1. The Crime/Tort Puzzle
We have two legal systems to do essentially the same job
You do something bad, the legal system intervenes, something bad happens to you
A reason not to do bad things
One, tort, treats offenses as offenses against the victim
One, criminal, treats offenses as offenses against the state
This raises three questions
Is there a good reason to have both? Would we be better off with only one?
Is there a good reason to sort offenses as we do?
Is there a good reason to bundle legal rules as we do?

2. Should We Abolish the Criminal Law?
Imagine a pure tort system
Problems
The victim may not have the resources to prosecute.
Some offenses cause diffuse injury
Offenders may be judgement proof
One could have legal rules making that less likely
The state could pay the fine and imprison the offender—still mostly tort
Potential victims could commit in advance to buy deterrence, as in 18th c. England
The fine for a crime is both the punishment for the criminal and the reward for the victim
We want the optimal probability/punishment pair
But setting the punishment sets the probability, since it determines the payoff to catching him
We cannot separately control two functions with one variable
The fancy solution, using profit maximization for an additional constraint, is an article on my web page
The simple answer is that the identical problem exists for ordinary tort law

3. Sorting Offenses Do we allocate offenses correctly to the two system?
Tort law for offenses where we know who did it
Landes/Posner argument
That eliminates the probability/punishment problem for catching the offender
But the chance of winning a tort suit depends on how much you are willing to spend
Judgement proof argument
If it is hard to catch the offender, we need a big fine to provide adequate deterrence
Which the offender may not be able to pay
And catching him is expensive, so we also need a big fine to make it worth doing
On the other hand, torts are more likely than crimes to be anonymous victim
And the torts we see litigated are the ones easy to detect

4. Bundling Legal Rules
The same person controls prosecution and collects fines
That makes sense, since otherwise the controller takes a bribe to drop the case
But it creates an opportunity for fraudulent prosecution
More efficient punishments go with a lower standard of proof
Makes sense, since errors have lower social cost, but …
An efficient punishment is an incentive for fraudulent prosecution
Which is easier with a lower standard of proof

5. Burglary, Traffic Accidents, and Incentives
Treating something as a tort reduces the victim’s incentive to avoid it
So where the act creates a net cost, make it a crime instead
For instance traffic accidents
Where something is a transfer
If the victim is fully compensated, no need for an incentive for him to prevent it
It will only happen when the gain to the offender is greater than the cost
So burglary should be a tort
The point being that we are optimizing on many margins
And picking one lets you argue for a conclusion, ignoring the others
Which means that whatever the rule, you may be able to “prove” it is efficient

6. Is the Common Law Efficient?

7. The a priori case—should we expect it to be?
Argument for judges doing it deliberately
Increasing the size of the pie is the one good thing judges can do, so they try to do it
But that assumes they know enough economics
And it assumes they are not aiming at justice instead
Perhaps they are, and there is some reason why what is efficient is seen as just?
Invisible hand argument
If the law is inefficient, parties have an incentive to try to work around it
Or to litigate in the hope of changing it
Eventually the law changes
But changing the law faces a public good problem
If beneficiaries of an inefficient legal rule are a concentrated interest group
And losers dispersed interest group
The beneficiaries may raise more to litigate for it than the losers to litigate against
Consider, for instance, an agency litigating for rules it likes against dispersed losers

8. The Case from the Evidence
Property rules vs liability rules
The legal system mostly gets that right, but …
Mostly doing it the other way is not just inefficient but obviously unworkable
Other general patterns seem to fit the theory
The right to grow crops on land is bundled with the right to walk on it
I no longer own my property up to the heavens
Tort law as a Pigouvian tax
Negligence as a solution to the joint causation problem
Posner offers various detailed rules that he argues fit
Strict liability for ultrahazardous activities
Because activity level (keeping a pet lion) is an important variable
The most reliable precaution is not to
Eggshell skull rule
Because the potential tortfeasor faces an average cost of taking the action
That reflects the low probability/high cost outcome
The alternative is to pay nothing when there is no injury, only an average when there is

9. The Case Against
Organ sales are illegal (But probably statutory law). Ditto adoption mkt
No freedom of contract for product liability
Guarantees are generally enforceable
But waivers are not
Or breach—penalty clauses are not enforceable
Although a penalty clause is just a voluntarily agreed to property rule
And property rules are part of common law
The common law treats the value of life as zero in tortious death cases
Since your claim dies with you
So an inefficiently low incentive not to take risks with other people’s lives
Tort claims are not marketable. If they were
That would solve the problem of not being able to afford a lawyer
And of not knowing what lawyer would do a good job
And provide a superior substitute for class actions

