Berkeley Program in Law and Economics

Money cannot compensate for some losses, as when parents suffer the death of a child. For incompensable losses, courts should develop theory and practice of damages from the way reasonable people respond to the risk of incompensable losses. Specifically, courts should apply the Hand Rule to find damages based on the reasonable person’s point of indifference between less risk and more expenditure on precaution. Hand Rule Damages are efficient because injurers internalize the risks they impose on others. Hand Rule Damages are also fair in two respects. First, they require injurers to treat others the way a reasonable person treats everyone. Second, a regime of Hand Rule Damages and ideal insurance markets put victims in the same position as a regime that makes people compensate others for exposing them to risk, which is fair by some understandings of the principle of restorative justice. Empirical evidence suggests that Hand Rule Damages are several times higher than the U.S. average for damages in automobile accident cases involving loss of life. Implementing Hand Rule Damages would, consequently, cause a significant increase in damage awards and insurance costs for some important kinds of accidents.