Source: https://journals.openedition.org/revus/4515
Timestamp: 2018-10-21 14:48:56
Document Index: 146382771

Matched Legal Cases: ['§10', '§30', '§5', 'art 1', '§44', '§16', '§22', '§ 2', '§ 402', '§10', '§5']

Home > Numéros > in print > Discussion with Gregory C. Keating > Cost-benefit analysis outside of ...
Discussion with Gregory C. Keating
welfarism, cost-benefit analysis, liberal egalitarianism, tort law
1 Cost-benefit analysis, legal entitlements, and substantive equality
2 Distributive economic analysis
1 Welfarism is a form of consequentialism for which “the goodness of a state of affairs depends ultim (...)
2 Keating 2018.
3 Keating 2018: online §10 (“Broadly speaking, the conflict is between an economic version of consequ (...)
1Welfarism is the principle that the goodness of a social state is an increasing function of individual welfare and does not depend on anything else.1 As Gregory Keating convincingly argues in the lead article for this symposium, welfarism cannot account for important normative differences among different types of welfare losses or costs.2 Welfarism entails that all welfare losses and gains—regardless of their source—are to be rendered fungible and then compared within a cost-benefit analysis (CBA) of the welfare changes. According to Keating, liberal egalitarian principles such as equal freedom or self-determination normatively distinguish bodily injuries from harms to liberty and economic interests. Bodily integrity and related forms of security are necessary conditions for the meaningful exercise of liberty, and that normative difference must be fairly accounted for by legal standards that govern significant risks threatening human health and safety. Hence Keating concludes that liberal egalitarian principles rule out CBA for setting such safety standards.3
4 Keating 2018: online §30.
2Having rejected CBA, Keating defends alternative safety standards that normatively prioritize bodily injury over other types of welfare losses. To prioritize one’s interest in bodily integrity over another’s conflicting liberty interest, the law recognizes an individual right to physical security. Keating argues that adequate protection of the right justifies standards such as “safe level” or “feasibility” for regulating significant risks of bodily harm. These standards require safety precautions beyond the allocatively efficient amount identified by CBA, which instead is a proper criterion only “for regulating harm to goods which are fungible and replaceable,” such as property owned by businesses.4
5 This project began with Geistfeld 2001a (showing why cost-benefit methodology can be rendered compa (...)
6 Cf. Keating 2018: online §5 (“Cost-benefit analysis has its home in a framework which supposes that (...)
3This normative framework, as I’ve repeatedly tried to show elsewhere, persuasively explains the important doctrines and practices of U.S. tort law.5 The liberal egalitarian norms, however, justify a robust role for CBA that is quite different from the practice criticized by Keating. CBA can do more than simply identify allocatively efficient outcomes. But even when applied in this manner, CBA shows why allocatively efficient safety standards fairly govern significant risks of physical harm in important classes of cases, contrary to Keating’s reasoning. Although CBA occupies a central place within the field of modern welfare economics, it is not inextricably tied to welfarism as a principle of substantive equality. Keating is mistaken to claim otherwise, and that mistake underlies most of our important differences.6
7 See Geistfeld 2014a: 391–99. Portions of the ensuing discussion are drawn from this article.
4As is now widely recognized, CBA depends on the specification of legal entitlements.7 A legal entitlement or right determines how the legal system will protect an individual interest. Like any other entitlement, the entitlement protecting the individual interest in physical security can take different forms. Do individuals have a right to be compensated for their physical harms, or must they instead pay to protect themselves from injury? Do other conditions apply, such as a requirement that compensation must always be accompanied by consent? Resolution of these questions depends on how the law has specified entitlements, which in turn determines the costs and benefits of relevance for the associated safety standards.