10. The Case for Ignorance Economic arguments are complicated
My crime/tort chapter ran the argument through seven rounds
This is why you could have a pure tort system
This is why it wouldn’t work
This is how that problem would be dealt with
This …
Once you know the legal rule, you can usually find some argument that it is efficient
Coming to the nuisance
A good rule, because it is cheaper to move a housing development or pig farm before it is built
A bad rule, because my pig farm gives me control over land that will later be wanted for housing
So I have a rent seeking argument to build the pig farm now where you will want to build housing later
The Himalayan photographer and the Eggshell Skull
The economic logic of two problems is the same
The legal answer is different
And each time Posner concludes that the legal answer is correct
Conclusion: The jury is still out
There is some evidence that the common law tends towards efficient rules
But also evidence against
And arguments, but not compelling ones, for why we might expect it to

11. Whether the Conjecture is Correct or Not
Consider what we have done so far. Start with
one behavioral assumption (rationality)
One conjecture about the organizing principle: Efficiency
End with
A way of seeing all law , as solutions to a common set of problems
A way of applying the same set of ideas across legal topics:
Risk allocation--contract and tort.
Ex Ante/Ex Post
Tort and criminal law of highways
Explaining why attempts are criminal
Externalities, incentives, double causation problem, transaction costs
Pollution regulation
Defining property rights in land
Common law of nuisance
Tort law--auto accidents. Product liability.
Contract damage rules

12. And if the Law Isn’t Efficient
Perhaps it should be
Insofar as legal rules either cannot redistribute
Or are a less efficient way than direct tax and transfer (Quang Ng’s argument)
And insofar as we have no adequate theory of justice
It may make sense to try to design the law to maximize the size of the pie
Even if one views economic efficiency as only one desirable goal
It is worth knowing when a change in legal rules increases or decreases it
So as only to decrease it when there is some other advantage that outweighs that cost
And to increase it when doing so does not have costs in other values
And economic analysis, as developed in response to the Posner Conjecture
Tells us how to do so
So whether or not the conjecture was true, it was useful

13. Alternative Solutions to the Problem of Law
Feud Law: Decentralized and privately enforced
Dictatorship: Someone tells everyone what to do and makes them do it
Decentralized decisions under state enforced legal rules
Our system, which you have been studying
And most of this book is about

14. Feud Law Law by private violence and threats of violence
If you wrong me I threaten to harm you unless you compensate me
A form of decentralized private law enforcement
To work, it needs to solve four problems
Make my threat more believable if you really did wrong me: some way that Right makes might
In Iceland, the court system
Among the Romanichal, a small community, my friends only support me if they think I am justified
Give me an incentive to carry out my threat, even if doing so is costly
The man who wronged me may fight back, even kill me, if I try to harm him
Internal incentives, feelings of vengefulness—a hardwired commitment strategy
External incentives—status and reputation
There is some way in which people with few resources get their rights enforced
In the Icelandic case, transferable tort claims
In Somalia, membership in a diya paying group
There is a mechanism for terminating feud
If both sides believe they are in the right, both have an incentive not to give in
Arbitration by someone trusted and powerful is one common solution to that problem

15. Feud law is arguably what most systems were built over
Anglo-American common law grew out of Anglo-Saxon law
Which was Icelandic law plus a king
Who claimed that some offenses were against him as well as the victim
Because they violated the king’s peace
Islamic law contains Jinayat,
A case for killing or injuring is privately prosecuted, privately settled
By the victim or his heirs
In Jewish law, execution is by “the avenger of blood”
The heir of the victim, who in a feud system would have pursued feud
And can, under some circumstances, kill a killer not sentenced to execution without penalty
In early Roman law
Theft was treated as a tort, the victim played a large role in enforcement
An the Law of the Twelve Tables seems to assume some self enforcement

16. Feud Law Still Exists De Facto
Consider IP patent conflicts
Apple could sue Samsung on what they know is a weak case
The court might get it wrong, give them damages
And while the case is going, people will be reluctant to buy Samsung phones
But Samsung could also sue Apple on a weak case
The threat of retaliation is a reason not to sue unless you expect to win
Think of the court as the way right makes might in that system
That doesn’t work for NPC’s, aka patent trolls
They are not practicing their patents, so cannot be countersued
So have a believable threat even when their case is weak
Big companies have commitment strategies—paying off one troll encourages others
Small companies are not repeat players
Consider a lot of illegal violence
We killed a member of your gang because you killed one of ours
I shot him because I found him in bed with my wife
And many less extreme examples

