Risk Distribution and the Law of Torts: Carrying Calabresi Further

I INTRODUCTION Just over fifty years ago, in a seminal article called Some Thoughts on Risk Distribution and the Law of Torts, Guido Calabresi addressed the claim made by leading scholars that the "central policy issue in tort law is whether the principal criterion of liability is to be based on individual fault or a wide distribution of risk and loss." (1) As Calabresi pointed out, "to say 'risk distribution' is really to say very little." (2) Risk distribution, he explained, is an ambiguous concept that can refer to the manner in which tort liability for accidental harms affects the allocation of scarce resources, the spreading of losses across society, or the attainment of normatively desirable distributive outcomes. Calabresi then systematically employed economic analysis to show how these different conceptions of risk distribution affect the formulation of tort rules, a novel approach that made the article one of the (two) founding documents of the new economic analysis of law. (3) The first two conceptions of risk distribution identified by Calabresi--the allocation of scarce resources and risk spreading--are combined in the (now) conventional economic analysis of tort law. Under this analysis, tort rules should minimize the social cost of accidents first by incentivizing risky actors to exercise cost-effective care, and then by spreading the residual risks to minimize insurance costs. Although the conventional economic analysis of minimizing accident costs can be traced to Some Thoughts on Risk Distribution and the Law of Torts, Calabresi has not embraced the approach with the same fervor as others. Drawing in part on the scholarship of Ronald Dworkin, Calabresi explained in a subsequent article that an inquiry exclusively concerned with minimizing accident costs in order to attain allocative efficiency, "defined narrowly to mean wealth maximization," is a "meaningless concept" without a basis in the normatively appropriate "starting points or distributional values." (4) Calabresi also made the same type of point in his highly influential book The Costs of Accidents: "I do not treat [justice or fairness] as a goal of the same type as cost reduction but as a veto or constraint on what can be done to achieve cost reduction." (5) As implied by Calabresi's repeated emphasis on the fundamental importance of entitlements and their associated distributive values, the only issue of risk distribution that ultimately matters is whether tort rules distribute risk in the manner required by the governing distributive norms of fairness or justice, a matter not adequately addressed by the conventional economic analysis of tort law. (6) Calabresi's concern for distributive matters is most fully expressed in a later article, The Pointlessness of Pareto: Carrying Coase Further,7 Calabresi first showed that society must always be at a Pareto-optimal point, or one at which no change is possible that would gain unanimous consent: "Transaction costs (including problems of rationality and knowledge), no less than existing technology, define what is currently achievable in any society--the Pareto frontier. It follows that any given society is always or will immediately arrive at a Pareto-optimal point given transaction costs." (8) Calabresi accordingly concluded "that the Pareto criterion is of no general use as a normative guide," (9) a limitation that makes it necessary for economists to account for distributive concerns: For if where we are is, for the moment, Pareto optimal and, absent innovations, all improvements must, ex ante, entail some losers, then we can also do away with ... "convenient" assumptions designed to negate the existence of losers. Distributional analysis becomes inevitable and hence essential, and economists must, at a minimum, become explicit about the distributional judgments (or guesses) that they are making. Decisionmakers can then accept or reject such judgments and guesses as they choose. …