Post by Keith Hylton
Causation has generated a great deal of theoretical writing in tort law. The most recent issue of the Journal of Tort Law (volume 7, Issue 1-2, Jan 2014, published online 10/31/2015) includes a three-article mini-symposium on the “economics of causation.” The JTL symposium authors are me, Mark Grady, and Richard Wright. The contributions from Grady and from me consist of new insights on the economic theory of causation, and Wright contributes a critique.
As I noted in an earlier post, economics offers predictions about the incentive effects of causation rules. Quoting from my earlier post:
This distinguishes law and economics from traditional moral reasoning because the law and economics approach makes statements about the actual effects of causation rules on tortious conduct. To law and economics scholars, it is only after clear predictions can be made about incentive effects that we can start to make moral assessments of the law. From the perspective of economics, it is of little use to offer a moral assessment of some legal doctrine without being able to say anything about its effects on behavior. A law may seem morally ideal in its expression, but if its effect is to encourage socially destructive behavior, then the law must be considered a moral as well as an operational failure.
So, what are the incentive effects of causation doctrine?
Brief Literature Review
The answer, so far, has come in several waves. The first wave is attributable to Shavell (see Steven Shavell, An Analysis of Causation and the Scope of Liability in the Law of Torts, 9 Journal of Legal Studies 463-516 (1980) (gated)), and to Landes and Posner (see William M. Landes and Richard A. Posner, Causation in Tort Law: An Economic Approach, 12 Journal of Legal Studies 109-134 (1983) (gated)). The causation test in their analyses is entirely consistent with the Hand Formula, and supports the results of a properly applied Hand test balancing the marginal expected harm against the burden of taking care. Causation is a necessary condition for the injurer’s failure to take care to have had a marginal impact on the expected harm imposed on the victim. If the injurer’s negligence did not cause the harm, then it could not have had an impact on the risk facing the victim. The basic message of this first wave is that causation rules provide backup support to the application of the Hand Formula, and therefore help ensure optimal incentives for care.
The second wave consists of the novel insight of Grady (see Mark F. Grady, A New Positive Economic Theory of Negligence, 92 Yale L. J. 799 (1983) (gated)), and the formalized version of his argument by Kahan (see Marcel Kahan, Causation and Incentives to Take Care under the Negligence Rule, 18 Journal of Legal Studies 427-447 (1989)). The factual causation test, in this analysis, prevents a discontinuity in the expected liability from occurring. To see this, consider a cricket ball hit over a fence, injuring a bypasser. Suppose causation is not taken into account and that the reasonable fence height is 10 feet. If the owner of the cricket grounds has his fence at 10 feet he will not be held liable for negligence. Suppose the owner lowers the fence to 9 feet 11 inches. If causation is not taken into account by the court, the owner will become liable for all cricket balls that fly over the fence, irrespective of the height at which the ball clears. If factual causation is taken into account, the owner becomes liable only for cricket balls that pass between 10 feet and 9 feet 11 inches. Thus, when the factual causation test is incorporated, the owner’s liability increases slowly and continuously, starting from zero, as he lowers the fence from the reasonable height. When factual causation is not taken into account the owner’s liability jumps discontinuously the moment he lowers his fence slightly below the reasonable height.
In Grady’s theory, the injurer exercises reasonable care, whether the court applies the factual causation test or not, as long as actors have perfect information and courts set due care at the socially optimal (or “reasonable”) level. However, when imperfectly accurate courts are introduced into the analysis, the injurer’s precaution decision is affected by whether the court takes factual causation into account. Specifically, the injurer is likely to take socially excessive care given the discontinuity effect.
The third wave, in my admittedly subjective view, consists of a series of papers I coauthored with Haizhen Lin, exploring a more nuanced model of the economics of causation (see Keith N. Hylton & Haizhen Lin, Negligence, Causation, and Incentives for Care, 35 International Review of Law and Economics 80 (2013); Keith N. Hylton, Haizhen Lin, & Hyo-Youn Chu, Negligence and Two-Sided Causation, 40 Eur. J. Law Econ 393-411 (2015)). We focused on the difference between an accurate ex ante assessment of negligence and the ex post assessment that courts typically conduct in the causation cases. When causation is an issue, ex ante and ex post analyses of negligence can lead to different answers. However, in many cases courts cannot reconstruct the ex ante test – there is insufficient information to perform an ex ante analysis of negligence. In these cases, the causation test is equivalent in operation to an ex post analysis of negligence, a point made by Calabresi in 1975 (see Guido Calabresi, Concerning Cause and the Law of Torts, 43 U. Chi. L. Rev. 69 (1975)). We find that in these cases incentives to take care are not necessarily optimal – in other words, injurers may not exercise reasonable care. But all is not lost; there is some good news. First, it is possible to identify the types of cases in which the inability to perform a roughly accurate ex ante assessment is likely. Second, knowledge on the array of possible interventions and the probabilities over this array can allow one to predict the distortion in the incentive to take care.
The JTL Symposium
Grady’s symposium contribution extends his analysis of causation to offer a positive theory of but-for versus proportionate liability causation cases. The proportionate liability rule has been proposed as potentially preferable liability rule by Shavell (Shavell, Steven, Uncertainty Over Causation and the Determination of Civil Liability, 28 Journal of Law and Economics 587-609 (1985)), and Hylton, Lin, and Chu – modeling the ex ante versus ex post problem – find that proportionate liability has desirable properties in aligning incentives with social benefit. Grady notes that proportionate liability is already used in the common law and argues that it has been applied in a special set of causation settings in which it is operationally efficient.
My paper presents an intuitive account of the models presented in Hylton & Lin (2013) and in Hylton, Lin & Chu (2015). I argue that the traditional but-for analysis works as posited by Shavell (and Landes and Posner) in a special set of causation cases in which the ex ante versus ex post problem is not a serious one: for example, cases in which it is possible to determine the optimal care level ex ante, using ex post information. The second set of cases are those in which the ex ante care level can be determined, though with some error. In this set, Grady’s analysis of incentive effect provides important predictions. The third set of cases are those in which ex ante care is almost impossible to determine, and it is within this set that the causation test can generate distortions from optimality, though the general direction is toward excessive care. It is also within this set of cases that a proportionate liability rule might be superior, though Grady’s symposium contribution notes that the administrative costs of proportionate liability may swamp its benefits.
In addition to his own important contributions to causation theory (see Richard W. Wright, Causation in Tort Law, 73 Cal. L. Rev. 1735 (1985)), Wright has been a forceful critic of economic analysis of causation since his response to Shavell’s early contribution to causation theory (see Richard W. Wright, Actual Causation vs. Probabilistic Linkage: The Bane of Economic Analysis, 14 Journal of Legal Studies 435-456 (1985)). Among other objections, Wright criticized Shavell’s analysis for inadequately addressing the ex ante versus ex post distinction. In the JTL symposium Wright returns to his baseline objections and offers additional criticism of the economics of causation. Wright concludes that “[t]he fundamental problem with the efficiency theories is that they assume that the focus of law should be and is on the maximization of aggregate social welfare, rather than justice – the promotion of everyone’s equal external freedom in their interactions with others.”
(Editor note: links were added to, where possible, ungated versions of the articles mentioned. These versions may not be authoritative)