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Northwestern University School of Law




This Article provides a framework for reconciling the tension between tort doctrine and economic theory, and for addressing the general failure of economically oriented theories to come to grips with doctrine at a detailed level. My claim is that tort doctrine should be viewed as a response to the incompleteness of markets, or more generally the problem of missing markets. Because of market incompleteness, some of the benefits as well as costs associated with activities will be shifted or "externalized" to third parties. Tort doctrine reflects sensitivity to the externalization of benefits and costs. It can therefore be understood only by examining both types of externalization.

I provide a framework that explains pockets of strict liability, negligence, and two other areas referred to below as "property rules" and "weak negligence rules." I use the term property rule in the same sense that it was used originally by Calabresi and Melamed' 10 -to refer to areas in which strict liability applies and the victim can enjoin the injurer's behavior. The term weak negligence refers to areas in which defenses to a negligence claim, such as assumption of risk, are available and, given the fact patterns, quite likely to be persuasive. I apply the theory to nuisance doctrine and show that it can be justified at a detailed level.

The Article is organized as follows: Part II presents a critique of prevailing economic theories of tort law. Part III presents the framework of this Article. Part IV applies the framework to nuisance doctrine. The final section, Part V, compares the framework of this Article to the reciprocity theory of George Fletcher.12 The theory of this Article is capable of explaining all of the features of tort law explained by Fletcher's reciprocity theory, and goes further by making sense of areas that Fletcher's theory seems incapable of explaining.

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