Individual Rationality, Hazard Warnings, and the Foundations of Tort Law

Abstract

If all people were fully rational and cognizant of all the risks they faced, then they would always select an efficient level of safety in all their activities and other choices. Thus people would trade off the potential benefits of the risky behavior against the costs, including the risks to life and limb, and select the activity and product mix that best promoted their welfare. In such a world, there would not only be no need for hazard warnings, but there also would be no need for liability of any kind. Purchasers of hazardous products, for example, would always value the improved safety associated with safer variants of products and would provide the correct price incentives for product manufacturers to sell safer products through their willingness to pay more for products that provide a greater desired level of safety at an appropriate cost... The purpose of this paper is to formulate how one should think about such situations. In some instances, it may be desirable to mandate product safety directly, either through government regulation or by imposing tort liability. In other instances, hazard warnings alone may be sufficient. Nevertheless, how are we to judge such warnings and, even if we have an effective warning, how are we to assess whether a warnings policy alone is adequate or whether additional strictures should be placed on the product safety level? This paper will examine the conditions that should be met for effective warnings and whether the utilization of hazard warnings is undertaken efficiently.