8 Hanemann 1991: 635.
9 See, e.g., Mitchell & Carson 1989: 30 (“The choice between the WTP or WTA formulation is a question (...)
5A safety standard governing risky behavior measures an injury cost at the time of a risky interaction in order to determine the safety benefit of reducing the risk (and eliminating the associated cost of injury). This injury cost can be measured in two different ways, “which correspond to the maximum amount an individual would be willing to pay (WTP) to secure the change [in safety] or the minimum amount she would be willing to accept (WTA) to forgo it.”8 Whether one who faces a risk of injury must pay for protection or instead be compensated depends on the entitlement.9
6If the entitlement does not protect the potential victim from injury, then the right-holder is the risky actor. For such an entitlement, the expected injury cost is determined by the maximum amount of money that the potential victim would be willing to pay (WTP) to the risky actor to not exercise the right and create the associated risk of injury. If the entitlement instead protects one from being injured by another, then the expected cost of injury is determined by the minimum amount of money that the right-holder as potential victim would be willing to accept (WTA) from the risky actor as compensation for facing the risk of injury. The entitlement or right to physical security accordingly relies on the compensatory WTA measure for quantifying injury costs.
7A compensatory entitlement prioritizes the right-holder’s security interest by burdening the duty-holder’s subordinate liberty interest with the compensatory obligation, thereby recognizing a normative difference between these two types of interests. The entitlement can further account for this normative difference in other ways, yielding different specifications that can substantially alter the measure of injury cost and the associated safety standard selected by CBA.
10 Because the safety standard evaluates the expected cost of injury in terms of the right-holder’s WT (...)
8To see why, consider a risky interaction between an automobile driver and a pedestrian that would kill the pedestrian in the event of an accident. Suppose the pedestrian benefits from the trip but not from the driver’s presence along the route, eliminating the risky interaction as a source of compensatory benefit for the pedestrian right-holder. Because the two parties have no preexisting relationship, the pedestrian cannot receive the compensatory payment (the WTA measure) from the driver prior to the risky interaction. In the event of a fatal accident, the (deceased) pedestrian would also be unable to receive compensation in the form of a damages remedy derived from the WTA measure.10 How can the pedestrian receive the compensation to which she is entitled?
9Suppose the entitlement requires full compensation. In the case at hand, the WTA measure has compensatory value for the right-holder—it actually improves her welfare—only insofar as it reduces risk within the safety standard. To protect her welfare—to be fully compensated as per the entitlement—the pedestrian is entitled to set the WTA measure equal to infinity. The measure of infinite injury costs, when plugged into the cost-benefit calculus, requires precautionary behavior that would eliminate the risk altogether (any precautionary cost of a finite amount, such as the cessation of driving, would be less than the safety benefit of eliminating an infinite injury cost). An entitlement requiring actual compensation as defined by the WTA measure, therefore, can yield a cost-justified safety standard that bans risky behavior in order to protect the right-holder from facing a significant risk of uncompensated injury.
11 See Keating 2018: Part 1.
10This type of standard, which corresponds to the “safe level” standard defended by Keating, can require more safety than would be allocatively efficient—it prohibits behavior that would subject others to a significant risk of bodily harm, even if doing so would decrease social welfare.11
11In order for CBA to select the allocatively efficient safety standard, the WTA measure in these cases must be derived from hypothetical rather than actual compensation. This decision rule, widely known as the Kaldor-Hicks criterion, holds that one state of the world is to be selected over another if those who would gain from the change could compensate the losers for their losses and still be no worse off than in the original state. Any change that satisfies the Kaldor-Hicks criterion will necessarily increase social welfare, even though the compensation is only hypothetical and not actual.
12For example, the pedestrian could be hypothetically compensated by the WTA measure prior to the risky interaction with the driver, and the amount of ex ante compensation that (hypothetically) would fully protect the pedestrian’s welfare is not infinite. When plugged into CBA, this finite measure of injury costs will set the safety standard at the allocatively efficient amount. By definition, any precautions above this amount would decrease the driver’s welfare by more than it would increase the pedestrian’s welfare (via the hypothetical compensation expressed by the WTA measure). The opposite result occurs for any precautions below the efficient amount. As compared to the efficient safety standard, any other standard will not satisfy the Kaldor-Hicks criterion. The hypothetical compensation embodied in that criterion accordingly enables CBA to select the allocatively efficient safety standard in all cases.
13What, then, is the appropriate way to measure costs? Actual or hypothetical compensation? The question cannot be answered by CBA; it instead requires resort to a substantive principle of equality.
