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Punishment and Willingness to PayMatthew S. Levine

TABLE OF CONTENTSI. INTRODUCTION 330I THE PROBLEM OF WILLINGNESS TO PAY 331A IllustrativeDifficulties

1 Lucius Veratius 3312. Exploding Pintos 3313. Gandhi and K ng 333

B The P roblem 333Ell DETERRENCE AND EFFICIENCY 335

A EconomicExplanations or Punishment 3351 Economics of Negligence, Crime, and Punitive Dam ages 3352. Property Rules, Liability Rules, and Trespass 336B. BeyondEfficiency. PunitiveDamages or Efficient Conduct 3401 Profiting from Death: Grimshawv FordMotor o 3402. The Implications of Grimshaw 341

C PricesandSanctions 3441 Negligence Damages as Sanction 3442. Prices and Sanctions as Not Normative 347

D. An Efficiency pproach to CivilDisobedience 3501 The Necessity Defense as Cost-Benefit Analysis 3502. The Political Necessity Defense and Civil Disobedience 3523 Classic Civil Disobedience: Gandhi and King 353E. The FailureofEfficiency pproaches 354

1V RETRIBUTION AND RIGHT 355A. A Sketch ofHegelian Retribution 3551 Crim nal Punishment 3552. Conversion and Theft 3563. Contract 358

B. The Difficulties with Ex Ante Willingness to Pay 3591 Crim e and A utonomy 3592. C ivil D sobedience 3603. Tort and Contract 361

V HISTORICIZING THE WILLINGNESS TO PAY 363

. Law clerk to Judge Edward R. Becker, United States Court of Appeals for the ThirdCircuit, Philadelphia. A.B., Harvard, 2000; J.D., Yale, 2004. would like to thank James QWhitman for helpful comments regarding earlier drafts of this article. All errors, of course, remainmy own.

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330 GONZAGA LAW REVIEW [Vol. 40:2A. TalionandComposition 364

1. The Basic D evelopment 3642. Composition and Talion as Price 365B . Sin andA tonem ent 3661. The Sacrament ofAtonement 366

2. Anselm and Retribution 3673. Theology and Willingness to Pay 368C . GuiltandDebt 369VI. SOME APPROACHES T PRE-PAYMENT 370A. Priceson Crimes 3701. Prices on Lives and Prices on Crimes 3702. The Difficulties of Pre-set Sanctions 373B. Jillingness o Pay Wealth andHubris 3751. The Willingness to Pay Standard and Inequality 375

2. Inequality, Wealth, and Hubris 376C. Pre-Payment Remorse andReconciliation 377I. INTRODUCTION

In most aspects of modem law, we consider it a good thing that an actor isprepared to make good on his obligations and pay the costs of his actions. Thisproposition seems so intuitive that it is surprising to find some exceptions, cases inwhich an actor s willingness to pay for his actions counts as a strike against him, or atleast complicates society's attitudes towards his behavior. In this article, I point toseveral such cases and argue that they suggest the need for some inquiry into themeaning of ex ante willingness to pay for one s violations of social or legal norms.This inquiry can deepen our understanding of the purposes of and justifications forpunishment, and complicate the relationships between law, punishment, andautonomy.Part of this article lays out the problem, using three examples. Part III sets outthe economic efficiency approach to tort and criminal law while arguing that thisapproach cannot account for important intuitions and leading cases about the impactof ex ante willingness to pay on our judgments of guilt. Next Part IV sets out anotherpossible approach to tort and crime, what we might call a Hegelian rightnessapproach, and shows that it, too, does not fully cover the territory. Part V sets outsome historical developments that offer insights into modem reactions to ex antewillingness to pay. Finally, Part VI lays out important themes in the approach towillingness to pay and suggests that they provide a way to understand our reactionsthat goes beyond standard theories of deterrence and retribution.

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PUNISHMENT AND WILLINGNESS TO PAYIl THE PROBLEM OF WILLINGNESS TO PAY

A. IllustrativeDfficulties1.Lucius Veratius

In ancient Rome at the time of the Twelve Tables, the penalty for iniuria (i.e.,physical battery) was twenty-five asses. Over time, the value of the as depreciateddramatically. 2 This led to problems:

There was a certain L. Veratius, a terrible nuisance and fearfully irresponsible.He used to take delight in slapping the faces of free men with the palm of hishand, and he went around followed by a servant with a purse ofasses and whenhe had slapped a man he would order twenty-five asses to be paid out on thespot.

3

The Roman law of iniuria developed from this point; the praetors abandoned theformula of the Twelve Tables and gave causes of action against iniuria o compensatethe victim for the damage caused.4

2. Exploding PintosFord Motor C ompany produced a car, the Pinto, which had the unfortunate habit

of exploding when rear-ended. One such explosion killed Lilly Gray, the driver of aPinto, and severely burned her passenger, thirteen-year-old Richard Grimshaw.Grimshaw sued Ford and a jury awarded him $2,516,000 in compensatory damagesand $125 million in punitive damages; the trial court later remitted the punitive awardto $3.5 million. 6The California Court ofAppeals upheld the punitive damages award,finding the required malice in Ford s knowledge of the Pinto's poor safety recordand failure to correct the Pinto s problem-arguably poor placement of the fuel

1. JOHN CROOK, LAWAND LIFE OF ROME 25 (1967).2. THE OXFORD CLASsIcAL DICTIONARY 359 (Simon Homblower Anthony Spawfortheds., 3d ed. 1999). The as was once a pound of bronze; however, by the end of the Second PunicWar, itweighed only about two ounces. See id By then, its value was relatively small. SeeWILLIAMGARDNER H LE CARL DARLING BucK, A LATIN GRAMMAR app. at 356 (1903) (estimating thevalue of the as in the late third century B.c. at around two cents inearly twentieth-century Americanmoney).3. CROOK supra note 1, at 250-51 (quoting AuLus GELLiJS, NoCrES ArncAE 20.1.13,reprinted n THEATIc NIGHTSOFAULUS GELLIuS 410-11 (T.E. Page et al. eds., 1946)).

4 See id lniuria eventually came to include a variety of tortious offenses, includingdefamation. Id t 251.5. Grimshaw v. Ford Motor Co., 174 Cal. Rptr. 348, 359 (Ct.App. 1981 .6. Id at 358. Mrs. Gray's heirs received $559,680 incompensatory damages. Id

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tank-because it would be cheaper not to do so.7 Ford instead decided to paydamages for those injured or killed by explosions.8Ford knew that the Pinto was dangerous and that it could correct the problem,but decided not to because it would be more expensive to correct the problem than topay damages for the injuries it caused.9 In terms of legal economic analysis, this wasclearly an efficient and correct decision.'0 But this is precisely the decision that gaverise to punitive damages. As Douglas Laycock writes, The striking thing aboutGrimshaw is its square and utter rejection of the economic view of law. ' Fordmade a decision that economically-minded judges from Learned Hand to RichardPosner would have endorsed-and a California jury was so outraged by that decisionthat it awarded $125 million in punitive damages.' 2

7 Id at 384.8 See id9. Id. In much of this paper, I stylize the facts of Grimshaw in one important respect: Iassume that the cost-benefit analysis discussed in the case actually happened and was officially reliedupon by Ford. It is a matter of some dispute whether this is the case. See RICHARD A. POSNER, TORT

LAW: CASES AND ECONOMIC ANALYSIS 226 (1982). This should not matter much here; my goal is notto debate the rightness of the Grimshaw verdict, but rather to examine the concept of retributionunderlying it. It is enough for my purposes that the jury and the reviewing court, believed that Forddid in fact rely on the cost-benefit analysis in making its safety decisions. Cf Grimshaw 174 Cal.Rptr. at 384.In any case, a widely reported form of Ford's cost-benefit analysis is the following charts. Thefirst lists the risks to Ford of the design that was implemented:

Outcome of faulty design Ford's unit value Ford's total value180 bum deaths $200,000 $36 million180 serious bum injuries $67,000 $12.1 million2100 burned vehicles $700 $1.5 millionTotal $49.6 million

The second lists the costs of changing the design:Number of units Unit cost Total cost11 million cars 11 $121 million1 5 million lighttrucks 11 $16.5 millionTotal $137.5 million

W Kip Viscusi, CorporateRisk Analysis: A RecklessAct? 52 STAN L. REV. 547, 595 (2000); see alsoPOSNER, supra at 225; Mark Dowie, Pinto Madness MOTHER JONES, Sept./Oct. 1977, at 24(describing Ford's cost-benefit analysis).

10. That is, assuming that Ford used the proper values in making its calculation. This islikely a false assumption. Equally likely, though, Ford would still have been punished even if it hadused the right numbers. See infrapp. 371-72.11. DOUGLAS LAYCOCK MODERN AMERICAN REMEDIES: CASES AND MATERIALs 667 (2d ed.199412. See Grinmshaw 174 Cal. Rptr. at 258.

