The Costs of Accidents

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The Costs of Accidents: A Legal and Economic Analysis (1970) by Guido Calabresi is a very important work in the law and economics tradition because it provides an economic efficiency analysis of the rules of tort law. The important goal of tort law may not be the absolute minimization of the occurrence of loss from accidents because the total accident cost of any economic activity (i.e., production of electricity from various power plants or windfarms or individual solar powered homes) includes both the expected cost of the accidents that do occur and the costs expended by the society in avoiding the accidents.

For any given level of expenditure to prevent accidents, there is an associated level of expected accidents and associated expected losses. The total cost at that given level of precaution is the sum of both the expenditures on precaution plus the losses from the accidents that were not prevented. If you want to minimize the total costs of accidents, you should not neglect to include the costs of precaution.