12 In other words, one’s right to life or physical security must be relative to another’s right to lib (...)
14For any plausible egalitarian principle, a safety standard must equally account for the normatively relevant interests of both the right-holder and the duty-holder. The normatively relevant cost or harm of complying with a duty ordinarily is a burden on the exercise of liberty. Consequently, the fair safety standard must equally account for both the threat to the right-holder’s physical security (or injury costs) and the associated burden on the duty-holder’s liberty (precautionary costs).12 The requirement of equal treatment is substantive, not formal.
13 This formulation of the feasibility standard improves upon the simple version that Keating apparent (...)
15For example, an allocatively efficient safety standard gives each type of harm equal value (on a dollar-per-dollar basis) within CBA, a weighting that can be justified by welfarism. By contrast, a nonwelfarist egalitarian principle can normatively prioritize one type of harm over the other. A priority of the security interest can justify an entitlement to actual compensation for reasons previously discussed, but the entitlement cannot be so demanding that it necessarily negates the duty-holder’s liberty in violation of the egalitarian principle. This formulation of the entitlement accordingly enables the right-holder to select the WTA measure of injury cost that requires the duty-holder to exercise the maximum amount of care consistent with the ability to engage in the risky activity—a feasibility standard of the type defended by Keating. This WTA measure maximally compensates the right-holder via its impact on the safety standard, but does so in a manner that permits the duty-holder to engage in the risky activity.13
14 See Geistfeld 2001b.
16A similar compensatory formulation of CBA can also justify the precautionary principle for regulating health and safety matters, another standard that can depart from the requirements of allocative efficiency.14 CBA is not necessarily tied to the social criterion of allocative efficiency or to welfarism more generally.
15 See, e.g., Kaplow & Shavell 2002.
16 Zamir & Medina 2010: 12. Much of the confusion about this matter may stem from the influential pres (...)
17To be sure, CBA is a form of welfare economics, the normative branch of economics that studies criteria for determining whether alternative states of the world are better or worse than one another. Moreover, economic analysts of the law typically employ CBA within a welfarist framework,15 which may explain why one can readily find statements to the effect that “normative economics is a welfarist theory.”16 The methodology of CBA and welfare economics, however, does not necessarily require utilitarianism or other forms of welfarism.
17 See Sen 1999: 351–52. The ensuing discussion of the new welfare economics draws on this source and (...)
18 See, e.g., Tresch 1981: 39; Varian 1992: 405.
18In the late 1930s, prominent economists rejected the utilitarian decision rule embodied in traditional welfare economics in favor of the new welfare economics, which compares alternative economic situations by relying on the Pareto principle.17 This principle selects one state of the world over another if it actually makes at least one person better off and no one worse off. But most if not all policy changes will have differing distributive impacts, producing winners and losers from the change. Consequently, the new welfare economics recognizes that CBA can defensibly ignore distributive questions only if the government can costly redistribute income or the relevant resource in question via “lump-sum transfers” between households.18
19 A lump sum transfer does not distort individual incentives, and so the cost of any other type of tr (...)
19In the real world of costly transfers, CBA must account for distributive matters that are not based solely on the equality of wealth or welfare.19 The equity or fairness of these distributive outcomes does not depend on welfarism, severing any necessary link between welfarism and distributionally sensitive CBA.
20The discussion so far has only explained how safety standards of the type analyzed by Keating—the safe level standard, the feasibility standard, and the allocatively efficient standard—can all be derived within the framework of CBA, contrary to Keating’s claims. His argument goes awry because the methodology is not necessarily tethered to welfarism as he assumes.
20 Geistfeld 2014b. An alternative approach subjects the social welfare function to deontological cons (...)
21To show why CBA depends on a principle of substantive equality, the prior discussion also emphasized how such a principle shapes CBA. The resultant comparative exercise identifies not only the normatively relevant costs and benefits, but also how they are distributed across the right-holders and duty-holders—an approach I have previously called “distributive economic analysis.”20 By employing this form of economic analysis within a nonwelfarist normative framework, one can identify distributive concerns that might otherwise be elided by an overly general specification of the fairness problem.
