Re: FREE MARKET: What about liability?

Dan Fabulich (
Mon, 07 Sep 1998 15:35:02 -0400

my inner geek wrote:
>Assuming a libertarian online marketplace, governed by the
>hippocratic oath (,
>what is the best structure for handling liability?
>For example, someone orders a bag of marbles and some LSD. They take
>the LSD, then put the marbles into their mouths, fall asleep,
>suffocate and die. Is the website that provided the marbles and LSD
>responsible for the death?
>Do members of the online free market release the vendors of all
>liability, before membership in the "sacred marketplace"?
>Does the online marketplace provide CBT, automated diagnostics, and
>drug interaction warnings with each wholesale shipment of
>pharmaceuticals? Do they maintain case records of customers? Hmmm?

David Friedman is discussing questions like these in a book that he's writing, called _Why Is Law?_. Interesting stuff. He's webbing the chapters as he's writing them; you might want to take a look at:

Under the "Why Is Law?" link.

In this particular case, placing all of the liability on the buyer gives the buyer a great incentive not to do something stupid (like taking LSD and holding marbles in one's mouth), but perhaps not infinitely great. If the buyer's desire to do such a silly thing outweighed the value the buyer placed on his/her own life, then the buyer *should* have taken LSD and marbles together. Since we imagine that the buyer is in the best (if not the perfect) position to evaluate the value of his/her own life, it would be most efficient to place all liability on the buyer, which should maximize economic value in this case.

In contrast, by placing liability on the seller, the *seller* must determine whether or not it would be worthwhile to sell the LSD/marbles. Since the seller's only criterion is profits, the seller must try to guess how valuable the court will guess the buyer's life is, and use this guess to renegotiate his/her prices. The very act of introducing a court in this case results in inefficiency; the fallibility of the court's evaluation of the buyer's life results in situations when the seller will set his price inefficiently high or inefficiently low.

This is not an argument for universal "caveat emptor," but reflects the advantages of caveat emptor in this case.