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Is the negligence cause-in-fact doctrine efficient? The traditional test has come under increasing criticism by economists and others. Some have suggested switching from the time-honored “but-for” test to “proportional liability,” or “proportional causation,” would advance both efficiency and fairness. The traditional but-for test requires that the plaintiff show that it was more likely than not that the defendant’s untaken precaution, when viewed ex post, would have prevented the plaintiff’s injury. Proportional causation also posits some untaken precaution that was a breach of duty by the defendant. The doctrine then asks the trier of fact to estimate the probability by which the untaken precaution would have prevented the injury. In the most commonly discussed version the plaintiff then recovers his or her actual damages deflated by the “percentage of effectiveness” estimated by the jury or other trier of fact. In comparison to proportional causation, the traditional but-for test is sometimes called “the all-or-nothing rule” because it awards full damages or nothing at all, whereas the proportional rule awards some damages in all cases in which the other elements of negligence are satisfied. This Essay argues that these two causation rules are both currently applied in different situations and are complements in reducing the social costs of accidents.

This paper discusses the economics of causation in tort law, describing precise implications for precautionary incentives when courts are and are not perfectly informed. With precautionary incentives identified, we can ask whether the causation inquiry enhances welfare, and if so under what conditions. Perhaps the most important innovation applies to the Hand Formula. When causation is an issue, the probability of causal intervention should be part of the Hand test, and the generalized Hand test offers a method of distinguishing significant classes of causation cases. I close with implications for the moral significance of causation and for economic analysis of tort law.

For the last 40 years, efficiency theorists have attempted to demonstrate that tort liability in general and negligence liability in particular can best/only be explained by the hypothesis that judges are trying to maximize aggregate social welfare. Thirty years ago I published a pair of articles criticizing these attempts, noting especially the efficiency theorists’ inability to explain and justify the factual causation requirement in tort law. Nevertheless, the efficiency theorists have continued to make the same arguments. In this paper, I canvass the old arguments and their current restatements, including the attempts by some of the leading theorists to equate ex post analysis of actual causation with ex ante analysis of negligent conduct and attempts by others to explain the actual negligence liability rules. None of the rules proposed by the efficiency theorists is consistent with the practice of the courts, and none of them would promote efficient deterrence. Worse yet, the least descriptively plausible negligence liability rule proposed by the efficiency theorists is the one likely to be the least inefficient in actual practice, while the one assumed by most efficiency theorists will be the most inefficient. The fundamental problem with the efficiency theories is that they assume that the focus of law should be and is on the maximization of aggregate social welfare, rather than justice – the promotion of everyone’s equal external freedom in their interactions with others.