21 Keating 2018: online §44 (quotation marks and footnote omitted).
22 Keating 2018: online §16. See also Keating 2018: online §§22–25.
22Consider the fairness inquiry for tort rules governing the amount of product safety that manufacturers must provide in order to prevent their products from being defective and subject to tort liability. According to Keating, “Fairness is concerned with the distribution of burdens and benefits—with how well each person’s claim is satisfied compared with how well other people’s claims are satisfied.”21 Based on this principle, Keating concludes that product cases are justifiably governed by the safe level standard, which mandates the amount of safety that would render insignificant the risk of physical harm and does not otherwise “require any inquiry into the costs of risk reduction.”22 By disregarding cost, however, the safe level standard can violate this principle of fairness for reasons made clear by distributive economic analysis.
23Keating’s analysis is based on a misspecification of the distributive problem. In an earlier article, he more fully defines that problem in order to explain why it justifies a rule of strict (or enterprise) manufacturer liability for the physical harms suffered by consumers:
23 Keating 2017: 63.
When an enterprise physically harms a random victim in the course of pursuing its own benefit, unless the enterprise repairs the harm it has done, it exploits the victim for its own gain. It enriches itself through impairing the physical integrity or the property of the victim. By requiring reparation, enterprise liability rights the wrong that would otherwise occur, namely, the wrong of making the victim the involuntary instrument of the enterprise’s self-enrichment. In so doing, it also distributes fairly the burdens and benefits of risky activities. Those who reap the benefits also bear the burdens.23
24This reasoning might identify the fair outcome for bodily injuries suffered by those who do not benefit from a business enterprise, but it is not apposite for product cases involving injured consumers. The interaction between a manufacturer and consumer is one of expected mutual advantage, which is normatively different from the noncooperative interactions described by Keating. One important difference between the two types of cases involves the manner in which tort rules distribute the benefits and burdens of the risky activity—the fairness issue addressed by Keating.
24 Restatement (Third) of Torts: Prod. Liab. § 2 cmt. F (American Law Institute, 1998).
25In product cases, consumer right-holders fully internalize the costs and benefits of the manufacturer’s tort obligations. For the market equilibrium that obtains under the normatively justified set of entitlements, the manufacturer must charge a price that covers its costs, including those that are imposed as a matter of legal obligation. The consumer as right-holder accordingly pays (via higher product prices or decreased product functionality) for the safety investments and injury compensation that tort law requires of the manufacturer as duty-holder. Consequently, the tort rule recognizes that “it is not a factor . . . that the imposition of liability would have a negative effect on corporate earnings or would reduce employment in a given industry.”24
26Tort rules in product cases accordingly pose a distributive problem that is not defined by an interpersonal conflict between the consumer’s interest in physical security and the manufacturer’s economic interest in profits. The problem instead involves an intrapersonal conflict of the consumer’s interests in security and liberty, an issue wholly elided by Keating’s discussion of the fair safety standard.
27In comparing his or her own security and liberty interests, the consumer gives no special priority to either one. The consumer prefers to pay for product safety only if the benefit of risk reduction (fully accruing to the consumer) exceeds the cost of the safety investment (also fully borne by the consumer). The efficient liability rule, which maximizes the net benefit that the ordinary consumer expects to derive from product use, is no different from the fair rule that only implicates consumer interests. Contrary to Keating’s claim, the allocatively efficient rule can fairly govern significant risks threatening bodily injury.
28To be sure, a liability rule framed entirely in terms of consumer interests will not fully satisfy the preferences of each consumer. Individuals have different preferences for product safety and other aspects of quality, making it infeasible for manufacturers to satisfy completely the preferences of everyone. Manufacturers in mass markets respond to aggregate consumer demand, leading to the question of whether an individual consumer can reasonably expect such a product seller to satisfy her own needs at the expense of other consumers.
29Once the inquiry is framed in this manner, it becomes apparent that consumer demand for the product to wholly eliminate significant risks—the safe level standard defended by Keating—does involve a fairness problem, albeit defined by interpersonal conflicts among consumers as right-holders. The fair resolution of this distributive problem is quite different from the one defended by Keating.
