Harmful Precautions

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.1 While law-and-economics theorists have advocated and courts have often embraced adjustments to both sides of this algebraic formulation,2 the idea that the expected loss must be compared with the cost of precautions for the potential injurer has remained mostly uncontested.3 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.

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© 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.