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2004/05] PUNISHMENT AND WILLINGNESS TO PAY3.Gandhi and King

Two great heroes of the twentieth century, Mahatma Gandhi and Martin LutherKing, Jr. shared a similar strategy to overcome injustice, a strategy of nonviolentresistance.13 Like many revolutionaries, they violated laws that they viewed unjust. 14Unlike most revolutionaries, however, they did so without violence, and withoutresisting the operation of the law. s The law quickly punished them, and bothaccepted that punishment. 16 By forcing the deeply flawed legal systems to punishthem and then submitting patiently to that punishment, each drew attention to theevils of those systems, and likely did more to change them than any amount ofviolent resistance would have. 17 In some ways they showed much more respect forprinciples of legality than do those who rebel against the laws they consider unjust.But in another sense, Gandhi and King showed a profound disrespect for the law.Their actions, much like those of Veratius-or according to many critics, those ofFord-placed them, in a sense, above the law. By violating the law, with theexpectation of being punished, they treated criminal punishments as no more than acost of their activities. Such actions implicitly argue that the criminal law is anarbitrary set of harms, not a system of rules that ought to bind people's conduct.Treating law as a mere set of hreats, rather than a binding source ofobligation, 18 is astrong negation of the law's power; this article argues that is one reason why thenonviolent resistance ofKing and Gandhi had so much force.

B. The ProblemWhat the foregoing examples have in common is that, in each case, an actorviolated societal norms by harming another person or breaking a criminal law. And,in each case, the actor decided, cc ante that he was willing to pay the penalty for theviolation.Of course it is generally honorable to stand ready to make good on one'sobligations. This is the foundation of our system of credit and contracting, which relyon the parties' intent to fulfill their commitments. It is also a key element in tortlaw-an element that has not only economic but also moral underpinnings.' 9 But in

13. See Brent D. Wride, Comment, PoliticalProtestand he Illinois Defense ofNecessity 54U. Ci L. REV. 1070, 1093-94 (1987).14. See id.at 1093.15. See id16. See id t 1093-94.17. Id t 109418. These terms come loosely from H.L.A. Hart's famous objection to Austinian

positivism's definition of law as a set of order[s] backed by threats, H L A ART THE CoNcErT OFL W 6 (2d ed. 1994), and his substitution of ules of obligation. See generally id at 79-99.19. For a fascinating discussion that sheds some light on this issue, see Tom Baker

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the cases noted above, the matter is more complicated. Ford Motor Company waspunished because it was so clear-eyed in its readiness to pay for the harm it caused.Veratius's behavior-not only the slapping, but also the blithe payment of thepenalty--scandalized his fellow-citizens into drafting new legislation.20 WhileGandhi and King's actions, and their willingness to suffer punishment for theirbeliefs,2' strike us as noble, that willingness had a complex meaning very differentfrom the average contract party's willingness to pay damages upon breach.There is thus a need for some inquiry into the meaning of ex ante willingness topay for one's violations of social or legal norms. Veratius's intentional torts, Ford'sdefective product design, and Gandhi's protests are very different acts in verydifferent contexts; but they all create tension in the relationships between law,punishment, and autonomy.Ultimately, these disparate examples point to an important tension in law,between the obvious need to set prices and sanctions and the deep discomfort causedby those pre-set penalties. The modem dominance of law and economics should notobscure the difficulties that we naturally have with a fixed set of prices formisbehavior. Those difficulties are peculiarly highlighted where private actors takethe costs into consideration as they plan their own actions. In general, we have nochoice but to have fixed systems of punishment and rational systems for tortdamages. But when individuals appropriate these systems for their own ends, ourdeep-seated discomfort with them rises to the surface.

BloodMoney New Money and theMoralEconomy of TortLaw in Action 35 LAW SOC YREv. 275 (2001). Baker surveyed Connecticut personal injury lawyers to determine, amongother things, the bar's attitude toward blood money -that is, money collected in personalinjury suits from individual defendants rather than from their insurers. Id at 276. He foundthat it was extremely rare for plaintiffs (or their lawyers) to seek such blood money, but thatthey would do so in specific cases. Id. at 295 96. One important such case is where thedefendant failed to purchase what the plaintiff views as a reasonable amount of insurance forhis wealth and risk profile. Id. at 296 97. Baker writes: The minimum [amount ofinsurance] is whatever it takes to claim, credibly, that you have satisfied your moralobligation to insure. Id While an economic story for this rule is of course easy to construct,Baker and his interviewees experienced the rule not as an efficiency rule (i.e., buy enoughinsurance to cover your assets ) but as a moral rule. The plaintiffs' lawyers feel that there isa moral responsibility to purchase adequate insurance, and that those who fail to meet thatresponsibility ought to be punished. See id20. See CROOK supranote 1,at 250 51.

21. See Wride supranote 13, at 1093-94.

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2004/05] PUNISHMENT AND WILLINGNESS TO PAY 3351II DETERRENCE ND FFI I N Y

A EconomicExplanations orPunishment1.Economics of Negligence, Crime, and Punitive Damages

Modem tort theory is founded upon the so-called Hand Formula, whichconsiders the probability of harm (P), the cost of harm (L), and the burden of takingprecautions to prevent harm (B). Under this formula, a defendant is liable innegligence if and only if < PL This negligence formula provides the properincentives to a prospective defendant. If it is efficient for the defendant to takeprecautions (that is, if the expected harm of his actions is greater than the cost ofprecautions against them), then he will; if it is not then he will not take thoseprecautions. 24 By placing the costs of inefficient precautions on the injuring party, thelaw forces him to internalize the harms he causes, thereby making his conductefficient-a process that is efficient for society as a whole.This standard economic approach can be extended to criminal law. There thefocus is not on the precautions taken (the criminal, after all, is intentionally causingthe harm), but rather on the criminal's expected gain from the crime. In both cases,however, the goal is to make the injurer (tortfeasor or criminal) internalize the costs ofhis actions.25 Posner writes:

In order to design a set of optimal criminal sanctions, we need a model of thecriminal's behavior. The model can be very simple: A person commits a crimebecause the expected benefits of the crime to him exceed the expected costsThe costs include various out-of-pocket expenses (for guns, burglar tools,masks, etc.), the opportunity costs of the criminal's time, and the expected costsof criminal punishment.26

22. United States v. Carroll Towing Co., 159 F 2d 169, 173 (2d Cir. 1947) (Learned Hand,J

23. Id see also RICHARD A. POSNER, ECONOMC ANALYSIS OF LAW 180-182 (5th ed. 1998)(explaining the Hand Formula in its marginal form and its relation to risk aversion). Posner alsobriefly discusses the history of tort doctrine, arguing that [ajlthough the Hand Formula is relativelyrecent, the method it capsulizes has been used to determine negligence ever since negligence wasfirst adopted as the standard to govern accident cases. Id at 182.

24. Strict liability regimes, which are the norm in some areas of tort, actually have similarefficiency effects: while strict liability will have different effects on activity levels by prospectiveinjurers and victims, its affect on precautions by prospective injurers will be similar to that ofnegligence (Hand Formula) liability. See POSNER, supra note 23, at 192. Modem products liabilitylaw is usually called strict but is in many respects closer to a negligence standard. See id at 197-98.25. See id at 194.

26. Id at 242.

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GONZAGA LAW REVIEWThus, the classic economic/utilitarian criminal sanction is computed via the formulaG PS, where G is the criminal's gain from the crime, P is the probability of being

7caught, and S is the criminal's loss from the criminal sanction if caught.Finally, tort law often allows punitive damages. 28 There are a number ofrationales for punitive damages, some of which will be explored below, but for now,this section focuses on the underdeterrence rationale. Not everyone who is harmedby a dangerous product will sue, and not everyone who sues will win or recover a fullmeasure of damages. Thus, the manufacturer of a dangerous product will not fullyinternalize the societal harm caused by his product, and so will end up overestimatingthe societal value of that product. One solution to underdeterrence is punitivedamages: if the damages that the manufacturer pays in a given case are grossed upto account for the victims who did not sue, then the manufacturer will be more likelyto accurately internalize the costs of its dangerous product.29 This analysis is closelyrelated to the economic/utilitarian criminal sanction formula discussed in the previousparagraph, and is one of the ways in which punitive damages for torts are similar topunishments for crimes.

2. Property Rules, Liability Rules, and TrespassThe preceding analysis does not perfectly explain a simple case in which the lawmight award punitive damages. A builder, B wishes to deliver supplies to hisbuilding site. The only feasible way for him to get them there is by cutting across theproperty of an adjacent landowner, A. This shortcut would cause minimal, easily

reparable damage to A s property. B offers to pay a reasonable fee to A for the use ofhis land, which A refuses. B increases his offer, proposing to pay A far more thanwould be necessary to repair the damage to his land in order to compensate him forthe inconvenience. Still A refuses. Realizing that there is no other economical way toget the supplies to his site, B cuts across A s land despite A s objection. A sues. The

27. Versions of this formula long predate Richard Posner. Among punishment theorists,Cesare Beccaria and Jeremy Bentham are perhaps most famous for advocating this sort of utilitarianbalancing. See, e.g. CEsARE BECCARIA, OF CRIMES ND PUNISHMENTS 50 (Jane Grigson trans.,Marsilio Publishers 1996) (1764) ( For a punishment to be efficacious, it is enough that thedisadvantage of the punishment should exceed the advantage anticipated from the crime; in whichexcess should be calculate[d] the certainty of punishment and the loss of the expected benefit. );JEREMY BENTHAM, AN INTRODUCrTION TO THE PRINCIPLES OF MORALS AND LEGISLATION 166 (OxfordUniv. Press. 1970) (1789) ( The value of the punishment must not be less in any case than what issufficient to outweigh that of the profit of the offence. ).

