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Abstract

Tort liability forces parties engaged in risk-producing activities to internalize the costs that the activities impose on those adversely affected by the risks they create. Rational parties should take precautions to reduce those risks rather than pay the costs the risks cause – at least up to the point that further reductions would cost more than the harms they would prevent. How could reforms that reduce liability, and thus force parties to internalize a lower portion of the costs suffered as a result of the risks they create, produce a decrease in fatal accidents? Part I below briefly considers this question. The second finding, however, is even more paradoxical. If reducing tort liability increases safety, why would reductions achieved by the reforms to the collateral source rule differ from reductions achieved via other reforms, such as caps on damages or changes to the prejudgment interest rules? The deterrent effect of damage judgments depends on the total amount of liability (or expected liability), which sets the threshold for precautions a rational party will take. The specific means by which the reduction is achieved arguably should not matter. Part II considers this puzzle. This paper offers no stunning conclusions – indeed, no conclusions at all. At most, it raises concerns that the data produced by Rubin and Shepherd does not serve their purpose very well. The methodological questions raised in Part I are modest. But as one begins to parse the results of the collateral source rule, it becomes harder to credit inferences from the data on damage caps. The suggestion that more study is necessary will surprise no one.

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