Israel Gilead

Tort law and internalization: The gap between private loss and social cost

A central theme in the economic analysis of tort law is that the imposition of tort liability on injurers is a mechanism for internalizing harmful externalities that emerge whenever injurers fail to take into account the loss they inflict on victims. These externalities create divergence between the higher social cost of the damaging activity and the lower private cost to the injurer. This divergence may violate the marginal conditions of optimal resource allocation, and become a major cause of inefficiencies. Tort law solves the problem, so goes the argument, by imposing liability that internalizes the externalities and eliminates the divergence. This article examines and questions the basic assumption on which the whole concept of internalization through tort law is predicated, namely, that the loss for which liability is imposed is basically equal to the harmful externality that should be internalized. The main argument is that, contrary to the above assumption, tort law may often internalize a private loss in excess of externalized social cost. This gap between the higher private cost to victims (that tort law actually internalizes) and lower externalized social cost (that should be internalized) may lead to over-internalization and consequently to over-deterrence of injurers and under-deterrence of victims. The article detects the origins of this distorting gap, focusing on disregarded positive externalities. It concludes that the Hand Formula and the pure economic loss rule (the exclusionary rule) fail to cope with the gap. The analysis of the gap and its implications offers a new explanation of Coase’s contentious arguments concerning the reciprocal nature of causation and the need to tax victims (double taxation), and leads to the conclusion that Coase would have objected to the mechanism of internalization endorsed by Posner.

Models of Negligence – The Debate in Israel’s Supreme Court

Abstract A model of negligence in common law jurisdictions is a conceptual structure that basically seeks to align the three legal concepts used by courts to administer negligence law with the three substantive elements that constitute, justify and limit negligence liability. The three legal concepts are carelessness, legal causation (assuming factual causation) and duty. The three substantive elements are undesirable conduct, a sufficient link between this conduct and harm, and the desirability of liability. Another major task of a model of negligence is to explain the role and meaning of the foreseeability requirement in each concept and element of liability. The traditional model of negligence, identified with the sequence duty-breach-causation, is characterised by the double role that is assigns to the duty concept. This concept is aligned both with the element of undesirable conduct (conduct is undesirable only when breaching a pre-existing duty), and with the element of desirable liability (liability is desirable only where policy considerations justify a finding of a duty to compensate). Being a servant of two masters, the duty concept is the major source of the confusion and ambiguities that have plagued negligence law for generations. Against this background the traditional model was challenged in 2013 in Israel’s Supreme Court by a Justice who embraced an alternative model formerly suggested by the author. The essence of this new model is to align the duty concept only with the element of desirable liability, severing it from the element of undesirable conduct. Such change arguably disperses confusion and ambiguities, and clarifies the roles and meaning of the foreseeability requirement. In 2014, however, another Justice challenged the new model and called for the reinstatement of the traditional model in a different version. This paper explains why the new 2013 model is preferable to the traditional model in all relevant aspects. The analysis sheds new light on the notions of proximity, special relations, reliance, assumption of responsibility and prima-facie duty. The analysis also serves as a comparative perspective on fault-based liability in continental European jurisdictions.

Economic Analysis of Prescription in Tort Law

This chapter highlights the complexity of economic analysis which examines whether, when and to what extent prescription law contributes to the efficiency of tort law or reduces it. It is complex because the of the many relevant aspects of efficiency: deterrence, loss spreading, litigation costs, costs of preserving evidence and financial reserves, clarity of financial situation and uncertainty aversion. It is further complicated by the cross-effects between these various aspects. The analysis leads to the following conclusions. As to the length of the general prescription period, there are good reasons to believe that relatively short prescription periods are efficient. As to rules of suspension, postponement of expiry and renewal of the pre-scription period, it appears that the overall efficiency of each rule depends on the degree of uncertainty that it generates, and on the number, size and the quality of the actions which it “saves” or is expected to save from prescription.The efficiency of the “long-stop” (ceiling) period, seems also to depend on the number, the size and the quality of claims that such a long-stop period pre-scribes or is expected to prescribe. It is further argued that the common intuition which tells us that prescription law is “bad” for plaintiffs is misleading. Potential and actual plaintiffs may well benefit from time limits that improve deterrence and loss spreading, increase their chances of winning and lowering the costs they incur.

Introduction to Economic Analysis of Loss Division

Economic analysis has contributed considerably to our understanding of tort law. It is therefore illuminating to examine the major aspects of loss division from the economic perspective. Given the limited scope of this report, however, this can be done only in a very general manner.

Proportional liability : analytical and comparative perspectives

Courts have, traditionally, required the plaintiff to prove to the requisite standard of proof that causation exists. This monograph addresses what has, to date, been a modest reform toward permitting recovery based on a probability that causation exists, discounting the damages awarded by the probability of causation. The central purpose of our inquiry is to employ a comparative methodology to better understand how different legal systems respond to causal uncertainty and to examine why, how and in what situations rules of proportional liability can promote the goals of tort law.

Aggregation and Divisibility of Damage in Israel: Tort Law

1. Does your legal system have general rules, whether statutory or case-law, which regulate the categorisation of harm as a single indivisible loss or a plurality of losses? Have such rules been proposed in the secondary legal literature? Does the distinction have any significance in practice?

On the Justifications of Strict Liability

Comparing U.S. strict liability with European strict liability it is suggested that there are two kinds of strict liability. One kind, activity-based, persumes that the actors activity is undesirable, and is justified by considerations of deterrence and justice which justifuy fault-based liability. The other kind, outcome-based liability, is imposed although the actors activity is desirable, and is justified by considerations of fairness in loss allocation and of loss spreading. It is further suggested that many strict liability arrangements are actually a mixture of both kinds of strict liability. These mixed arrangements include: liability for abnormally dangerous activities, animals and dangerous things; vicarious liability; and strict product liability.The justification-analysis explains and supports the diversity of strict liability arrangements and the absence in most European jurisdictions of a general rule of strict liability. Finally, it is argued that the imposition of tort liability on desirable conducts should not be considered an anomaly or an illegitimate child of tort law. It is a powerful tool that, through the reallocation of benefits and burdens and loss spreading, can promote fairness and justice in society and mitigate the unavoidable misfortunes of modern life.