28. See generally Harold See, Punitive Damages: Introductionand Synopsis, 40 ALA. L.REv. 687 (1989).29. See Bruce Chapman & Michael Trebilcock, PunitiveDamages:Divergencein Search ofa Rationale,40 ALA. L. REv. 741, 812-13 (1989).

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PUNISHMENT AND WILLINGNESS TO PAYjury finds for A, and awards A his (minimal) real damages, plusa substantial unitiveaward.3This example might seem a bit bizarre, especially if we put some numbers on it.Imagine it would cost B $10,000 to get the supplies to his site in any other way andonly $1,000 to get them there over A's land. Imagine that the damage to A s landcould be repaired for $500 and A's time and inconvenience in dealing with thepassage would be reasonably compensated by another $500. Imagine further that Boffered A as much as $5,000 to allow the passage, and A refused. Imagine finally thatthe jury awarded A $1,000 in actual damages, plus $100,000 in punitive damages.3 1Here, B s proposal is clearly efficient it would produce $4,000 in gains for A and$4,000 in gains for B,32 with no losses for anyone. It is clearly Pareto-optimal, andA's refusal is economically irrational. Why should the law protect A's irrationalpreferences and produce an economically inefficient result?The legal literature already has a sophisticated economic answer to thesequestions: punitive damages are owed because the trespasser tried to convert theproperty rule that protects the landowner's rights into a liability rule. Calabresi andMelamed, in their seminal paper on the subject, define the difference:

An entitlement is protected by a property rule to the extent that someone whowishes to remove the entitlement from its holder must buy it from him in avoluntary transaction inwhich the value of the entitlement is agreed upon by theseller... Whenever someone may destroy the initial entitlement if he iswillingto pay an objectively determined value for it, an entitlement is protected by aliabilityrule.33

The right to exclude trespassers from one's land is a paradigmatic example of anentitlement protected by a property rule;3 4 the word property most basically refersto that very right. B has made a mistake in treating A's property right as a liabilityright, 35 and punitive damages are designed to punish B s violation.

30. These facts are taken loosely from Jacquev. Steenbeig Homes, Inc., 563 N.W.2d 154,165 (Wis. 1997) (affirming the jury's $100,000 punitive award on top of a 1 nominal damagesaward).31. InJacque, he jury awarded only 1 in nominal damages. Id at 156. have added someactual damages to sharpen the example.32. For A: $5,000 compensation received, minus $1,000 in costs. For B: $9,000 ($10,000alternate cost minus $1,000 actual cost) in cost savings, minus $5,000 in compensation paid.33. Guido Calabresi & A. Douglas Melamed, Property Rules, Liability Rules, andInalienability:One New of he Cathedral, 5 HARV L. REV. 1089, 1092 (1972) (emphasis added).34. Cf id.35. I will use the shorthand property right to refer to an entitlement protected by aproperty rule in Calabresi and Melamed's terms, and liability right to refer to an entitlementprotected by a liability rule.

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GONZAGA LAW REVIEWSeveral questions arise from this account. First, why is the right to excludetrespassers protected by a property rul rather than a liability rule? Calabresi andMelamed seem to think that property rules should be the standard way to protectentitlements, since in the normal case such rules are a better route to efficiency thanliability rules. Liability rules represent only an approximation of the value of the

[entitlement] to its original owner and willingness to pay such an approximate valueis no indication that it is worth more to the [trespasser] than to the owner.' ,36 erhapsA s desire to be left alone is so important to him that it really was worth more than the$1,000 in actual (average, reasonable, etc.) damages that a jury would award, or the$5,000 that B was prepared to offer. f that is the case, then giving A only $1,000 in actual damages does not fully compensate him; and only free bargaining betweenand B will lead to the economically efficient result.37 Providing property-ruleprotection to A's entitlement will require such bargaining; providing only liability ruleprotection will allow B to circumvent the bargaining and destroy A's entitlementwhile paying only approximate, socially-fixed damages.Second, how does one make the leap from the notion that this right is protectedby a property rule to one stating that violations of this right are punished bypunitive damages ? Calabresi and Melamed answer this question obliquely in theirdiscussion of criminal sanctions. They note that many violations ofproperty rules areremedied not only by compensation, but also by additional criminal punishment:thieves are not simply made to repay the value of the thing stolen, but are punishedwith additional criminal sanctions. The reason is as follows:

The thief not only harms the victim, he undermines rules and distinctions ofsignificance beyond the specific case. Thus even if in a given case we can besure that the value of the item stolen was no more than X dollars, and even if thethief has been caught and isprepared to compensate, we would not be content tocharge the thiefX dollars. Since in he majority of cases we cannot be sure of theeconomic efficiency of the transfer by theft, we must add to each case anundefinable kicker which represents society's need to keep all property rulesfrom being changed at will into liability rules. In other words, we imposecriminal sanctions as a means of deterring future attempts to convert propertyrules into liability rules.39

36 Calabresi Melamed, supranote 33, at 1125.37. See R.H. Coase, The Pmblem of ocialCost, 3 J.L. EcoN. 1,44 (1960) (arguing that,n the absence of transaction costs, bargaining between parties will produce the socially efficientallocation of entitlements).

38 Calabresi Melamed, supranote 33, at 1126.39 Id alabresi and Melamed consider but dismiss the underdetenence rationale, notingthat even if thieves were caught every time, the penalty we would wish to impose would be greaterthan the objective damages to the person robbed. Id t 1125.

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2004/05] PUNISHMENT AND WILLINGNESS TO PAY 339This logic can easily be extended to punitive damages, which serve as a sort ofsubstitute for criminal sanctions. On this view, the fact that the damages are paid toA rather than the state, as are criminal sanctions, is irrelevant.40 Simply stated,punitive damages can be viewed as a way to increase damages so that the prospectiveviolator do[es] not consider conversion an acceptable substitute for purchase,because we want to channel resource allocation through the market as much aspossible and therefore do not want to make theft and purchase equally attractivealtematives.41Third, if this entitlement is protected by a property rule, what entitlements shouldbe protected by liability rules? Much of Calabresi and Melamed's article is devotedto this question; they take property rules as a default and ask in what conditions itwould make sense to substitute liability rules. Their basic answer is that, where adecentralized market system would not yield true valuations (e.g., due to holdout orfree-rider problems), liability rules may do a better job of pricing entitlements.43They identify two paradigmatic cases in which this might be the case: eminentdomain (in which holdouts could prevent the government from undertaking sociallyoptimal projects unless the government could condemn their land and pay only justcompensation, via liability-rule damages),44 and accidents.45 Their analysis ofaccidents is as follows:

If we were to give victims a property entitlement not to be accidentally injuredwe would have to require all who engage in activities that may injure individualsto negotiate with them before an accident, and to buy the right to knock off anarm or a leg. Such pre-accident negotiations would be extremely expensive,often prohibitively so. To require them would thus preclude many activities thatmight, in fact, be worth having. And, after an accident, the loser of an arm or legcan always very plausibly deny that he would have sold it at the price the buyerwould have offered.46

Thus, large-scale activities that cause accidents must be regulated by liability rules,not property rules. A property-rule regime would require essentially impossiblenegotiations with every possible future accident victim, and this would be inefficient.

40. See Catherine M. Sharkey, PunitiveDamages as SocietalDamages 113 Y LE L J 347,350-52 (2003) (discussing rationales for punitive damages, and reasons for payment of such damagesto tort victims, to the state, to special funds, or to various combinations of those payees).41. POsNER, supranote 23, at 742. See Calabresi Melamed supranote 33, at 1107.43. d44. Id.at 1106.45. Id at 110846. Id.at 1108-09.

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B. BeyondEfficiency: PunitiveDamages orEfficient Conduct1. Profiting from Death: Grimshawv. FordMotorCo.

Calabresi and Melamed s discussion of property and liability rules capturesmany of our intuitions about situations where those who are ex ante willing to pay forthe harm they cause are nonetheless held to be culpable and therefore punished. But itis incomplete, and it founders on a very striking modem tort case: Grimshawv. FordMotor Co. 7 Grimshaw,as noted above, was a shocking blow to law and economics.Grimshaw s implicit but obvious rejection of the Hand Formula seems to throw theentire enterprise into doubt. It is also, however, worth noting how poorly Grimshawfits into Calabresi and Melamed s framework.One could intuitively describe Grimshaw in Calabresi-and-Melamed terms as asimple case where a tortfeasor violated property rights (Grimshaw s right to bodilyintegrity), and therefore faced punitive damages. Certainly if Ford s CEO hadwalked up to a randomly chosen person and intentionally set him on fire, he wouldface punitive damages as well as criminal liability. In the eyes of many, Ford'sbehavior was not much different from this. But this view is not compatible withCalabresi and Melamed's argument. They quite clearly state that accidents are anexample-indeed, the paradigmatic example--of harms that are vindicated via aliability rule.48 Of course, much was made of the intentionality of Ford's conduct:evidence showed that it knew people would die, and it continued selling the Pinto.49But this misses the point, as Calabresi and Melamed write not merely about activitiesthat may or may not cause accidents (e.g., everyday driving activity), but also aboutbroader societal activities that, in the aggregate, are certain to cause accidents (e.g.,the government allowing people to drive cars, or a giant auto maker selling millionsof cars). 50 It is precisely those activities that must be fostered by a liability rulebecause property-rule protection for potential accident victims would totally stymiethese activities even if they benefit society as a whole.

