{"id":198,"date":"2026-05-04T10:57:27","date_gmt":"2026-05-04T14:57:27","guid":{"rendered":"https:\/\/people.bsu.edu\/econbriefs\/?p=198"},"modified":"2026-05-04T10:57:27","modified_gmt":"2026-05-04T14:57:27","slug":"the-economics-of-negligence-understanding-the-hand-formula-by-dr-cecil-bohanon-and-dr-john-horowitz","status":"publish","type":"post","link":"https:\/\/people.bsu.edu\/econbriefs\/2026\/05\/04\/the-economics-of-negligence-understanding-the-hand-formula-by-dr-cecil-bohanon-and-dr-john-horowitz\/","title":{"rendered":"The Economics of Negligence: Understanding the Hand Formula\u2013 by Dr. Cecil Bohanon and Dr. John Horowitz"},"content":{"rendered":"

Nearly\u00a080 years ago,\u00a0<\/span>Judge Learned Hand issued his famous decision in U.S. v. Carroll Towing Co<\/span><\/a>. While teaching a Law and Economics class recently, a student thought I (Horowitz) was joking when I mentioned\u00a0\u201cJudge Learned Hand.\u201d\u00a0I brought up his\u00a0biography, and to the class’s amusement,\u00a0he was, in fact, a real person with a remarkably appropriate name. Judge Hand proposed that negligence depends on whether the burden of taking precautions (B) is smaller than the probability of harm (P) multiplied by the expected loss (L). If B < P \u00d7 L, then failing to take precautions is negligent. The Hand formula explicitly framed negligence as a cost\u2013benefit calculation and remains one of the clearest examples of economic reasoning embedded in legal doctrine.<\/span>\u00a0<\/span><\/p>\n

A tort is an act or omission that causes harm to people or property<\/span><\/a>.\u00a0Economists studying\u00a0tort law\u00a0consider\u00a0how liability rules shape behavior, risk-taking, and social well-being. Tort law governs accidents, negligence, product defects, and other situations in which one person or organization harms another. Typically, an\u00a0injurer, such as\u00a0a driver, firm, or doctor,\u00a0causes harm to a victim,\u00a0such as a pedestrian, consumer, or patient.\u00a0<\/span>\u00a0<\/span><\/p>\n

Judge Guido\u00a0Calabresi<\/span><\/a>\u00a0argued that accident law should be designed to minimize total social costs. These costs include injuries and property damage, the costs of preventing accidents,\u00a0and the administrative expenses of legal processes.\u00a0The goal of tort law is not to eliminate all accidents but to achieve the optimal level of safety, where the combined costs of harm and prevention are\u00a0minimized.<\/span>\u00a0<\/span><\/p>\n

Steven\u00a0Shavell<\/span><\/a>\u00a0distinguished between unilateral and bilateral accidents. In unilateral accidents, only the injurer can reduce risk, for example, a factory explosion or a surgical mistake. In such cases, strict liability and negligence often produce similar levels of precaution. In bilateral accidents, both parties can reduce risk. A driver can slow down, and a pedestrian can look both ways. Here, negligence rules tend to work well because they encourage both sides to act carefully.<\/span>\u00a0<\/span><\/p>\n

Different liability rules create different incentives. Under strict liability, injurers pay for all harm they cause, giving them strong incentives to reduce risk, though victims may take less precaution. Under negligence rules, injurers pay only if they fail to meet a standard of due care. When that standard is set properly, both injurers and victims are encouraged to take efficient precautions.\u00a0Economics emphasizes\u00a0that\u00a0societies face trade-offs. It is not surprising these insights are embedded in our legal system.\u00a0<\/span>\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Nearly\u00a080 years ago,\u00a0Judge Learned Hand issued his famous decision in U.S. v. Carroll Towing Co. While teaching a Law and Economics class recently, a student thought I (Horowitz) was joking when I mentioned\u00a0\u201cJudge Learned Hand.\u201d\u00a0I brought up his\u00a0biography, and to the class’s amusement,\u00a0he was, in fact, a real person with a remarkably appropriate name. Judge […]<\/p>\n","protected":false},"author":112,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[462],"tags":[1466,1735,1732,1730,1737,1734,1731,684,1736,1733],"class_list":["post-198","post","type-post","status-publish","format-standard","hentry","category-microeconomics","tag-cost-benefit-analysis","tag-guido-calabresi","tag-hand-formula","tag-law-and-economics","tag-legal-incentives","tag-liability-rules","tag-negligence","tag-risk","tag-steven-shavell","tag-tort-law"],"yoast_head":"\nThe Economics of Negligence: Understanding the Hand Formula\u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/people.bsu.edu\/econbriefs\/2026\/05\/04\/the-economics-of-negligence-understanding-the-hand-formula-by-dr-cecil-bohanon-and-dr-john-horowitz\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Economics of Negligence: Understanding the Hand Formula\u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs\" \/>\n<meta property=\"og:description\" content=\"Nearly\u00a080 years ago,\u00a0Judge Learned Hand issued his famous decision in U.S. v. 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