and the victim for whom courts seek information to administer justice. The quantity of precaution taken depends on the injurer, while the victim has nothing to do. But depending on the precaution taken by the injurer, they face the possibility of having an accident that leads to harm. The more precaution the injurer takes the more costs they incur. For example when the taxi driver drives slowly, they incur cost of time just as checking on a patient costs the physician their time. The victim on the other hand suffers costs due to the harm caused by the accident. Economically, the cost of the expected accident depends on the precautions taken by the injurer to prevent the accident. If the injurer takes no precaution, then the possibility of the accident is high and consequently the cost. If they take precaution, then the accident’s probability of happening is low. When the court authority rules on taking precaution of the accident, the injurer suffers costs because the higher the precaution they take the more costs they incur and the less precaution they take they reduce their expenditure. Although on the other hand, the chances of the victim suffering from high costs increase because the probability of the accident increased with less precaution from the injurer (Mattiaci 5). The victim thus prefers the injurer to take much precaution of lowering the probability of the accident to almost zero, but this results in high costs on the injurer. From the above explanation, it becomes hard to get an economical solution to the challenge. In order for the court to ensure equilibrium and efficiency between the two conflicting sides, it should ensure the tort law works to meet the social goal expected from the cases. To achieve this, the decision of the court should focus on ensuring that the cost of taking precaution and the benefit of taking the precaution works towards the reduction of the accident cost (Mattiacci 5). This is because each level of precaution has a certain cost and an expected accident cost, thus the decision made by the law should choose the precaution that corresponds to the lowest cost. The social cost incurred from the accident is the cumulative precaution and the cost of the expected accident, and becomes what the society is liable for. Economically, for the society to reduce the costs of an accident they should take a precaution that lies in between two extremes; the cost of the precaution itself and the cost of the expected accident (Mattiacci 5).The in-between precaution is the optimal care the society takes because it reduces the cost of the precaution and the expected accident cost thus minimizing the social cost. Therefore, decisions made by the tort law system should ensure that the incentives they give to the injurer to avoid the accident should enable them take an in-between precaution. The legal issues existing in tort law systems include giving parties incentives to acquire information on the accident occurrence. The court authority should ensure that incentives given for accessing information about the accident should not constrain the economy. This in one way relieves the country economic pressures. To minimize spending on risks, the tort law system should ensure a most favorable allocation of risks between the injurer and the victim, and it can only achieve this goal through insurance (Shavell 188). On the side of the transaction costs, the tort system’s goal is to minimize the administrative costs that result from the system’s attorney’s and magistrate’s payment. However there is conflict between the distinction on allocations of incentives towards the prevention or precautions taken or compensation for the accident. Acquiring equilibrium between the injurer and the victim will help achieve the social goal of compensation and deterrence and minimize cost on economy. Conclusion Economic analysis in law helps in determining costs incurred in handling cases. Minimizing administrative costs helps reduce the cost of achieving the core goals of tort system. There are many costs a society incurs directly through courts and lawyers and the parties in a case, which all burden the economy, considering the volumes of the cases that the court handles (Mattiacci 30). When judges have a wider role on a case, the costly the case becomes. Analyzing the costs economically benefit a country because the higher the costs are the bigger the strain they give on a country’s economy. For parties to take optimal precaution, they need to know the activity they undertake. Full information access is important to make an optimal decision; it is very expensive in terms of time (Mattiacci 25). The optimal level of information relies on cost and benefit of its acquisition. When an accident liability relies on an injurer, the expected accident cost and precaution cost is on them. Therefore the injurer benefits from any investment information and bears the cost of accessing the information. Thus, using economic analysis on these issues, the tort law system should be considerate when giving incentives to parties in a tort case and ensure that they economically suit the country and ensure there is no conflict in the social goals of efficiency and compensation in tort cases. Work Cited Best, Arthur, and David W. Barnes. Basic Tort Law: Cases, Statutes, and Problems.Austin: Wolters Kluwer Law & Business, 2007. Print. Shavell, Steven. Foundations of Economic Analysis of Law. Cambridge, Mass: Belknap Press of Harvard University Press, 2004. Internet resource. White, Mark D. Theoretical Foundations of Law and Economics. Cambridge: Cambridge University Press, 2009. Print. Wittman, Donald A. Economic Analysis of the Law: Selected Readings. Malden, Mass: Blackwell Publishers, 2008. Internet resource. Basedow, Ju?rgen. An Economic Analysis of Private International Law.Tu?bingen: Mohr Siebeck, 2006. Print. Mattiacci, Giuseppe, Dari. Fundamental Characteristics of Incentive Streams Created by Legal Systems.14. June. 2002. Web.5. November. 2013 CBO.The Economics of U.S Tort Liability.A Primer.October.2003. Web.5. December. 2013 Read More