Grimshaw awarded punitive damages, 51 a classic property-rule protection, in acase that, under Calabresi and Melamed s view, obviously warranted liability-ruletreatment. Calabresi and Melamed do not explicitly reject punitive damages inliability-rule cases. Presumably, extraordinary reckless conduct, such as thebuilding of cars that exploded whenever they were started, could be punished bypunitive damages--even if they fit best under the liability-rule paradigm.53 But such

47. 174 Cal. Rptr. 348 (Ct. App. 1981).48. Calabresi Melamed, supranote 33, at 1108.49. Grimshaw 174 Cal. Rptr. at 385.50. See Calabresi Melamed, supranote 33, at 1108-09.51. Grimshaw 174 Cal. Rptr. at 358.52. Id.at 1108-10.53. Cf id.

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2004/05] PUNISHMENT AND WILLINGNESS TO PAYrecklessness, from an economist's point of view, was lacking in Grimshaw Ford'sconduct, at least judging by its own cost-benefit analysis, seems to be the sort ofefficient activity that Calabresi and Melamed would allow.

2. The Implications ofGrimshawOne possible solution to this tension is that Grimshaw is wrong and Calabresi

and Melamed's categories hold up. Among scholars, particularly among those of lawand economics, this is a popular view.5 David Owen, writing shortly after theGrimshawdecision, provides a representative view:

The trial court's instruction in Grimshaw is probably the most unsatisfactory ofany that I have seen.... The trial court there instructed the jury that malicecould be inferred from defendant's conduct if the conduct was willful,intentional and done in conscious disregard of its possible result. The totallyunacceptable import of this standard is that every actor could be held strictlyliable thereunder for punitive, in addition to compensatory, damages for anyconsequence to any person that was contemplated in advance of any course ofaction.

Virtually all important actions involve some risks to some people, andresponsible individuals and institutions give careful consideration to such risksbefore they act. It is fundamental to life in a dynamic world with anunpredictable future that one must proceed to act, notwithstanding the presenceof some foreseeable risks, provided that the benefits of the contemplated action(or inaction) appear at the time to exceed the risks. If this basic tenet of risk-benefit analysis were not virtually the universal rule, life would grind nearly to ahalt.... The rules of negligence law provide that an actor generally will not beliable even for compensatory damages unless the balance of trade-offs was a badone that is, one in which the costs exceeded the benefits, thus making theaction on balance cost-ineffective. Punishment for such decisions usually can bejustified only when the actor not only made the wrong decision but also made adeliberate choice to advance his good over what he knew to be the greatergoodof others. The trial court's instruction in Grimshaw is thus palpably in error, as itjustifies punishment for most significant decisions even if made in all good faith,and even if on balance goody5

54. See e.g. David G Owen, Problems in Assessing Punitive Damages AgainstManufacturersofDefective Products 49 U. Cmi.L. REv. 1 6 7 (1982).55. Id at 21-23 (emphasis added) (quoting, in part, Grimshaw 174 Cal. Rptr. at 385). Theappellate court in Grimshawrecognized that the trial court's instruction was erroneous insofar as itreferred to the possible, rather than probable result of Ford's actions, but held the error harmless.

Grimshaw 174 Cal. Rptr. at 384, 387.Richard Epstein provides another representative example of the law and economics response.He wrote not about Grimshaw but about an earlier Indiana criminal prosecution of Ford for reckless

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To law and economics scholars, Grimshaw is a triumph of emotion over rationality-a decision that rejects sound economic approaches to planning and damages in favorof a standardless approach based on jurors feelings of outrage.56

But it is impossible to treat Grimshaw as a mere aberration. Other courts haveawarded punitive damages in similar situations where companies more or lessdecided that it would be cheaper to pay compensatory damages for accidents than totake precautions to prevent those accidents.5 7 English case law involving punitive

homicide in connection with another exploding Pinto. Richard A. Epstein, Is Pinto a Criminal?,REGULATION, MariApr. 1980, at 15. Epstein takes the Hand Formula as a given, and writes:

When. the prosecution said that Ford had made a conscious choice to trade costagainst safety, the answer is that this is precisely what the tort law.., establishes as thelimit of its legal obligation hen the prosecution said that the defendant had usedexplicit cost-benefit formulas or had assigned monetary values to human life andsuffering, the answer is that Ford did so n compliance with court decisions announcingthat such computations will avoid civil liability... It cannot-should not-be the law thatFord may first be permitted (if not required) to make certain cost-benefit calculationsunder the tort law, only then and for that reason to be held guilty of reckless homicideunder the criminal law.

Id at 19 20. Epstein's article is interesting because it is focused on the mens rea requirement of thecriminal prosecution; he does not assume that Ford's cost-benefit calculations were right, but saysthat this question is wholly unrelated to the mental element of the [criminal] case. Id Epstein'sanalysis cannot comprehend the prosecutor's (and the Grimshaw jury's) visceral reaction, that thefact of the cost-benefit analysis itself established the mental element. He responds to that visceralsense with a reductioadadsurdum:Federal automotive officials had clear responsibility for approving the design of the Pinto.They therefore had to make the same cost-benefit analysis required of Ford in order to

discharge their statutory duties. They also had to set some value on human life in order todetermine what precautions were needed and why. If they did not set standards that couldin fact have saved lives, did they not sacrifice human life every bit as much as Fordofficials?

Id t 256. Viscusi, for instance, calls it 'jury misbehavior, and suggests that jurors will be

offended by, or will not fully understand, the risk-analysis approach. Viscusi, supranote 9, at 570,588. 57. See e.g. Brown v. Mo. Pac. R.R- 703 F.2d 1050, 1053 (8th Cir. 1983) (upholding a juryverdict that included punitive damages against a railroad that allegedly decided that it is cheaper tobe sued than to protect railroad crossings ); Sturm, Ruger Co. v. Day, 594 P.2d 38, 47 (Alaska1979) ( [T]he threat of punitive damages serves a deterrence function in cases in which t wouldbe cheaper for the manufacturer to pay compensatory damages to those who did present claims thenit would be to remedy the product's defect. ); Forrest City Mach. Works, Inc. v. Aderhold, 616S.W.2d 720, 726 (Ark. 1981) (approving the concept of punitive damages in product liability cases,where the manufacturer decided that it would be cheaper to pay compensation than to remedy thedefect, but reversing the punitive award as inconsistent with the evidence); see lso LAYCOCK, supranote 11 at 668. The Sturm Ruger Co. court's reliance on deterrence is a bit off; if hese productsactually are efficient (that is, if it would cost more to change them than to pay for the harm theycause), then we should not want to deter them.

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59

Thus Grimshaw cannot simply be a mistake-or if it is a mistake, it is asystemic mistake, one built into the psychology of jurors and judges. Cases like thismay be economically inefficient, but they respond to a common sentiment thatefficient ex ante cost-benefit analyses can be punished. Explaining this sentimentwould seem to require moving beyond economic efficiency.

Incidentally, scholars have identified other economically perverse effects ofawarding punitive damages in cases like Grimshaw. David Owen notes one of them:

[T]he more a manufacturer is truly concerned about its product's safety, themore it will encourage self-criticism and negative analyses of the productwithin the company. For example, it often is desirable during the initial stages ofa product's design to test it to its limits to discover what those limits are: carsmay thus be crash-tested until their gas tanks burst, and rats may be injected witha drug in ever higher doses until some die. Documentary evidence (especiallyfilms) of such tests can later retum to haunt the manufacturer, as they did in theGrimshawPinto case.6

We might conclude that such decisions tend to punish not only financialresponsibility and cost-benefit analysis, but also any safety testing. In a sense, this isprimarily an evidentiary problem. Responsible safety testing will createdocumentation that could look bad for the manufacturer in the course of a lawsuit.Such an evidentiary problem might be approached through evidence rules andrulings, an analysis outside the scope of this article.6

58. Rookes v. Barnard, [1964] Lloyd's Rep. 28 6559. Compare id ith United States v. Carroll Towing Co., 159 F.2d 169 173 2d Cir 1947).

One crucial qualification for the formula might be if Lord Devlin were talking about only intentionalviolations of property rules (e.g. intentional copyright infringement), as seems likely. Under Calabresiand Melamed's analysis, such cases might well require punitive damages because the efficientapproach would be market bargaining rather than unilateral infringement of the right. See Calabresi Melamed, supra note 33, at 1126 n 71 But, applied to negligence cases, Lord Devlin'sformulation isat best very odd, and at worst exactly the opposite of he correct approach.60. Owen supranote 54, at 17-18 (footnotes omitted).

