Scott Finlayson
Economics of Law Practice
September 21, 2000

DETERMINING PRODUCT PRICES AND SERVICE FEES

A GUIDE FOR PROFESSIONALS DETERMING LIABILITY COSTS


I. Introduction. Why everyone should read this paper.
A. The economic importance of this discussion in our everyday life (service/product cost).

C. The importance to all attorneys. How does this affect my fees/malpractice insurance?

B. The importance of this discussion to the in house attorney (service/product cost).

I. Underlying Economic Theory. (an explanation of the keystone theories)
 
A. Pre-Learned Hand product/litigation cost theories.
 

B. Learned Hand Formula. How to offer a product/service safe enough to survive litigation.

1) The formula (definintions). B<PL. B = Burden (in monetary terms) of adequate precautions to prevent X (an event leading to damage). P = probablity of X occuring. L = the amount of injury (in monetary terms) to the damaged party.
2) The formula (explanation). If the burden on T to prevent X from happening (B) is less than the probabilty of X occuring (P) multiplied by the amount of damage which occured to the injured party (L), then T is negligent.
3) The formula (in action). Conway v. O'brien, 111 F.2d 611 (2nd Cir. 1940). United States v. Carroll Towing Co., 159 F.2d 169 (2nd Cir. 1947)
C. Coase Theorem.. How to figure the cost of avoiding litigation into your product.
1) The formula (explanation).
 

2) The formula (in action).

D. _____________. How to figure the cost of litigation into your product.
E. Modern Liability/Cost Developments.


III. Modern Understanding of Liability and Product Cost. (offshoots and Critiques)
 

A. Coase Revisited.
 

B. Richard Posner.


IV. Use in Practice. (how an in house attorney should calculate product price)
 

V. Use in Court. (do courts actually follow these theories)
 

A. Risk-Utility Analysis. (Learned Hand revisited?)
 
1) Barker v. Lull Engineering Co. Inc., 20 Cal.3d 413 (1978)


VI. Interesting Cases. (maverick, mustang, pinto, etc.)
 

VII. Conclusion.