Tort law is interesting. You can argue that someone harmed you, and you can cite almost no legislation in the process. Torte law in the US uses case law – the precedent set by previous rulings in the context of social norms. But, what cases did the early cases cite? They also cited earlier cases and social norms, though we may no longer have a record. The beauty of tort law it allows for changing relative costs in prudence and negligence.

Can you imagine a legislature attempting to codify the appropriate amount of neglect by, say, a painter? The standards would quickly go out of date. The relative cost of resources including labor, communications, materials, and the price differences among competitors of differing quality all change over time. Multiply these factors by 20 and then again by the number of occupations and regions in a country. You will quickly see that legislating the appropriate degree of prudence and neglect through congress is a fool’s errand. The challenge is too complicated and the world changes too quickly. In fact, attempting to legislate definitions for neglect and prudence could even backfire and result in regulatory arbitrage, which occurs when firms comply with de jur rules while avoiding them de facto.*

Externalizing Costs