17. Dictatorship The direct centralized solution Problems
The dictator doesn’t know enough to find the best solution
Because the information is decentralized—you know your tastes and abilities
And because it is too much information for any person or computer to handle
Think about all the little things you know about things relevant to solving it
Including everything you do
East Germany supposedly used half the population to spy on all the population
And that would have reported a tiny fraction of the information about each person
All of which he knows and can act on
The dictator has to make you do things
I can move my arm by willing it
You can move my arm only by more indirect and costly mechanisms
So your controlling me is more costly than me controlling me
What incentive does the dictator have to serve us instead of himself?
The theory of the firm is largely about these issues on a smaller scale

18. Our System in Brief

19. Property, Contract, Tort and Crime
Private property requires
Definition of what it is that is owned
Way of knowing who owns it and how ownership is acquired
Mechanisms for enforcing, settling disputes
Generalized from real property to much else
Hence property law, including IP
Important that property can be transferred
Sometimes in complicated exchanges
We need contracts specifying terms of transfer
Mechanisms to settle disputes over their implications
Hence contract law
Rules can be violated, so we need
Mechanisms to make it in people’s interest not to violate the rules
Ways of settling disputes over whether they were violated
And the consequences thereof
Tort law, criminal law, courts and procedure

20. How to Get Efficient Rules
Start with private property and trade, but
The world doesn’t break up into wholly separate pieces
My use of my stuff effects you: Externalities
Solutions?
Direct regulation-- “do that”
Liability rule--pay for costs you impose
But costs are jointly caused
So alternatively we can
Treat rights as property, to be defined and then transacted over
Works well where transaction costs are low
But often they are not
Do nothing
Put up with some inefficiencies, because
The cost of dealing with them is more than it is worth

21. Other Pieces of the Answer
Not just the control of externalities but
Defining what rights
Ownership implies
And who has them
How to enforce rights
Ex post or ex ante
Liability vs property rules
Optimal punishment to enforce property rules

22. To Construct Efficient Law
Choose an appropriate combination of property and liability rules
Taking account of the costs of both
In transactions, enforcement and errors
Define and bundle property rights in a way that minimizes costs
Of defining and defending them
And transacting over them.
Enforce the whole by
Some mix of public and private action
Under a suitable set of rules of proof and liability.
Throughout the project consider the incentives of all parties
Including victims, offenders, enforcers, judges, legislators, …
Also transaction costs
And the problem of using dispersed and imperfect information.
Where possible, create institutions that make it in someone’s interest to use such information to generate the appropriate rules.

23. What We (and everyone else) Left Out
Even if the analysis is right, we don't have the data
Actually calculating optimal punishments
Would require information
On supply curves of offenses
Damage done
Cost of punishment and enforcement
Cost of transactions
Which we don't have
Consider railroads, sparks, clover and spaghetti
So we end up with qualitative conclusions at best

24. What Remains for the Next Generation (You?) to Do
Application of the approach to enforcement side
My efficient punishment stuff—civil forfeiture and similar issues
Evidence on the incentives and behavior of elected prosecutors
Applying the theory to judges and lawyers
Approaches to generating efficient law
Pre-chosen arbitrators
Parties have an incentive to choose ones with efficient rules
The same argument as for freedom of contract
States competing for taxpayers
That gives states an incentive to design efficient rules
Provided the rules don’t affect immobile property
Private deterrence as an incentive to convict the guilty party
Value-revealing taxation
Dropping simplifying assumptions
Incorporate incapacitation as well as deterrence in the analysis
Redo, remembering that offenders are not identical
Some may be harder to catch than others, so no single probability
And they may know it, decide whether to commit a crime accordingly
That is an issue for tort law as well as criminal law

25. Posner’s Summary
Hence the economic analyst can move easily not only within common law fields but between them. Almost any tort problem can be solved as a contract problem, by asking what the people involved in an accident would have agreed on in advance with regard to safety measures if transaction costs had not been prohibitive. ...
Equally, almost any contract problem can be solved as a tort problem by asking what sanction is necessary to prevent the performing or paying party from engaging in socially wasteful conduct, such as taking advantage of the vulnerability of a party who performs his side of the bargain first. And both tort and contract problems can be framed as problems in the definition of property rights; The definition of property rights can itself be viewed as a process of figuring out what measures parties would agree to, if transaction costs weren’t prohibitive,...”