61. See FED R. EviD. 403, 407-409. Thus, judges might apply Federal Rule of Evidence403 or its state equivalent strictly insuch cases, excluding relevant but prejudicial crash-test footagein order to encourage manufacturers to conduct and document such tests without fear of increasedliability. See id at 403. Similar policies underlie other federal evidentiary exclusions. See e.g. id at407 (excluding evidence of subsequent remedial measures in negligence and products liability cases);id.at 408 (excluding evidence of offers to compromise claims to show liability); id t 409 (excluding

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But this tendency may not merely be an evidentiary problem, but also anindication of an intuition parallel to the one that punishes Ford s x antecalculation ofits tort judgment costs. Ford is being punished for calculating how safe is safeenough- making its own decisions about safety rather than leaving them to the laterdetermination of the jury Here, too, Ford is usurping ex ante what seems to be the expost role of the court system. The courts will likely react to that usurpation withharsher penalties. 62

C PricesandSanctions1.Negligence Damages as Sanction

One approach to the Grimshaw problem is to characterize it as a distinctionbetween prices and sanctions. Robert Cooter developed this approach in his articlePricesandSanctions6 According to Cooter, a sanction [is] a detriment imposed fordoing what is forbidden, and a price [is] money extracted for doing what ispermitted.4 4 On this analysis, negligence damages are a sanction,65 and Ford andPosner) simply got it wrong in reading them as a price:

Economists sometimes think of sanctions as prices, which prevents them fromunderstanding the normative character of the law. To illustrate this confusion inthe area of tort law, suppose an individual believes that compensatory damagesare the price of negligence. When accused of negligence, he might explain to thecourt that he deliberately took actions proscribed by the legal standard in order toavoid the high cost of compliance, and, in doing so, he was fully prepared tocompensate anyone who was injured. The court might reply that the injurer has aduty to take reasonable care, not permission to be careless and paycompensatory damages. The court might add that deliberate violation of thelegal standard, as admitted by the injurer, provides grounds for punitivedamages. Finally, the court might suggest that punitive damages be set highenough to deter the injurer in the futr 6

The problem with this approach is that it assumes some standard of negligence that isdivorced from the cost-benefit analysis conducted by Ford (and implied by the Hand

evidence of payment of medical expenses to show liability). For each rule, the Advisory CommitteeNotes make it clear that, despite the probative value of the evidence, it isexcluded inorder to furtherthe policy goals of encouraging remedial measures, settlements, and prompt medical care. d at 407-09 advisory committee's note.62. See e.g. id at 348.63. Robert Cooter,PricesandSanctions 84 COLUM. L.REv 1523 1984).64. Id65. See id t 1538.66. Id at 1543.

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Formula). Intuitively, this seems reasonable, as negligence is defined as a failure toexercise the level of care that a reasonable person would exercise in thecircumstances;6 7 it is set by community standards, not by economic analysis. Thus, areasonable level of care might be don't design cars that kill people. Moreover anyfailure to adhere to that level of care, whatever its costs, would be negligent; anintentional failure to do so would be enough to support punitive damages.But this cannot be right. Every car model that has ever been built occasionallykills people occasionally. Avoid deaths, whatever the cost, cannot possibly be thecommunity's standard for product design. Calabresi characterizes the notion that society wants to avoid accidents at all costs as a myth. 6 8 He writes:

Our society is not committed to preserving life at any cost [L]ives are spentnot only when the quidproquo is some great moral principle, but also when it isa matter of convenience. Ventures are undertaken that, statistically at least, arecertain to cost lives. Thus we build a tunnel under Mont Blanc because it isessential to the Common Market and cuts down the traveling time from Rome toParis, though we know that about one man per kilometer of tunnel will die. Wetake planes and cars rather than safer, slower means of travel. And perhaps mosttelling, we use relatively safe equipment rather than the safest imaginablebecause-and it is not a bad reason-the safest cost too much.69So the notion that a product that poses any threat to safety is per se negligent is

unsupportable. Of course, Cooter could be arguing for some lower standard ofnegligence that is nonetheless derived from community norms rather than fromeconomic analysis, but it is extremely unclear what that standard would be.It is quite likely that the average citizen would be uncomfortable setting theappropriate level of accidental deaths via cost-benefit analysis y assigning a dollarvalue to each human life lost and measuring that dollar value against the costs ofprecautions. But at this late date in the law and economics revolution, it is probablyimpossible to argue that this is not what actually happens in practice.7

It is all well and good to say that an actor that decides, on a cost-benefit analysis,to reject the community's standards should be punished. However when thecommunity's standards are themselves based on a cost-benefit analysis, the argumentis weakened; and when the community's standard is not a set standard (e.g., takelevel Xofprecautions ) fixed by the community's x ntecost-benefit analysis, but israther a standard requiring a cost-benefit analysis (e.g., take the efficient level ofprecautions ), the argument vanishes. Ford was following the community standard

67. BLACK'SLAWDICIONARY 1061 (8th ed. 2004).68. GutDo CALABREsI THE COSTS OF AccDENTS: A LEGAL AND ECONOMIC ANALYsIs 17

(1970).69. Id t 17-18.70. See e.g. Viscusi supr note 9, at 550.

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Cooter has something to say about these difficulties. In his discussion ofnegligence liability, he notes that the best way to achieve an efficient negligencestandard is to have a community standard, based on broad experience, about what isand is not negligent conduct.72 Thus in automobile accident cases, courts ask notwhether a driver took an efficient level of precautions, but whether he acted as woulda reasonable driver under the same or similar circumstances.73 Community norms ofreasonable care synthesize long, collective experience with balancing the risks ofdriving with its benefits: everyone knows that driving 100 m.p.h. in a school zonewhile reading the newspaper and talking on a cell phone, though it may get you towork faster, is too dangerous to be reasonable; similarly, most people realize thatdriving 5 m.p.h. and coming to a complete stop whenever another car approaches,though it may reduce accidents, is not an effective use of automotive technology.74Society's collective judgments about costs and benefits provide a standard of care,and individuals who violate that standard risk the sanction ofnegligence damages.

But, as Cooter recognizes, these collective norms do not begin to cover thewhole range of cases.75 We all have a pretty good idea of what driving practices are

71. See Cooter, supranote 63, at 1540-41. To reject this view, one would have to argue thatthe United States had specific standards for automobile safety which Ford violated. This is clearlyfalse on the facts of Grimshaw where no violation of statutory standards was found or alleged. CfGrimshaw v. Ford Motor Co., 174 Cal. Rptr. 348, 348 (Ct. App. 1981). Ford's negligence was notperse based on a violation of statutory standards, but was grounded on the fact that the Pinto explodedand killed people. Id.at 358.

Products liability is notionally strict, though this characterization is highly debatable. SeePosNER, supra note 23, at 197. To the extent that products liability is strict, rather than negligence-based, it is, in Cooter's terms, a price rather than a sanction. See Cooter, supranote 63, at 1524, 1539.Thus, Cooter's discussion of mistaking sanctions for prices should have no application to Grimshaw;if products liability is strict, then Ford was exactly right in thinking of it as a price. Cf id at 1543.

72. Cooter, supranote 63, at 1540.73. See e.g. RESTATEMENT (SEcOND) OF TORTS 283 (1965) ( Unless the actor is a child,

the standard of conduct to which he must conform to avoid being negligent is that of a reasonableman under like circumstances. ).74. A nice illustration of the evolution of these standards comes from two well-knowngrade-crossing cases. Compare Balt. Ohio RR. Co. v. Goodman, 275 U.S. 66, 69-70 (1927)(Holmes, J. (holding that a driver who failed to get out of his car at a railroad grade crossing to lookfor oncoming trains was negligent), with Pokora v. Wabash Ry. Co., 292 U.S. 98, 104 (1934)(Cardozo, J.) ( Standards of prudent conduct are declared at times by courts, but they are taken overfrom the facts of life. To get out of a vehicle and reconnoitre is an uncommon precaution, as everydayexperience informs us. ). Justice Cardozo's approach adopted the normal practices of drivers asdecisive of due care; while Justice Holmes's may have been safer. Compare Goodman 275 U.S. at69-70, with Pokora 292 U.S. at 104. Nonetheless, the everyday balancing of costs and benefits hasenshrined Justice Cardozo's approach as the legal standard. See RESTATEMENT SEcOND) OF ToRTs 283 (1965).

75. See Cooter, supranote 63, at 1541.

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7design practices are safe. Some practices (e.g., driving) have reasonableness normsthat are widely understood by the community (and applied by jurors);77 others (e.g.,accounting) have reasonableness nor s that are easily determined by asking therelevant community (expert witnesses, etc.); 78 while others probably do not have anysuch pre-made reasonableness norms at all.79 Cooter addresses this issue too. Hewrites: If the market failure prevents an efficient community standard from arisingand the courts nonetheless decide to adopt a negligence rule officials must computethe optimal standard directly or proceed by successive approximations. 0Proceeding by successive approximations means no more than doing an individualxpost cost-benefit analysis for each case.81 At this point, Cooter's justification forpunitive damages entirely vanishes; his theory cannot explain punishing a companyfor performing the exact balancing that a court will later perform.

2. Prices and Sanctions as Not NormativeThe difficulties that Cooter s theory faces in dealing with Grimshaw extend

beyond the specific case of intentional failure to take precautions to avoid accidentaldeaths. Cooter s use of terms suggests that his is a moral theory: one can act in a waythat incurs a price, and pay that price, but one cannot morally act in a way that incursa sanction merely because one is willing to bear the sanction. 82 Such a theory wouldseem to add a certain amount of clarity to the issue of ex antewillingness to pay. But,it cannot be sustained. Reading any normative value into Cooter's distinction is, inthe end, a category mistake.

76. And, to the extent that we do have such an intuition in the context of litigation, it is likelyto be ill-founded. If a fuel tank blew up, jurors are likely to feel that it was unreasonably designed,regardless of how small was the x ante probability of such an explosion. See e.g. Jeffrey J.Rachlinski, A ositivePsychological Theory ofJudging in Hindsight 65 U. CHI L. REV. 571, 571(1998) ( [P]sychologists have demonstrated repeatedly that people overstate the predictability of pastevents--a phenomenon that psychologists have termed the 'hindsight bias.').