30Perhaps those who demand maximal safety are also the most disadvantaged for distributive purposes, in which case the maximin principle might provide a fair basis for requiring the maximal safety embodied in the safe level standard. But those who are most disadvantaged for distributive purposes may also be less able to afford the consequent increase in product prices. The more plausible reason why a consumer demands maximal safety is that he or she can afford the resultant price increases. Is it fair to satisfy the safety demands of these consumers when doing so comes at the expense of ordinary consumers who are less well off?
25 Restatement (Second) of Torts: § 402A cmt. I (American Law Institute, 1965).
26 The consumer expectations test takes two forms. One applies to defects attributable to product malf (...)
31Not surprisingly, the tort rule that Keating uses to illustrate the safe level standard—the consumer expectations test—is not formulated in this manner. Instead of relying on the maximal safety demands of particular consumers, the consumer expectations test asks whether the product “is dangerous to an extent beyond that which is contemplated by the ordinary consumer who purchases it.”25 For reasons made clear by distributive economic analysis, the ordinary consumer contemplates danger in terms of efficient safety precautions rather than the safe level standard.26
27 See Geistfeld 2017b: 1571–82.
32Efficient precautions are also fair in other important classes of cases, most notably those involving reciprocal risky interactions outside of contractual settings.27 In these cases, the interacting individuals are identical in all normatively relevant respects, including the degree of risk that each imposes on the other and the severity of injury threatened by the risk. Such a case can be represented by an interaction between two automobile drivers in which each is simultaneously a right-holder (who might be injured by the other) and a duty-holder (who might injure the other). Due to the reciprocity of the two risks, there are no relevant differences between the interacting parties. Each automobile driver has the identical right against the other, each owes an identical duty to the other, and each expects to derive a benefit, on balance, by engaging in the social activity of driving.
33Under these conditions, neither right-holder prioritizes his or her security interest over the liberty interest of the other. Each one instead reasonably prefers the efficient standard of reasonable care that requires a safety precaution only if the benefit of risk reduction (fully accruing to the individual as reciprocal right-holder) exceeds the burden or cost of the precaution (also fully borne by the individual as reciprocal duty-holder). By minimizing accident costs, the efficient negligence rule maximizes the net benefit that each driver expects to gain by engaging in the activity.
28 See supra notes 9-10 and accompanying text. Although the problem is starkly illustrated by prematur (...)
29 Geistfeld 2017b: 1571–82.
30 Geistfeld 2017b.
34In contrast, efficient precautions are not fair when governing nonreciprocal risky interactions that occur outside of contractual settings, as illustrated by abnormally dangerous activities like blasting. These interactions involve unequal risk impositions that are not adequately offset by any normatively relevant compensatory benefits for the right-holder. The inequity is addressed by a rule of strict liability, but this rule provides compensation only through the monetary damages remedy, which is inadequate in cases of bodily harm (recall the problem of accidental death).28 To resolve this remaining distributive inequity, tort law supplements strict liability with a negligence rule requiring the duty-holder to take safety precautions beyond the allocatively efficient amount.29 For this class of cases, Keating’s fairness arguments map into the appropriate distributive problem. But even in these cases, distributive economic analysis complements the fairness inquiry by providing a determinate method for identifying the required standard of safe behavior.30
35Despite its apparent logic, the idea that economic analysis is incompatible with or irrelevant to a rights-based principle of fairness is mistaken. A legal system that protects the individual right to physical security can be usefully guided by the methodology of CBA and distributive economic analysis more generally. The governing principle of substantive equality determines the appropriate use of CBA, thereby framing the issues that can be usefully addressed by distributive economic analysis. Welfare does not have to be the master value in order to be relevant. As fully illustrated by the normative framework that Keating otherwise persuasively defends, CBA has an integral role outside of welfarism.
David BLANKFEIN-TABACHNICK & Kevin A. KORDANA, 2017: Kaplow and Shavell and the Priority of Income Taxation and Transfer. Hastings Law Journal (2017) 69. 1–44. URL: http://www.hastingslawjournal.org/wp-content/uploads/Blankfein-69.1.pdf.
