The Hand Rule and United States v. Carroll Towing Co. Reconsidered

Judge Learned Hand's opinion in United States v. Carroll Towing Co. (1947) is canonized in the law-and-economics literature as the first use of cost-benefit analysis for determining negligence and assigning liability. This article revisits the case in which the Hand formula was born and examines whether Judge Hand's ruling in that case would provide correct incentives for efficient levels of precaution. We argue that the negligence test as used by Judge Hand is somewhat different from the Hand test as used by modern law-and-economics theorists. With a game theoretic analysis of the case, we show that Judge Hand's negligence test could in fact produce games with inefficient equilibria, or with liability determinations opposite Judge Hand's. Copyright 2005, Oxford University Press.