Risk is endemic. It can usually be reduced, but almost never eliminated entirely. Consequently, in the course of engaging in the activities of an industrialized society, people are injured. Often these injures are accidental in the sense that no one intends for them to occur. No architectural engineer or construction chief intends that any of the construction crew be injured or killed in the building of a bridge, tunnel, or high-rise office tower. Still, that someone or other would be injured in such projects is a virtual certainty. Car manufacturers do not intend that automobile operators, their passengers, or pedestrians and bicyclists be maimed by automobiles. Still, it is a certainty that every year several thousand individuals will lose their lives in automobile-related accidents.
Many of the activities of contemporary life impose some considerable measure of risk. Normally we distinguish between two categories of risky activities. First, there are some activities whose risks are simply not worth taking; they create social costs in excess of expected benefits. In general, we are inclined to prohibit such activities by making them criminal or otherwise illegal. Thus, theft, assault, battery, rape, and murder are crimes, and it makes no difference that some who commit them might secure a measure of satisfaction from doing so.
Second, the great bulk of human action, though risky, is not prohibited. Generally, their social benefits exceed their social costs, even when those costs are not insubstantial. Though blasting and backing, and motoring and manufacturing can be dangerous, few have suggested that such activities ought to be prohibited. But if we permit individuals to engage in admittedly risky activities, injuries will invariably result. The question is, who should bear the costs of those harms? That is, how should a society distribute the risks or costs of accidents?
We might begin answering this question by following up on a suggestion of Oliver Wendell Holmes. Holmes argued that in the absence of a compelling reason for shifting accident costs, the losses ought to lie where they have fallen; namely, on victims. The intuition that motivates the argument is rather simple. Shifting losses from victims to anyone else is bound to consume social resources. It requires a procedure or identifying eligible candidates for liability, institutions for adjudicating claims against such persons, as well as mechanisms for enforcing judgments against them. All of this is quite costly. If no good purpose is likely to be served by incurring these costs, it is simply foolish to do so.
Holmes did not mean for victims always to bear the costs of accidents. Rather, his argument is an invitation to consider that might count as a compelling reason for shifting losses. We might say that Holmes' principle states an initial liability rule, a statement of who should bear the costs of accidents initially. We might then say that the rules that specify the conditions for shifting losses from those upon whom they initially fall to others constitute substantive liability rules. These rules will capture the "good reasons" for shifting losses, and will follow from more general theories of risk allocation. In a society like ours, what are the good reasons for shifting costs?
Three general theories--and many combinations of them--have been advanced to support various schemes for allocating risk. These are: risk
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