Mark GEISTFELD, 2001a: Reconciling Cost-Benefit Analysis With the Principle that Safety Matters More Than Money. New York University Law Review (2001) 76. 114–189. URL: http://www.nyulawreview.org/volume-76-number-1.
Mark GEISTFELD, 2001b: Implementing the Precautionary Principle. Environmental Law Reporter (2001) 31(11). 11326–11333. URL: http://dx.doi.org/10.2139/ssrn.289146.
Mark A. GEISTFELD, 2006: Due Process and the Determination of Pain and Suffering Tort Damages. DePaul Law Review (2006) 55. 331–358. URL: https://via.library.depaul.edu/law-review/vol55/iss2/4.
Mark A. GEISTFELD, 2008a: Tort Law: The Essentials. Austin: Wolters Kluwer.
Mark A. GEISTFELD, 2008b: Punitive Damages, Retribution, and Due Process. Southern California Law Review (2008) 81(2). 263–309. URL: https://southerncalifornialawreview.com/wp-content/uploads/2018/01/81_263.pdf.
Mark A. GEISTFELD, 2009: Efficiency, Fairness, and the Economic Analysis of Tort Law. Theoretical Foundations of Law and Economics. Ed. M. D. White. Cambridge: Cambridge University Press.
Mark A. GEISTFELD, 2011a: Principles of Products Liability. 2d edition. New York: Foundation Press Thomson/West.
Mark A. GEISTFELD, 2011b: The Principle of Misalignment: Duty, Damages, and the Nature of Tort Liability. Yale Law Journal (2011) 121. 142–193. URL: https://www.yalelawjournal.org/issue/issue/volume-121-issue-1-october-2011.
Mark A. GEISTFELD, 2012: Product Liability Law. New York: Wolters Kluwer.
Mark A. GEISTFELD, 2014b: The Tort Entitlement to Physical Security as the Distributive Basis for Environmental, Health, and Safety Regulations. Theoretical Inquiries in Law (2014) 15. 387–415. URL: https://doi.org/10.1515/til-2014-0206.
Mark A. GEISTFELD, 2014b: Risk Distribution and the Law of Torts: Carrying Calabresi Further. Law & Contemporary Problems (2014) 77. 165–190. URL: https://scholarship.law.duke.edu/lcp/vol77/iss2/.
Mark A. GEISTFELD, 2017a: A Roadmap for Autonomous Vehicles: State Tort Liability, Automobile Insurance, and Federal Safety Regulation. California Law Review (2017) 105. 1611–1694. URL: https://doi.org/10.15779/Z38416SZ9R.
Mark A. GEISTFELD, 2017b: Hidden in Plain Sight: The Normative Source of Modern Tort Law. New York University Law Review (2017) 91(6). 1517–1594. URL: http://www.nyulawreview.org/issues/volume-91-number-6.
W. Michael HANEMANN, 1991: Willingness to Pay and Willingness to Accept: How Much Can They Differ? American Economic Review (1991) 81(3). 635–647. DOI: 10.1257/000282803321455449.
Louis KAPLOW & Steven SHAVELL, 2000: Should Legal Rules Favor the Poor? Clarifying the Role of Legal Rules and the Income Tax in Redistributing Income. The Journal of Legal Studies (2000) 29. 821–835. DOI: 10.1086/468095.
Louis KAPLOW & Steven SHAVELL, 2002: Fairness Versus Welfare. Cambridge (Mass.): Harvard University Press.
Gregory C. KEATING, 2017: Products Liability As Enterprise Liability, Journal of Tort Law (2017) 10. 41–97. URL: https://doi.org/10.1515/jtl-2017-0009.
Gregory KEATING, 2018: Principles of risk imposition and the priority of avoiding harm. Revus. Journal for constitutional theory and philosophy of law (2018) 35. URL: http://journals.openedition.org/revus/4406. DOI: 10.4000/revus.4406.
Will KYMLICKA, 2002: Contemporary Political Philosophy: An Introduction. 2d ed. Oxford: Oxford University Press.