77. See Cooter, supranote 63, at 1541.78. See id t 154041.79. One imagines that engineering has important reasonableness norms to which an expertwitness could testify Making an airbag with holes in it probably isn't reasonable according toprofessional standards. But clearly, there are also decisions that cannot be made by professionalreasonableness norms. For example, whether to install an airbag in the first place is a cost-benefit

decision that might not be answered the same way by every engineer designing every kind of car.However, this norm, too, might change over time, so that in ten years designing a car without airbagswould be as unthinkable as designing a car without seatbelts would be today.80. Cooter supranote 63, at 1541.81. See id82. See Cooter, supra note 63, at 1523. Cooter writes, Officials should create prices tocompel decisionmakers to take into account the extemal costs of their acts, whereas officials shouldimpose sanctions to deter people from doing what is wrong. Id

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some idea of standards it wishes to impose in the most effective and efficient ways. 84If lawmakers know the standard that they want-that is, if they know the optimallevel of an activity-then they should impose a sanction. 85 If on the other hand, theycannot easily determine the optimal level of the activity, but do know the costs thatthe activity imposes on others, they should impose a price.8 6 Thus, if the communityis convinced that murder is a bad thing, it should impose a sanction on murder. Theprecise level of the sanction-a term of years, life imprisonment, or execution-is onthis view, of secondary importance. What matters is that the existence of a sanctionwill prevent most people from engaging in the activity at all.87 On the other hand,while it may be known that too much pollution is a bad thing, it may not beimmediately obvious what the proper tradeoff is between the harms of pollution andthe advantages ofproduction. 88 Thus it might make sense to charge manufacturers aset price for each ton of pollution they emit and rely on the incentives so created tofind the optimal amount of pollution. Here, unlike with sanctions, the precise level ofthe price is of primary importance; if the price does not accurately reflect the socialcosts, then the policy will not achieve the optimal level of the activity 8 9 If pollutersare charged a penny per ton, there will be too much pollution; if they are charged amillion dollars per ton, there will be too little industry.9

This distinction is based purely on efficiency.91 It does not provide anynormative reason to think that someone who violates a sanction-backed norm ismorally wrong, while someone who does something that incurs a price is not. Onthis theory, a sanction is set because society has determined that, in general, anyviolation of a sanction-backed rule will be inefficient.92 But, if the only justification isefficiency, and an actor sees that a violation of the rule would actually be efficient,93

83 See id84 See id at 1524.85 Id86. Id at 1532-33. This simplifies Cooter's argument; he writes not in terms of knowingthe correct level of the activity or external harms, but in erms of information costs. Id If it is easier or

cheaper for lawmakers to gather information about optimal levels of activity, sanctions are called for,if it is easier to gather information about external costs, prices are appropriate. Id at 1533.87. Cooter supranote 63, at 1532 ( Most people conform to a reasonable obligation backedby a reasonable sanction, even if the legal standard is inefficient or otherwise undesirable. ).88. Cf id at 1532. Or it may be that the question ofwhether to regulate pollution via pricesor sanctions is controversial. See e.g. Keith Keplinger, The Economics of Total Maximum Daily

Loads 43 NAT REsouRcEs J. 1057, 1081 (2003) (discussing the possibility of industry buying andselling pollution reduction credits .

89. See Cooter supranote 63, at 1532.90. See e.g. id at 1525, 1528-31.91 ee id t 153292 See id at 153393. This could surely happen with some fiequency. Such an excuse would basically be a

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Cooter does provide an explanation for why violating a sanction-backed norm(e.g., negligence) can justify punitive damages. If it is profitable for an injurer toviolate negligence norms, it may well be even more profitable for him to fall far shortof the community's standard.9 This provides an efficiency explanation for punitivedamages awarded for intentional misconduct with the intent to pay damages ratherthan comply with a negligence standard (Ford s alleged offense). From a strictefficiency point of view, it is not clear why this works as an explanation. Generally,sanctions are designed to prevent normal people from doing a forbidden activity, andto punish and deter those who violate the rules based on society's general efficiency-based conclusion about what standard is appropriate. But that general conclusionpresumably does not by definition take into account the exceptional injurers forwhom the benefits of breaching the standard are much higher than usual. And itseems plausible that those injurers should be able to argue that if society had properlyevaluated their particular situations, it might have revised the standard for them,rather than punishing them for falling far below that standard.9 6

weak form of the necessity defense without requirements of imminence, etc. Virtually any type ofconduct that society has in general ruled out of bounds, could be justified as efficient in a particularcircumstance-consider Jean Valjean stealing a loaf of bread to feed his starving family, s V TORHuGo, LEs MIsER BLEs (Charles E. Wilbour trans., 1931), or George W Bush authorizingextrajudicial killings of suspected terrorists. We think that theft and murder are so unlikely to begood on balance that we forbid them in all cases-but there are nonetheless cases where it isimaginable that at least some would argue that these crimes do in fact lead to efficient (i.e., netpositive utility) results. Sometimes the courts say that these actions are not crimes at all (e.g., terroristassassinations or the necessity defense); sometimes they remain crimes within the determination ofthe justice system, but we have a harder time condemning them morally (e.g., Jean Valjean).

94. ee Cooter, supranote 63, at 1543.95. d at 1544 ( Intentional fault is gross because once the injurer decides to disobey the

legal standard it pays to fall far short of it. ). This typically applies to exceptional injurers, [forwhom] compliance costs or the benefits from noncompliance are unusually high. Id at 1543. Forthese injurers, violating the standard and paying compensatory damages is cheaper thanconforming. d

96. An example might be helpful. The general standard for driving speed might be drive nofaster than 65 m.p.h. Specific exceptions might exist for police cars and ambulances. A privatecitizen driving his pregnant wife to the hospital might also break the speed limit-and it might beworth it for him to fall far short of the legal standard by driving 90 m.p.h. He has determined thathis compliance costs or the benefits from noncompliance are unusually high, and sounapologetically breaks the speed limit. While in abstract terms we might be shocked by exceptional injurers who let their own high compliance costs overrule society's goal of deterringnegligence, most of us would be considerably less shocked by this driver's conduct, and would notsee him as deserving extra punishment for intentionallyviolating legal norms.In legal terms, this is the territory of the necessity defense. In Cooter's economic efficiencyterms, though, it is difficult to distinguish this exceptional injurer from Ford, and explain why our

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D. n EfficiencyApproach o CivilDisobedienceThe deterrence/efficiency approach to punishment can also shed light on civildisobedience, though its results here are not especially enlightening. Thisexamination involves the concept of the necessity defense and its controversial

application to civil disobedience.1 The Necessity Defense as Cost-Benefit Analysis

In general, the criminal law recognizes the defense that a defendant's criminalconduct was necessary in order to prevent a greater evil.97 The relevant Model PenalCode (MPG) provision is as follows:Conduct that the actor believes to be necessary to avoid a harm or evil to himselfor to another is justifiable, provided that: (a) the harm or evil sought to beavoided by such conduct is greater than that sought to be prevented by the lawdefining the offense charged; and (b) neither the Code nor other law defining theoffense provides exceptions or defenses dealing with the specific situationinvolved; and (c) a legislative purpose to exclude the justification claimed doesnot otherwise plainly appear.98

In theory, this would allow defendants to escape the strictures of criminal law if theirown cost-benefit analysis indicated that their chosen course of action was proper. Inpractice, however, the necessity defense is often strictly constrained.99 Judges havelimited necessity evidence to justify a variety of crimes, including escape from prisonto avoid physical harm, 10 0 medical use of marijuana, 0 1 and distribution of needleswithout a prescription in order to stem the spread of l 1 2 Some statutory regimesare also stricter than the MPC. For example, New York requires that the action be necessary as an emergency measure to avoid an imminent public or private injury

driver should be excused from punishment while Ford should not be.97. MODEL PEN L CODE 3.02(1) (Official Draft and Explanatory Notes 1985 .98. Id.he justification is unavailable if the actor recklessly or negligently brought about thesituation requiring the choice of evils. Id 3.02(2).99. POSNER, supra note 23, at 261-62. Judge Posner writes that the defense is regarded withdisfavor except when it takes the form of self-defense, which is arguably a form of the necessitydefense, but notes that it will usually succeed if there is a very great disparity between the cost of thecrime to the victim and the gain to the injurer. d100. See e.g. United States v. Bailey, 444 U.S. 394,394-95 (1980).101. See e.g.nited States v. akland Cannabis Buyers' Coop., 532 U.S. 483, 483 (2001);

Commonwealth v. Hutchins, 575 N.E.2d 741,745 (Mass. 1991); State v. Poling, 531 S.E.2d 678, 684W. a. 2000).102. See Commonwealth v. Leno, 616 N.E.2d 453,456 (Mass. 1993 .

