All Pay Liability

We could raise government revenue much more efficiently than we now do, with less damage to the economy for any given amount of revenue raised. For example, we could tax fixed characteristics like height instead of income, we could tax traffic congestion a lot more, and we could do better at taxing pollution, including carbon. Recently I posted on a more efficient system of property taxes, that allows more revenue to be raised at a lower cost. Today, I’ll post on a more efficient system of accident liability, which similarly raises more revenue at a lower cost.

Some don’t want me to talk about these things. They hope to “starve the beast” by drying up government revenue sources. That seems to me a lost cause, the sort of logic that pushed radicals toward generic destruction, hoping that eventually the masses would get fed up and revolt. I instead expect a better world overall if governments adopt more efficient policies, including more efficient tax policies.

Regarding accident liability, we want a system that will encourage good levels of care and activity by all who can influence accident rates. For example, regarding car accidents we want drivers to pick good car models, speeds, sleep, and maintenance frequencies. We also want them to take into account the possibility of hurting others via accidents when they choose how often they drive. In addition, we want a system that induces fewer actual court cases, which are expensive, and that asks courts to make fewer judgements, in which they might err.

The simplest system is no liability. Courts just don’t get involved. This has the lowest possible rate of court cases, namely zero. It creates good incentives for accident victims to set their care and activity levels well, but gives rather poor incentives for others to set such things well.

The next simplest system is strict liability. This induces good care and activity by potential injurers, but not from potential victims. It also induces a high rate of court cases; nearly every accident results in a lawsuit. While the parties might settle out of court, if a case goes to trial the court must determine responsibility, i.e., who caused the accident, and how much damages the victim suffered as a result.

Relative to strict liability, systems of negligence cut the rate of court cases, but at the cost of asking courts to make more judgements. As with strict liability, courts must judge who is responsible and victim damage levels. But in addition, courts must also ask themselves if that injurer took enough care to prevent the accident. For each of visible parameter, the courts must judge both the actual level of care taken, and the optimal level of care.If the injurer took enough care overall, that injurer does not owe damages. And if that no damages situation is the usual case, there are fewer court cases, as there are fewer lawsuits.

In practice, however, courts can only look at a small number of injurer choice parameters visible enough to them, such as driving speed. Far more parameters, including all injurer activity level parameters, remain invisible, and so are not considered. Negligence doesn’t create good incentives to set all those less visible parameters.

There are standard variations on these systems, such as allowing contributory negligence on the part of the victim. But all of these systems fail to induce optimal levels of care and activity in someone. We have long known, however, of a simple system that gets pretty much all of these things right, and in addition only asks courts to judge who is responsible for an accident and victim damage levels. (I didn’t invent this system; it is mentioned in many law & econ texts.) In this simple system, courts do not need to consider anyone’s actual or ideal levels of care or activity.

This simple system is to make all responsible parties pay the damage levels of all other parties hurt by the accident. The trick is that they pay all of these amounts to the government, instead of to each other. As each party now internalizes all of the damage suffered by all of the parties, they should choose all their private care and activity levels well. And the government gets more revenue to boot.

The big problem with this all-pay liability system is that none of these responsible parties, including the victims, want to report this accident to the government. They’d all rather pretend it didn’t happen. So the government needs some other way to find out about accidents. In dense areas where they government already has access to mass surveillance systems, they can just use those systems. In other areas, governments might offer bounties to third parties who report accidents, and put strong penalties on those who fail to report their own accidents. Or the system might revert to other liability rules in contexts where governments might otherwise detect accidents too infrequently.

With all-pay liability, we expect a lawsuit for every accident. But in that suit the courts only need to judge who is responsible and victim damage levels. No other judgements need be made. So if we could find simple streamlined ways to make these judgements, this system might not be that expensive to administer. And then we’d have both better accident prevention and more available government revenue.

(Yes, people might want to buy insurance against the risk of making these payments. Yes, if multiple parties could coordinate to prevent accidents together, this system might induce them to spend too much on prevention. Hopefully we could identify such efforts and treat them differently.)

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  • arch1

    Wouldn’t empire-builders within the government have an incentive to increase the frequency and severity of accidents?

    • That logic applies to every crime now punishable by a fine.