Jonathan S. MASUR & Eric A. POSNER, 2010: Against Feasibility Analysis, 77 The University of Chicago Law Review (2010) 77(2). 657–716. URL: https://chicagounbound.uchicago.edu/uclrev/vol77/iss2/2/.
Edward J. MISHAN, 1982: Cost-benefit analysis: an informal introduction. 3d edition. London: Allen & Unwin.
Robert Cameron MITCHELL & Richard T. CARSON, 1989: Using Surveys to Value Public Goods: The Contingent Valuation Method. Washington D.C.: Resources for the Future.
Amartya SEN, 1979: Utilitarianism and Welfarism. Journal of philosophy (1979) 76(9): 463–489. DOI: 10.2307/2025934.
Amartya SEN, 1999: The Possibility of Social Choice. American Economic Review (1999) 89(3). 349–378. DOI: 10.1257/aer.89.3.349.
Richard W. TRESCH, 1981: Public Finance: A Normative Theory. Georgetown (Ont.): Irwin.
Hal R. VARIAN, 1992: Microeconomic Analysis. 3d Edition. New York: Norton
Eyal ZAMIR & Barak MEDINA, 2010: Law, Economics, and Morality. Oxford: Oxford University Press.
1 Welfarism is a form of consequentialism for which “the goodness of a state of affairs depends ultimately on the set of individual utilities in that state, and—more demandingly—can be seen as an increasing function of that set.” Sen 1979: 464. A well-known form of welfarism is utilitarianism, although welfarism can take other forms as well. See Sen 1979: 471-72. As a form of distributive justice, welfarism is based on a principle of substantive equality. For example, utilitarianism treats all individuals equally in the sense that each unit of utility or welfare for each individual has equal additive weight in the construction of social welfare. See generally Kymlicka 2002 (explaining why utilitarianism and other forms of distributive justice are based on different conceptions of substantive equality).
3 Keating 2018: online §10 (“Broadly speaking, the conflict is between an economic version of consequentialism and legal norms which express deontological commitments.”).
5 This project began with Geistfeld 2001a (showing why cost-benefit methodology can be rendered compatible with a principle that prioritizes security over liberty while providing the much needed tools for turning this principle into an operational decision rule). Like Keating’s approach, my analysis also recognizes that the fair protection of the individual right to physical security must account for the normative fact that physical harms are irreparable injuries that cannot be fully repaired by the compensatory damages remedy. The resultant formulation of the tort right and correlative duty can explain the important doctrines and practices of tort law. See Geistfeld 2008a.
6 Cf. Keating 2018: online §5 (“Cost-benefit analysis has its home in a framework which supposes that welfare is the ultimate or master value and that promoting welfare is the proper end of legal and political institutions.”).
9 See, e.g., Mitchell & Carson 1989: 30 (“The choice between the WTP or WTA formulation is a question of property rights: does the agent have the right to sell the good in question or, if he wants to enjoy it, does he have to buy it?”).
10 Because the safety standard evaluates the expected cost of injury in terms of the right-holder’s WTA measure, the duty-holder’s breach of that safety obligation ordinarily is fairly redressed by a compensatory damages award derived from the WTA measure. See Geistfeld 2006: 347–57 (elaborating on this argument and showing how to compute these damages); see also Geistfeld 2008b: 275-84 (explaining why compensatory damages based on the WTA measure are inherently inadequate for cases in which the defendant reprehensibly rejected the duty to exercise reasonable care, justifying the extracompensatory remedy of punitive damages). By providing an appropriate basis for compensatory damages, WTA is a normatively defensible measure of injury costs and not merely of risk.
12 In other words, one’s right to life or physical security must be relative to another’s right to liberty. Cf. Lossee v. Buchanan 51 N.Y. 476, 485 (1873) (“Most of the rights of property, as well as of person, are not absolute but relative.”).
13 This formulation of the feasibility standard improves upon the simple version that Keating apparently defends. Contrary to what might otherwise be suggested by his discussion, under some conditions the feasibility standard can require less safety than would be allocatively efficient. See Masur & Posner 2010: 687–98. Under these conditions, the right-holder would not set the WTA compensatory measure so that CBA yields such a feasibility standard. The right-holder would instead set compensation at the amount that justifies the allocatively efficient standard (or some other formulation of a feasibility standard that requires even greater safety if doing so would not negate the duty-holder’s liberty interest in violation of the egalitarian standard).
