ABSTRACT
DO LEGAL RULES based on the common law in the U.S. result in economically efficient outcomes? The evidence or what there is of it, seems to suggest otherwise. Tullock [1997] noted that while the precise social cost of legal disputes is unknown, it must be substantial and certainly much higher compared to developed economies. Tullock noted that in 1983, the U.S. federal, state, and local spending on civil and criminal justice amounted to almost $40 billion or about $170 per capita. This accounted for about 3 percent of total the U.S. government expenditures. Of this amount, $37 per capita was expended on judicial services [Cooter and Ulen, 1988, p. 478], which “amounts to only a small fraction of the social cost of resolving disputes though the courts, since most of these costs are borne by private parties” [Tullock 1997, p. 45]. Cooter and Ulen [1988] estimated that the labor cost of a full trial was about $400 per hour, not including the cost of court facilities. According to Tullock [1997, p. 52]:
“Since the early 1960’s … the U.S. courts have systematically assaulted the classical law of tort dismantling its twin historic pillars—deterrence and compensation—in favor of notions of societal insurance and risk-spreading and undermining the concept of fault as a doctrinal mechanism for limiting tort liability to substantive tortfeasors. [Huber, 1988; Rowley, 1989]. The abandonment of proximate cause in favor of joint and several liability has fired the engines of the rent-seekers who now specifically target deep pockets. The shift from negligence with contributory negligence to comparative negligence or strict liability has induced a sharp increase in moral hazard as plaintiffs lower their own standards of care and has stimulated a sharp increase in tertiary legal costs as the volume of law suits has exploded. The widening of damages to encompass pain and suffering and loss of companionship damages as well as to anticipate harms that have not even occurred has made a mockery of the law and has eliminated a wide range of other viable goods and services from the American market place [Barnes and Stout, 1992, ch. 3].”
