Revisiting the Learned Hand Formula and Economic Analysis of Negligence

The Learned Hand formula is enshrined in the law-and-economics literature as the centerpiece of the courts' way of determining negligence. The orthodox interpretation of it is the conditional application of the Hand formula contingent on the other party's assumed efficient behavior. Reviewing four tort cases, I show that more consistent explanation for the realized court decisions is the conditional application of the Hand formula contingent on the other party's actual behavior. The games defined by the alternative approach show that social efficiency is achieved under negligence-based rules only in the case of discrete and joint care.