Torts have many problems, some solutions – Twin Cities

Tort liability lawsuits seem as American as apple pie. The spate of suits faced by 3M over alleged defects in earplugs discussed in last week’s column is just an example. In no other industrialized country are they as widespread as here nor involve so much money. Nor is as large a fraction of a total law firm sector engaged in such litigation.

Is this good or bad? Yes, we define the end of the spectrum in terms of such litigation relative to overall economic activity. However, maybe everyone else is “under-lawyered,” rather than us being “over-lawyered.” How would we know?

The two criteria taught in intro econ courses for evaluation of economic institutions and policies are possible starting points.

Edward Lotterman

One is “efficiency,” which deals with how well a given household, business or nation uses resources to meet human needs and wants. The second is “equity,” better called “fairness,” or “justice.” How fair or just is some institution or practice or policy in terms of its effects on different members of society? Is one group favored over another? Rich versus poor?  White versus Black? Who gains and who loses? Why?

It is also helpful to recognize that “torts,” harms done to an unwilling third party by some act, are a subset of what economists term “negative externalities.”

Pollution is a classic example. Someone makes something to sell to customers and, in the process, harms a third party, perhaps by nitrates in well water or acid rain or air causing respiratory illness.

Pollution often involves thousands of emitters and thousands of injured parties. Tort liability traditionally only involves cases where there is one identifiable entity doing harm and another one clearly identifiable as being hurt as a result.

Fairness or justice means that if one person harms another, whether consciously or inadvertently, the first must make good the damages caused. That is why laws go back millennia.

But efficiency also enters in. It is a basic, uncontroversial tenet of economics since 1921 that if production or consumption of something passes some costs on to third parties, too much of the good will be produced than optimal for society as a whole. In…