      • arch1

        With 30k killed and 2M injured annually in U.S., traffic accidents alone already constitute a particularly lucrative pie. And government has quite a bit of control over its size (including reducing safety/enforcement funding, a double windfall)

      • Speeding tickets come to mind…

      • arch1

        That is small potatoes compared to the extra funds one can rack up by reducing enforcement in especially dangerous areas. Not to mention Robin’s spiffy multiplier effect which accrues in multiparty accidents. (Call me weird but this proposal reminds me of a Far Side cartoon in which two huge spiders have rigged a web at the bottom of a playground slide. One spider to the other: “If we pull this off, we’ll eat like kings”)

      • Yes, I think that was your point, wasn’t it? The relatively small sums in speeding tickets have already proven to be highly corrupting of small jurisdictions, and the far larger sums involved in real accidents would be more so (what’s the statistical value of a US life up to now, $8m?). It’ll need quite a chinese wall, and public choice theory indicates that could be quite difficult. (I’m reminded of a stat I saw once that ~10% of Chinese government revenues comes from its tobacco monopoly; after that, I no longer wondered why the Chinese are still such heavy smokers.)

      • arch1

        Sorry, I thought you were arguing that ticket revenues would dampen enforcement-reduction enthusiasm.
        I think your second example (in which human lives have clearly lost out to incremental revenues) particularly compelling in this regard.

  • This simple system is to make all responsible parties pay the damage levels of all other parties hurt by the accident.

    1. Not sure I understand. Is the amount paid to the government determined under a comparative-negligence standard? Or does every liable party pay the whole cost to others?

    2. What about the victims’ compensation? Do you leave that completely to insurance?

    • Every party pays for the whole cost, via paying directly their own cost, plus paying cash equal to the others’ costs. Victims will have to insure separately.

      • Then, doesn’t the scheme over-deter risky behavior?

      • As I indicate in the post, there’s a risk of over deterring if multiple parties that would have to pay separately can coordinate to deter together.

      • It seems to me the over-deterrence occurs at the level of individual incentives, rather straightforwardly if I understand correctly. On an efficient scheme, I have to make good on the costs of my negligence. But here I have to make good on the effects of others’ negligence too – because both pay for the overlapping negligence.

        An example to test if my understanding is correct. A and B have a collision where they are both contributorily negligent. A has several passengers. Since A and B’s negligence are both implicated, both A and B must pay to the government the damages to the three passengers.

        In practical terms, you are over-deterring the driving of automobiles.

      • And the passengers have to get separate insurance to get their medical bills paid, so this one accident would now have like a half-dozen different payments (people paying the full cost to the government, insurance companies paying the full cost? back to the victims).

  • J

    Not following. Needs an example? Like, a guy in a Ferrari t-bones my Camry. What happens?

    • If the judge determines the Ferrari was at fault, the driver has to pay the government damages as set by the judge. If you want your medical/car repair bills to be paid, you’d have to buy separate victim’s insurance (in addition to liability insurance).

      It’s a blatantly stupid exercise in economist navel-gazing, AFAICT. No one wants to buy victim insurance.

      • The mainstream position in law and economics (to my knowledge) is that the common law was subject to intense pressure to deliver economically efficient results. If the common law got it as wrong as Robin claims, this is prima facie surprising.

  • Technology offers a superior solution and will be here sooner than this.

    This severely impacts the poor who may face life threatening injury, disability, or death, that they are unlikely to be able to fully insure against, which that government revenue would end up doling out for. That doesn’t sound much more efficient.

    • Tech will soon stop all possible accidents? No, that’s crazy.

      • The vast majority. Damages and rates have been falling for years even without self driving. And you have offered no indication this is even much of a problem as the vast majority of cases are settled. Legal fees aren’t cheap, but neither are damages.

  • Sharper

    As others have noted, this seems to be missing the changed incentives for government actors, i.e. Judges, police, road builders, etc…

    I’d also add that revenue for revenue’s sake is unlikely to be the primary motivation for vehicle accident laws. Justice and equity come to mind, for example, both of which this seems to actively defeat, rather than include.

    What’s wrong with just taking the full cost of government each year and dividing it by the number of people and sending everyone their bill? That at least has a simplicity and gives good incentives for no longer over provisioning services.

    Alternately, take every government program and put it on a web page where you can go and check off all the ones (at various levels of granularity) which you’re in favor of and your tax bill is generated based on the # of people willing to voluntarily pay for a program. Sure, there may be some free riding, but there are other ways to account for that in how you structure the programs.

    Anyway, at least someone is considering alternate solutions. Sadly, the problem isn’t “not enough revenue”, as that has grown per capita in constant dollars for a long time. Rather, it’s “too much spending”, which has simply continued to grow even more and these proposals don’t address.

  • Thomas_L_Holaday

    Where might I find a worked-out example? I am not confidant I understand the rules correctly. I’m thinking of a bicyclist doored by a taxi-passenger exiting street-side.

  • Are there no payouts in this system? Liability isn’t just about discouraging bad behavior, it’s about making the victims of that bad behavior whole, or at least ameliorating their suffering. You’d need a much more robust social insurance system (should be easy to fund given the new revenue raised) along with the new liability rules to make up for losing that aspect.

