Article

Tort Liability and the Risk of Discriminatory Government

Ehud Guttel

Bora Laskin Professor, Hebrew University of Jerusalem Faculty of Law

Ariel Porat

President, Tel Aviv University

For their helpful comments, we thank Christopher Kutz, Meirav Furth-Matzkin, Lee Fennell, Daniel Hemel, Saul Levmore, Barak Medina, Jonathan Masur, Mitchell Polinsky, Yuval Procaccia, Weijia Rao, Re’em Segev, Stephen Sugarman, George Triantis, Eyal Zamir, and participants in the Annual Meeting of the American Law and Economics Association and in faculty workshops at the University of California, Berkeley, the University of Chicago, the Interdisciplinary Center Herzliya, the University of Haifa, the University of Southern California, Stanford University, and Tel Aviv University. For superb research assistance, we thank Bar Dor and Niva Orion.

When individuals and firms fail to invest in adequate care, the government often steps in, taking costly measures to restore safety or mitigate harm. Under such circumstances, a question arises as to whether the government can demand recovery for its costs. For many years, the answer has been negative; tort law has persistently refused to render negligent individuals and firms liable for governmental expenditures. Yet recently, the law changed markedly. Recognizing that the no-liability regime subsidizes faulty behavior, an increasing number of jurisdictions have established the right of public entities to sue for reimbursement of costs. Against this backdrop, this Article shows that the government’s right of recovery often has little effect on individuals’ and firms’ incentives to prevent harm. More important and disturbing, however, this right distorts governmental incentives to provide equal services to all. Particularly, given the right to demand compensation for its expenditures, the government will favor the rich at the expense of the poor. This risk is not theoretical but real and troubling. The Article proposes a legal regime that induces individuals and firms to prevent harm optimally, while eliminating the government’s incentives to discriminate.

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