The Economics of Activity Levels in Tort Liability and Regulation

In this paper, we make three central arguments. The first important argument questions the implicit assumption of the activity-level effect literature that there is a monotonically increasing relationship between the probability of an accident's occurring and the quantity of the underlying risky activity. The second significant observation is that, even if we were to adopt the standard understanding of the activity-level effect, we believe that the negligence standard is perfectly capable of incorporating that effect as a duty with which potential wrongdoers must comply or face liability. The third argument questions whether tort liability is the most appropriate regulatory tool for inducing parties to take socially optimal precaution where there are activity-level effects