Coase-Sandor Working Paper Series in Law and Economics

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Law & Economics Working Papers


Under prevailing tort law, an injurer who is required to choose between Course of Action A, which creates a risk of 500, and Course of Action B, which creates a risk of 400, and negligently chooses the former will be held liable for the harm that materializes in its entirety. This full liability forces the injurer to pay damages that are five times higher than necessary for making him internalize the risk of 100 that is actually created by his negligent choice. The argument advanced by this Article is that tort law should recognize the "Offsetting Risks Principle" ("ORP"), under which the risks decreased by the wrongdoing should be taken into account by the courts as a mitigating liability factor, with a consequent reduction in liability. Thus the injurer in our example would be liable for only 20% of the harm that materialized. The ORP is suitable mainly for those cases in which the injurer is required to balance amongst various conflicting interests of his potential victim, but efficiency considerations mandate its application also in cases when the injurer is required to balance the interests of the victim against interests relating to third parties or to society as a whole. The specific focus of the Article is the ORP’s potential application in medical malpractice cases. Adopting the ORP in such cases and reducing liability due to offsetting risks would result in a huge decrease in the damages awarded in medical malpractice suits. Such a decrease would be desirable. Doctors would then pay for the social harm generated by their negligence and no more. Defensive medicine would be reduced and over-investment in precaution discouraged. Furthermore, the main beneficiaries would be patients, who would pay less for medical services and get improved service in return. The apparent problem of under-compensation for patients could, and should, be solved outside of tort law. Finally, the diminished damages awards would save huge amounts of money that currently are pocketed by attorneys paid contingent fees.



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