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2004/05] PUNISHMENT AND WILLINGNESS TO PAY 35in order to claim the defense, and refuses to base necessity upon considerationspertaining only to the morality and advisability of the statute. ' 0 3The necessity defense should not be viewed as a blanket invitation to all citizensto perform a cost-benefit analysis each time it might be beneficial for them to violatea criminal law. Instead, it is a fairly limited residual category of justification,available only in special cases. Accordingly, the Ninth Circuit wrote in UnitedStatesv. Schoon a necessity case: In the traditional cases, a prisoner flees a buming celland averts death, or someone demolishes a home to create a firebreak and preventsthe conflagration of an entire community.' 4It is worth examining the sense in which the necessity defense is based onutilitarian reasoning.105 The prisoner whose cell is burning will flee even if nonecessity defense is allowed, as long as the punishment for escape is anything lessthan death-and even, presumably, if it is death. 10 6 Thus allowing the defense here isnot required to align incentives; the prisoner will do the socially optimal thingregardless of whether the defense is allowed. 7 In cases of true necessity, namely,where the harm to be avoided is truly enormous in comparison to the statutoryobjectives and penalties, the criminal law will have no incentive function.10 8 Instead,punishment is remitted in these cases because it is not justified--the defendant hasdone nothing wrong, so punishing him will only serve to introduce evil (the harm of

103. N.Y. PENAL LAW 35.05 (McKinney 2003).104. 971F.2d193,198 9thCir. 1991).105. Seeid at 196.106. The prisoner, faced with the choice of certain and immediate death by burning or anuncertain later death by punishment, justifiably will most likely choose the latter.107. See id at 198. Of course, in many other cases, the defense will serve a vital incentive

function: most classically, if the person creating a firebreak risks prison even though he saves a wholetown, he may forego creating the firebreak and doom the town. Here, the defense is necessary, or atleast helpful, to make sure that incentives are correct One could easily construct a necessity defensethat covers this case but not the prisoner (e.g., necessary to prevent harm to others that is greaterthan the harm sought to be prevented by the law ), though this is, of course, a fairly pointlessexercise.

108. See id at 196-98. That is, provided that the necessity directly impacts the actor theprisoner in a burning cell will not be influenced by laws one way or the other, but a bystander whosehome is not threatened by a fire may need proper incentives to create a firebreak. Cf id at 196-97.Of course one can imagine legal systems where the harm to be prevented is enormous inrelation to the statutory objectives, but not in relation to the statutory penalties. Thus, a Victorian

beggar might be faced with the choice of starving to death or stealing a loaf of bread. While the harmof the theft would be small, the penalty for it might be death. In this case, the law might deter anaction that may be arguably optimal. Cf id (Although Posner would argue that it is not: sincetransaction costs are low, my inability to negotiate a successful purchase of the bread shows that thebread is really worth more to the gourmand. PosNER, supranote 23, at 262. This is not. I wouldcontend, a necessary result of the economic approach.) Generally, however, I assume that modemlaw uses heavy penalties to prevent serious harms, and relatively lighter penalties to preventrelatively minor harms.

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his punishment) without the offsetting benefit of preventing other evil. 10 9 Thenecessity defense is not solely about creating proper incentives; it also makes ajudgment about what actions are proper: even actions that violate the letter of the law,are proper if they prevent much greater harms.

2. The Political Necessity Defense and Civil DisobedienceOne widely noted pattern for invoking the necessity defense is found in cases ofcivil disobedience. Schoon is the leading case in this line, which is sometimesreferred to as the political necessity defense. 10 Gregory Schoon and two co-defendants were convicted of obstructing the activities of the Tucson office of theInternal Revenue Service ( IRS ) after they staged a protest that involved splashingsimulated blood around the office. ' Their protest concerned the use of Americantax money in El Salvador, and at trial they raised a necessity defense, offering

testimony about bloodshed in El Salvador and claiming that their protest wasnecessary to stop the violence. The trial court rejected the defense as a matter oflaw, and the Ninth Circuit, in a careful opinion, affirmed.' 1 3 Judge Boocheverconsidered the four elements of the necessity defense: choice of evils, imminentharm, direct causal relationship between action and averting harm, and lack of legalalternatives.'14 He found that the final three elements were lacking. 15 There was noimmediate harm because a democratically arrived-at government policy is not acognizable harm. 16 There was no direct causal relationship because the protesterscould not themselves stop the violence in El Salvador.117 Finally, there were clearlegal alternatives to these protests, such as petitioning Congress to change itspolicy.Judge Boochever was surely right in his own analysis of the missing elements ofthe traditional necessity defense, but another approach is worth considering. Schoonand company claimed that the harms they wanted to prevent outweighed the harmsprevented by the statute they violated.' 19 This is perfectly sensible-thousands of

109. f BENTHAM supra note 27, at 158 ( [A]ll punishment in itself is evil. Upon theprinciple of utility, if it ought at all to be admitted, it ought only to be admitted in as far as it promisesto exclude some greater evil. ).

110. See e.g. Wride supra note 13, at 1070.111. Schoon 971 F 2d at 195.112. d113. Id.114. Id t 195 197-98.115. Id at 196-200.116. Schoon 971 E2dat 198.117.118. Id.119. Seeid.at195.

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2004/05] PUNISHMENT AND WILLINGNESS TO PAY 353deaths in l Salvador are of course worse than some disrupted audits in Tucson butonly if there was some reasonable expectation that their protest would have someeffect. If they seriously believed that the benefits of their actions outweighed theharms, they either had a bizarrely grandiose view of the efficacy of their protest, ortheir valuations of the harms and benefits were different from those of the law. Thelatter is plausible: humanitarian protesters might well value the lives of anonymousSalvadorans more highly than does the U.S. government, and they might well worryless about inconveniencing IRS employees and disrupting government functions.Nonetheless, it seems likely that the Schoon defendants' necessity balancing wasinfluenced by an unrealistic view of their own efficacy. A balancing that weighed theharm caused by the protests against the benefit of stopping violence in El Salvador,discounted by the slim probability that the protests would do any appreciable good toachieve that benefit, would likely result in a determination that there was no necessity in a choice-of-the-lesser-evil sense. Indeed, the factors named by JudgeBoochever could be recharacterized as indicia of which way a simple utilitarianbalancing would go. If the formula is violate the law if H < PHn, where H is theharm caused by the protest/violation, is the probability that the protest will succeed,and Hn is the harm caused by inaction, then the court's determination that ademocratic policy is not a cognizable harm suggests that the protestors are wrongabout the magnitude of H . The lack of a direct causal relationship between theprotest and the desired result lessens the magnitude ofP; and the existence of legalalternatives lessens the magnitude of H because if legal routes can solve theproblem, then the harm of not violating the law is much less. Thus, the factorsidentified in Schoon can be read as independent conditions on the necessity defense.Alternately, that defense can be read simply as a cost-benefit analysis, with theSchoon elements as factors to consider in performing that analysis.

3 Classic Civil Disobedience: Gandhi and KingSchoon and his friends were obviously not the first people to think of breakingthe law to call attention to a noble cause. Presumably they saw themselves asfollowing in the tradition of civil disobedience that stretches back at least to Gandhi

and Martin Luther King, Jr.' 20 But there is one critical difference. Gandhi and Kingasked to be punished for their law-breaking, while Schoon argued that he should belet o 12 1

120. It is worth noting here the distinction between direct civil disobedience, that is,protesting against a law by breaking it (e.g. black protesters illegally sitting at a whites-only lunchcounter) and indirect civil disobedience, which involves violating a law or interfering with agovernment policy that is not, itself, the object of protest. Schoon, 971 E d at 196. The analysis inthis section should not turn on the distinction, though the Schoon opinion makes much of it, and infact rules that necessity can never be proved in a case of indirect civil disobedience. Id at 197.

121. CompareWride supranote13,at 1093, with Schoon, 971 F.2dat 195.

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This difference has been remarked in the commentary on the political necessitydefense cases.122 It has typically been analyzed in terms of the effectiveness of theprotest: Gandhi and King called more attention to their cause and showed greaterdevotion to it by suffering punishments for it.123 If the person practicing civildisobedience is set free not because the offensive institution has been removed butbecause the system of ustice has made an exception, then the contradiction [of usingthe justice system to defend an unjust institution] remains hidden, and the object ofthe protest is lost.' 124A simple economic analysis of the difference is also readily available. WhenMartin Luther King, Jr. disobeyed a segregationist law, knowing and intending that hewould be imprisoned for it, the economic conclusion is that, in his valuation, the harmof the unjust law 125 outweighed the direct harm of his protest 126plus the personalharm of being imprisoned. Schoon et al., on the other hand, by raising the necessitydefense,' 27 suggested that they valued protecting El Salvador over the disruptioncaused by their protest--but not over the personal harm caused by their convictions.Thus, the political necessity defense protesters implicitly place less value on theircause than classical civil-disobedience advocates placed on theirs, demonstrating lessconviction of the rightness of their cause. It is reasonable to assume that peoplediscount the harm of their actions to other people: a protestor who spills blood overIRS files will probably not feel the harm of his actions as keenly as the IRS agentwhose months of work are ruined, or as the IRS janitor who has to clean up the mess.Willingness to accept consequences is an important indicator that one's balancing ofthe necessity factors is, ifnot correct, at least sincere. Simply put, going to jail for acause shows a lot more commitment than hurting other people for that cause and thenasking to be excused.

