To be efficient, tort liability rules governing organizations' liability for torts by their agents must ensure that organizations want their agents to take optimal precautions and benefit from using cost-effective mechanisms to regulate agents. Vicarious liability, the current rule governing organizations' liability for their agents' torts, does not satisfy these objectives. By holding organizations liable for torts committed by employees, but not by independent contractors, vicarious liability discourages organizations from asserting direct control over agents, even when control is an efficient way to regulate care. Organizations governed by vicarious liability also may not attempt to induce efficient care-taking by independent contractors because organizations often do not maximize profits by inducing efficient care. Indeed, vicarious liability encourages organizations to undermine the effect of individual tort liability by hiring judgement-proof independent contractors.
Date of this Version
Jennifer Arlen and W. Bentley MacLeod, "Beyond Master-Servant: A Critique of Vicarious Liability" (January 2005). University of Southern California Law and Economics Working Paper Series. Working Paper 25.