  • Wei Dai

    Something I just read in Steven Pinker’s The Better Angels of Our Nature: Why Violence Has Declined seems to be a historical instance of this idea:

    >Feuding among knights and peasants was not just a nuisance but a lost opportunity. During Norman rule in England, some genius recognized the lucrative possibilities in nationalizing justice. For centuries the legal system had treated homicide as a tort: in lieu of vengeance, the victim’s family would demand a payment from the killer’s family, known as blood money or wergild (“man-payment”; the wer is the same prefix as in werewolf, “man-wolf”). King Henry I redefined homicide as an offense against the state and its metonym, the crown. Murder cases were no longer John Doe vs. Richard Roe, but The Crown vs. John Doe (or later, in the United States, The People vs. John Doe or The State of Michigan vs. John Doe). The brilliance of the plan was that the wergild (often the offender’s entire assets, together with additional money rounded up from his family) went to the king instead of to the family of the victim. Justice was administered by roving courts that would periodically visit a locale and hear the accumulated cases. To ensure that all homicides were presented to the courts, each death was investigated by a local agent of the crown: the coroner.

    • That’s only distantly related. Only an incentive improvement to the extend that murder victims were not taking enough care to prevent their own murder due to the possibility of gaining wergild.

      • Wei Dai

        Your idea is only an incentive improvement to the extent that accident victims are not taking enough care to prevent their own victimization due to the possibility of getting liability payment. Seems like exactly the same idea?

        Having the possibility of wergild taken away would have been a significant additional incentive to be take care to prevent one’s own murder, for example by being more careful about antagonizing others. The middle ages was a much less civilized time, where disagreements and disputes spiraled into violence more often than today. With the change, if you’re murdered, there’s now a higher chance of your surviving family falling into poverty, and that consideration would have helped to moderate people’s reactions to perceived slights and injustices.

      • I think you are assuming strict liability, but that is not our usual liability rule.

  • James Pfeiffer

    It seems suspicious that the system is “discontinuous” – if you’re tangentially involved in an accident, you assume as much liability as someone greatly involved. Do you have in mind that the courts would cut off under some threshold?

    • I didn’t specify how “court must determine responsibility, i.e., who caused the accident.” There are obvious tradeoffs of saying more vs less people responsible.

  • Today, I’ll post on a more efficient system of accident liability, which similarly raises more revenue at a lower cost.

    I was thinking, did Robin even give an argument for the efficiency of his system? Rereading, I find it very strange that raising more revenue at lower cost is – in an accident liability system – the criterion for efficiency.

    [Anyway, what are the limits on how much revenue can be raised by an accident liability system? If that were really the object, there would be obviously more “efficient” systems” (like making the accident perpetrators pay a still higher amount to the government).]

    This is so obviously ridiculous, that I’m inclined to think I must be misunderstanding you. Well, I put the blame on the exposition. 😉

    • “optimal levels of care and activity … simple system that gets pretty much all of these things right”

      • I guess that what you’re saying is that trying to fine-tune the optimal levels of care and activity (as in debates over negligence versus strict liability) is less important for efficiency than is reducing litigation costs. I was looking at Posner’s text, and litigation costs are implicitly treated as less important than optimizing care and activity. (I have no idea personally about the relative importance of these costs.)
        But to evaluate this proposal on its own terms: it seems wrongheaded to set the amount paid out to the government by those who cause the accident the amount of damage they participated. Given that economic efficiency is maximized when persons causing the accident are compelled to internalize the harm they cause, why not set the amount to be paid to the fraction of the total damage in which they participated that best approximates (over all accident perpetrators in general) the amount of damage? (Otherwise, you are causing too much care and too little activity, when this is correctable on average by charging a fraction of the participant damages.) Applying the fraction doesn’t make the procedure any more complicated.

      • “make all responsible parties pay the damage levels of all other parties hurt by the accident” when we add a payment for those other damages to one’s own damage, one does internalize the entire harm.

      • It internalizes considerably more than the entire harm. First (which I haven’t remarked on yet) the victims pay for their own damages even if their harm was not their fault at all. (So, they internalize harm they did not cause.) This is probably a more significant point than my comparable one about contributory negligence, but together with the double payment for harms caused by contributory negligence, it shows that the best estimate of the amount of harm with same available information is a proper fraction of the payments you propose.

  • Andrew Luscombe

    Are you familiar with New Zealand’s system? At the risk of over simplifying: it’s like an expanded workers compensation scheme –
    government pays all damages regardless of identification of responsible party according to a schedule of damage payments, but also fines responsible parties on a negligence basis. No one can sue anyone.

    This type of system has taken over workplace accident liability pretty much throughout the western world,. Workplaces used to be the primary source of accidents, and maybe still are but not to the degree they once were. Hundreds of workers used to die on major construction projects. The system seems to work better than any type of civil system.