E he FailureofEfficiency pproachesIn general, efficiency approaches neither explain the results reached in cases like

Grimshawnor community intuitions concerning the effect of x ante consideration ofpenalties on ultimate determinations of guilt. The Hand Formula, 2 the Calabresiand Melamed framework, 129 and the Cooter price/sanction distinction130 all fail to

122. See e.g. aura J chulkind, Note, Applying the Necessity Defense to CivilDisobedienceCases 64 N.YU. L. REv. 79, 79-80 (1989); Wride, supranote 13 at 1093-94.123. Cf Wride supranote 13 at 1093-94.124. Wride, supranote 13, at 1094.125. Discounted by the probability that his protest would change it.126. The disruption, unrest, police costs, etc.127. Schoon 971 F 2d 193 at 195.128. See United States v. C arrollTowing Co., 159F.2d 169, 173 (2dCir. 1947).129. Calabresi Melamed, supra note 33, at 1092.130. Cooter, supranote 63.

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2004/05] PUNISHMENT AND WILLINGNESS TO PAY 357company is a private action against the beachcomber's conversion of the twologs.143

Hegel says of such a dispute that it:[E]ntails the recognition of rightness as the universal and decisive factor, so thatit is common ground that the thing in dispute should belong to the party who hasthe right to it. The suit is concerned only with the subsumption of the thing underthe property of one or other of the parties-a straightforward negative judgment,where, in the predicate mine, only the particular is negated.'44On the other hand, intentional criminal theft is not merely a dispute about

entitlements, but rather an attempt to negate the category of entitlements; that is, thethief s actions amount to more than a denial that the company has any rights to theselogs; instead, they amount to a denial of the relevance of rights altogether.' '145 Or, asErnest Weinrib writes:

Takings justify liability inasmuch as they imply a general denial of the validityof right. A taking is an illegitimate appropriation: the taker attempts to assertdominion over something that is already a physical or proprietary embodimentof another's personality. In acting as if the embodiments of another's personalityare available for appropriation, the taker is treating those entitlements as if theywere devoid of free will. Thus, the taker signals through his actions that he doesnot recognize the categorical difference between persons, who have a capacityfor rights, and other entities, which lack free will and therefore do not have thatcapacity. Because free will is the substance of right, and because personalityrepresents the most fundamental condition of the will's freedom, to treat personsas if hey were entities lacking free will is to imply that right can have no field ofapplication. 46

Thus the Hegelian account draws a clear distinction between theft andconversion, a distinction that is more problematic under an efficiency account inwhich the only goal is to deter inefficient non-market transactions. On the other hand,the efficiency account may do a more sophisticated job of explaining somedistinctions that the law draws. For instance, the trespasser who is willing to pay inadvance for his trespass, but who is rebuffed by the landowner, is faced with punitivedamages. 147 The Hegelian account would ask whether the trespasser is denying the

143. Chapman& Trebilcock, supr note 29, at 781.144. HEGEL supranote 131, at 65.145. Chapman Trebilcock, supranote 29, at 781.146. Ernest J.Weinrib, Right and Advantage in PrivateLaw in HEGEL ND LEG L THEORY275-76 (Drucilla Cornell et al. eds., 1991 ; see also Stillman, supranote 133, at 171-72.147. See e.g. Jacque v.Steenberg Homes, Inc., 563 N.W.2d 154, 165 (Wis. 1997).

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category of right by violating property rights, or affirming the category by trying tonegotiate in good faith, agreeing to pay the costs, and then proceeding in theexpectation that he will in fact pay the landowner's costs. Such questions do notappear susceptible to answers proceeding from general ideas of right. On the otherhand, the distinction between property rules and liability rules, grounded in notions ofefficient market transactions, here provides an elegant answer.

3. ContractAmerican law regularly allows people to intentionally violate the rights of others

without punishing them, leaving only a non-punitive civil remedy.la8This is ourlaw of contract, which seeks only to compensate the injured party, not to punish thebreaching p rty 1 9 The promisor can easily escape his promise, trampling theentitlements of his promisee; the promisee gets only expectation damages, and thepromisor is never punished for his breach.'This is superficially at odds with the Hegelian account sketched above. Hegel'smoral account of contracting is general and focused on the notion of consent; it doesnot address the questions of the appropriate remedy. 15 1 However, the Hegelianaccount can deal with this objection readily:

[T]his objection fails to fully appreciate to what matter the tate, as guardianof the category of Right, is properly to respond in the form of a criminal lawaction. In the standard breach of contract case, and in particular in the intentional(often efficient ) breach of contract case, the breaching party is not reallydenying the relevance of rights to the dispute. Rather, the breaching party is at alltimes prepared to pay compensation, and thus to recognize the category of Rightif a breach of the contract or damages flowing from that breach can be proved.In this respect, she is quite unlike the thief who, at the time the impugnedtransaction takes place, steals without any intention of paying compensation.'5 2

This distinction solves the difficulty of contract law. It also explains why some sortsof intentional contract breach arecriminal. Generally speaking, those cases in which

148. See e.g. Oliver Wendell Holmes, The Path of the Law 10 HARv. L. REv. 457, 4621897).

149. See FARNSWORTH ETAL., CONTRACrS: CASEs ND M TERI LS 1 (6th ed. 2001) ( [Thelaw is concerned mainly with relief of promises to redress breach and not with punishment ofprom sors o compelperformance. );Holmes, supranote 148, at 462 ( The duty to keep a contract atcommon law means a prediction that you must pay damages if you do not keep it-and nothingelse. ).

150. SeeFARNswORTH supranote149, at 1-2.151. See HEGEL supranote 131, at 57-64. Hegel's discussion of Wrong similarly does notaddress the issue. Id t 64-74.152. Chapman & Trebilcock, supranote 29, at 783.

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2004/05] PUNISHMENT AND WILLINGNESS TO PAY 359the promisor never intended either to perform or pay damages are characterized as fraud, and can often support criminal punishment.153

B. The ifficultieswith Ex Ante Willingness to PayThe Hegelian account of punishment serves as a sophisticated representative ofretributive punishment theory and such punishment s interactions with civil law.

Economic and deterrence theories fail to fully capture community intuitions about theproblem of ex ante willingness to pay. In some respects, it seems that the Hegelianaccount does better. But problems remain. Classical retributive theory does notentirely explain why we object to x antewillingness to pay for crimes and torts.1. Crime and Autonomy

154Let us begin with the simple example of Lucius Veratius and see what theHegelian account would say about him. On one hand, the explanation is simpleenough: Veratius has coerced the rights of others, so he should be punished by asimilar coercion of rights. Simply collecting the twenty-five asses handed out by hisslaves155 does not provide for that coercion of rights because he is voluntarily payingthe price. As a result, the payment fails to constitute a real punishment. This is whysociety objects to his conduct and seeks to punish him more severely.

But that does not tell the whole story. Veratius is acting quite rationally on alower level of abstraction than that at which Hegel was operating. Rather thanwilling, by his actions, a universal law of violate the autonomy of others, whichwould then have to be applied to him, he is simply applying a known, legislated law.Respecting his autonomy, treating him as consenting to punishment, would seem torequire applying to him the punishment of the published law that he knowinglybroke the punishment to which he literallyconsented.The tension here is between two conceptions of law : the indeterminate Kantiangeneral law, theoretically willed into existence by criminals, of violate others'rights ; and the literal, legislated law, of pay twenty-five asses for iniuria. In mostcases, this tension is buried below the surface of Hegelian punishment theory. Thetypical thief does not want to go to prison, so sentencing him to prison is a coercionof his autonomy that both satisfies the determinate legislated law and fulfills theHegelian condition of satisfying one right s coercion with another. The theory breaks

153. See e.g. Wharf (Holdings) Ltd. v.United Int'l Holdings, Inc., 532 U.S. 588, 596 (2001)(holding that where the seller of an option on securities had a secret reservation not to permit itsexercise, the seller is liable not merely for contract breach but also for securities fraud underSecurities Exchange Act 10 b)).154. See supranotes 1-4 and accompanying text.

155. CROOK, supranote1, at250-51.

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2004/05] PUNISHMENT AND WILLINGNESS TO PAY 361reason, however, to want to go beyond this quantum of punishment and furtherpunish the protestors to coerce their autonomy.This is not a particularly complete explanation of civil disobedience. Inparticular, it plays a bit loose with the question of what general law protestors areenacting: while they see their actions as nobly motivated, many thieves might feel thesame way. The retributivist account depends more on intentional coercion of therights of others than it does on the subjective motivation of the actor doing thecoercion and does not fully explain the distinction between civil disobedience andconduct like that ofVeratius.

3 Tort and ContractAs we have seen, committing a crime while intending to pay the penalty does notsatisfy the retributive purpose of punishment. Instead, it coerces the rights of others

without a counterbalancing coercion of the rights ofthe actor.As we have also seen, some coercions of the rights of others need not be met bycorresponding rights-coercion punishments. Unintentional violations (e.g.,accidents), or violations that consist of intentional actions that are not intended toviolate rights (e.g., conversion of what an actor thought was unclaimed property) aretreated as torts and remedied only by compensatory damages. 58 Treating the actorrationally here does not require punishment; his will is not to violate the rights ofothers, and so violating his rights is not necessary to correct the effects of his action.Breaches of contract can also be explained-4o a point. Here, no punishment iswarranted because the breaching party is not denying the rights of the counterparty;rather, he is ready, at the time of breach, to pay compensation. The problem for theHegelian account is that the same is true of Veratius. He, too, is willing tocompensate those whom he slaps.The distinction is still salvageable. The difference is not between the specificintents of a breaching contract party and Veratius; rather, it is between how wegenerally conceive of the different activities. In general, we think of contract as a