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to be subject to products liability1.This includes manufacturers, wholesalers, and retailers2.Could also include endorser, franchisor, or licensorii.A technical “sale” is not requirediii.Some cases apply strict liability to home builders(Hyman v. Gordon), but courts are mixediv.Landlordsare traditionally notstrictly liable for defects in premisesv.Services: defendants are not strictly liable for delivering defective services, because services are not products1.If it advances our efficiency objectives, courts may construe a transaction as a “hybrid” consisting of a product and a service, in which case defendant can be held strictly liable (Newmark v. Gimbel)2.This idea is almost never applied to doctors—medical help is a pure servicevi.Tangible: Things must be tangible to qualify as defective products, so dangerous media communications don’t countvii.Blood and Body Products: by statute, suppliers of blood, body organs, etc. are generally not strictly liableVII. THEINSURANCEALTERNATIVE1.Problems with Tort System 901-912a.Overcompensationof small injuries: if I’m injured and threaten litigation, defendant may be willing to settle for more than the actual cost of my injury so he can avoid the transaction costs associated with litigation
35b.Undercompensationof large injuries: if I’m seriously injured, I really need compensation, but defendant has an incentive to ignore my settlement requests knowing that the longer he waits, the more desperate I will become and the less money I’ll be willing to settle forc.Lottery System: recovery is often based on the luck of the circumstances; the lack of predictability messes with our incentive objectives, which requires that we be able to predict the cost of injuriesd.Misallocation of Insurance Resources: Some people get huge pain and suffering damages, while others can’t even pay their medical bills; most money in the system goes to various administrative costs other thanactually compensating the victime.Social costs of adjudication: moral hazard: an actor won’t respond to incentives since he does not have to internalize the costs (insurance pays for it instead)f.Delay in Payment: can taken months or years for victim to be compensated; ties in to undercompensation above2.Possible Alternativesa.Eliminate Faultas a prerequisite for liability: strict liability dramatically reduces transaction costs because we wouldn’t need to prove that someone was at faultb.Eliminate Pain and Suffering: instead we could use this money to compensate for actual economic injuries that are currently undercompensatedc.Alternate Incentive Methods: criminal law or administrative regulationsd.More Insurance: either more comprehensive or mandatorye.Eliminate Tort System: Separate Compensation from Liabilityi.Maybe we should deal with compensation in a socialized system and deal with deterring bad behavior in the criminal systemii.We might do a better job of compensation if we didn’t have to balance it