Notre Dame Law Review

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Ronen Perry*

According to the conventional definition of reasonableness, commonly known as the Hand formula, a person acts unreasonably (hence negligently) toward another if they fail to take precautions whose cost for the actor is lower than the expected loss for the other that these precautions can prevent.  While law-and-economics theorists have advocated and courts have often embraced adjustments to both sides of this algebraic formulation, the idea that the expected loss must be compared with the cost of precautions for the potential injurer has remained mostly uncontested.  This Article unveils an overlooked yet fundamental flaw in the orthodox understanding and application of the Hand formula, namely the exclusion of the negative externalities of risk-reducing precautions from the analysis.  Simply put, precautionary measures that potential injurers can take to reduce the risk of harm to potential victims might expose the latter or others to different risks or deprive them of certain benefits.  Caselaw and academic literature have mostly ignored these harmful repercussions.  This Article advocates their inclusion in the analysis of reasonableness and explains how and to what extent this can be achieved.

To understand the proposed contribution to tort law and theory, consider the following example: D drives a bus from a train station to a local hospital at fifty miles per hour, subjecting pedestrians along the way to a risk of injury.  D can reduce the speed to thirty miles per hour for $50, thereby reducing the expected harm to pedestrians by $500.  The cost of precaution for the potential injurer is lower than the ensuing reduction in expected harm to potential victims ($50 < $500), so failing to take it is unreasonable under the traditional definition.  Now assume that the passengers on the bus are qualified medical practitioners.  Slowing down the bus will delay their arrival at the hospital and reduce the supply of medical services, a reduction roughly valued at $480.  The traditional definition ignores this negative externality.  Thus, failing to reduce the speed remains legally unreasonable.  Yet the true social cost of the speed reduction is $50 + $480 = $530, which is greater than the benefit for pedestrians in terms of risk reduction ($500), making this precaution socially undesirable.  Imposing liability for failure to reduce speed will lead the driver to take the undesirable precaution because its cost for the driver ($50) is lower than the personal benefit (escaping the expected liability of $500).

This overlooked shortcoming of the conventional view has far-reaching implications.  Precautionary measures aimed at risk reduction might have negative externalities in all contexts covered by tort law.  Lowering a vehicle’s speed may reduce the risk to pedestrians but delay crucial services or deliveries (consider emergency vehicles).  Using a ventilator to maintain the life of a patient suffering from a serious respiratory disease might deny this scarce equipment from another patient with a higher probability of survival at the same hospital.  Denying tourists the opportunity to take part in risky activities may reduce the likelihood of physical injury but make the trip less enjoyable, educational, and empowering.  Using certain equipment or processes to mitigate noise or pollution from a factory increases operating costs and might lead to layoffs (harming employees) or price rises (harming consumers).  Avoiding the publication of unconfirmed details about alleged swindlers on news platforms may reduce the risk of defaming innocent parties but at the same time increase the risk that others will be victimized by active offenders.

The predominant view is that liability for negligence (unreasonable conduct) as defined by the Hand formula aims to incentivize effi­cient conduct.  Under this assumption, caselaw and legal scholarship have endeavored to adjust the formula to ensure a more comprehensive and accurate analysis of the relevant costs and benefits of alterna­tive courses of action.  In stark contrast, one finds exceptionally few signs of judicial willingness to consider the negative externalities of precautions and scant mention of this matter in academic literature.  Judge Posner acknowledged the problem in a succinct obiter dictum more than two decades ago.  But he offered neither theoretical foundations nor practical guidelines for its resolution because the defend­ant in the particular case did not even imply that the precautionary measure in question could have a negative impact on others.  The exceptionally few cases that considered the cost of precautions for people other than the defendant in the analysis of reasonableness have done so perfunctorily, without a conscious acknowledgment of the underlying legal adjustment, not to mention a theoretical defense.  Secondary legal resources generally ignore the negative impact of precautions on people other than the defendant, with very few budding exceptions.  This Article explains and defends the necessary legal transformation.

© 2023 Ronen Perry.  Individuals and nonprofit institutions may reproduce and distribute copies of this Article in any format at or below cost, for educational purposes, so long as each copy identifies the author, provides a citation to the Notre Dame Law Review, and includes this provision in the copyright notice.

*Professor of Law and Director, Aptowitzer Center for the Study of Risk, Liability, and Insurance, University of Haifa.  I am grateful to Ronen Avraham, Larry Alexander, Kenneth Simons, and participants in the 40th Conference of the European Association of Law and Economics in Berlin for valuable comments on earlier drafts, and to the editors of the Notre Dame Law Review for their remarkable editorial work.