16 Zamir & Medina 2010: 12. Much of the confusion about this matter may stem from the influential presentation of welfare economics by Kaplow & Shavell 2002: 16 (“The hallmark of welfare economics is that policies are assessed exclusively in terms of their effects on the well-being of individuals. Accordingly, whatever is relevant to individuals’ well-being is relevant under welfare economics, and whatever is unrelated to individuals’ well-being is excluded from consideration under welfare economics.”). Kaplow and Shavell, however, narrowly define welfare economics only in order to contrast welfarism with nonwelfarist (or “fair”) principles, not because it is required by welfare economics. Kaplow & Shavell 2002: 25 n. 4 (“It is, of course, possible to state a more general notion of social welfare, which can depend on literally anything, and some general formulations presented by economists allow for that possibility. We do not adopt this broader definition of social welfare when discussing welfare economics for the simple reason that our book focuses on the difference between assessment that is limited to effects on individuals’ well-being ... and assessment that is not so limited, which largely falls under the rubric of fairness and related terms.”).
17 See Sen 1999: 351–52. The ensuing discussion of the new welfare economics draws on this source and on Mishan 1982: 301–14.
19 A lump sum transfer does not distort individual incentives, and so the cost of any other type of transfer largely depends on how it alters incentives. For redistributions that are made for the sole purpose of equalizing wealth, the tax system may be the least costly instrument for attaining the desired distributive outcome, in which case the CBA of safety standards need not account for the associated distributive concerns. See Kaplow & Shavell 2000. But see Blankfein-Tabachnick & Kordana 2017 (demonstrating that redistributions for redressing inequalities of wealth can in some cases be attained at the least cost by (re)assigning property entitlements). However, a nonwelfarist principle of substantive equality does not seek equality exclusively in the domain of wealth or welfare. For distributive matters of this type, the appropriate transfers are effectuated at least cost by protection of the individual rights and enforcement of their correlative duties. See Geistfeld 2009: 246–48. These distributive components of the entitlements, therefore, must be incorporated into the CBA of the associated safety standards.
20 Geistfeld 2014b. An alternative approach subjects the social welfare function to deontological constraints. See generally Zamir & Medina 2010 (developing this approach). The constraint approach does not account for distributive concerns (Zamir & Medina 2010: 80–81), unlike distributive economic analysis. Both approaches, however, recognize that only certain types of welfare gains or losses are normatively relevant.
26 The consumer expectations test takes two forms. One applies to defects attributable to product malfunctions, and the other to defects attributable to the unreasonably dangerous design or warnings of a product that does not malfunction. See Geistfeld 2012: 69–116; Geistfeld 2011a: 37–60 and 91–110. The first version disregards cost as Keating claims, but this rule of strict liability is limited to only certain types of product performances (malfunctions) and is justified by the manner in which it enforces the efficient safety standard that consumers could not otherwise practically enforce due to difficulties of proof. See Geistfeld 2017a: 1663–69. The second version of the consumer expectations test is expressly defined in the efficiency calculus known as the risk-utility test. Geistfeld 2017a: 1641–43.
28 See supra notes 9-10 and accompanying text. Although the problem is starkly illustrated by premature death, the compensatory damages remedy is categorically inadequate for bodily injuries and physical harms more generally, all of which are “irreparable injuries” under the common law. See Geistfeld 2011b: 159–64.
Mark A. Geistfeld, « Cost-benefit analysis outside of welfarism », Revus [Online], in print | 2018, Online since 05 October 2018, connection on 21 October 2018. URL : http://journals.openedition.org/revus/4515 ; DOI : 10.4000/revus.4515
Sheila Lubetsky Birnbaum Professor of Civil Litigation, New York University School of Law (USA)
Address: NYU School of Law – Vanderbilt Hall 411A – 40 Washington Sq. South – New York – NY 10012 – USA
E-mail: geistfeld [at] mercury.law.nyu.edu
10.4000/revus.4515