Organizational Design and Tort Law: A Synthesis of Organizational Studies and the Economic Analysis of Tort Law

Abstract

Wrongdoings in organizations can be caused by individual errors and organizational failures. Traditionally the economic analysis of accidents in tort law employs the individual-oriented approach. It is based on the premise that tortfeasors are individuals, for example, negligent drivers, managers, physicians, nurses, etc. Within this approach, the analysis focuses on incentives that liability rules provide to individual tortfeasors in general, often disregarding whether tortfeasors are independent actors or organizational employees. When the economic analysis of tort law specifically addresses wrongdoing in organizations, it is usually conducted on the basis of the principal-agent framework. Although the burden of liability for agents’ wrongdoings is often borne by organizations (principals), the latter are not sufficiently induced to adjust their organizational arrangements to prevent accidents. As a result, preventable organizational accidents repeatedly occur in many organizations. And tort liability is often claimed to provide only weak deterrent effects on organizational behavior. This book advances the idea that insights from organizational theory and organizational economics can be useful in explaining why the imposition of liability on organizations fails to induce adequate organizational care and what liability rules are better able to stimulate systemic organizational precautions. The advantage of the organizational studies framework is that it addresses root organizational factors of accidents – organizational design, organizational culture, practices and policies, which are little addressed within the principal-agent approach but are important antecedents of wrongdoing in organizations. Medical malpractice liability in the United States and specific examples of liability of municipal authorities for constitutional torts demonstrate the relevance of suggestions provided in the book. Some references to accidents in the transport sector, automobile industry, chemical and oil companies, and the litigation avoidance behavior of producers of consumer goods show the relevance of the research arguments to tort liability of organizations in these sectors as well.