Vol. 13 No. 7 (July 2003)

 

REGULATION THROUGH LITIGATION by W. Kip Viscusi (Editor).  Washington D.C: Brookings Institution Press, 2002.  352 pp.  Cloth $54.95. ISBN 0-8157-0610-3. Paper $24.95. ISBN 0-8157-0609-x.

 

Reviewed by Geoffrey Wandesforde-Smith, Department of Political Science, University of California, Davis.  Email:  gawsmith@ucdavis.edu .

 

What do cigarettes, guns, lead-based paints, and breast implants have in common?   These are all items for which there is or has been widespread demand in society.  At the same time, they are all items that, with varying degrees of certainty and seriousness, harm the individuals who use them or come into contact with them. 

 

In the aggregate, the individual harms are arguably large enough to warrant a societal interest in exercising some control over how these items are produced, sold, distributed and consumed by end users.  The injuries might even be large enough to justify an outright ban on any further use, either by society at large or by segments of the population – children, say, who need special protection. 

 

Given all this, how should restrictions be developed and applied?  The two stock answers to this question are liability in tort, enforced through private litigation, and the regulation of safety, enforced through the public development and application of standards. 

 

Whether there is a sharp distinction to be made between litigation and regulation as means (the contributors to this book call them institutions) for achieving efficient and effective control of harms and, if so, which one is to be preferred under a given set of circumstances, are questions that have vexed economic, legal, and political theorists for a very long time.  On an abstract level, as the title of this book clearly implies, litigation and regulation not only can but should be distinguished; we should not as a matter of principle confuse the outcomes we can achieve with one with outcomes that we could better achieve with the other.  A landmark paper by Steven Shavell, published in the JOURNAL OF LEGAL STUDIES nearly twenty years ago, rehearsed the essential issues (Shavell 1984).

 

The title of this book, as well as its provenance and contents, is really much more concerned, however, with the messy real world of policy than with the purity of abstract principle.  That is why the book is a product of the American Enterprise Institute-Brookings Institution Joint Center for Regulatory Studies, and specifically of a two-day conference convened in April, 2001.  The participants include some of the most well-known and widely respected students of law and regulation in the country.

 

The conference papers now form the eight substantive chapters of the book, each of which is followed by a short comment.  Chapter 2 deals with tobacco, chapter 3 with firearms, chapter 4 with lead-based paint hazards, chapter 5 with breast implants, and chapter 6 with medical malpractice in the context of managed care.  Chapter 7 analyzes the insurance effects of regulation through litigation; chapter 8 looks at the role of class action suits in forcing regulation, and chapter 9 is a summary assessment of the book’s overall themes and conclusions.

 

The editor of the book and the authors of most of its chapters and associated commentaries want to impress upon us the downside of what they regard as an increasing, and increasingly undesirable, set of interactions between litigation and regulation.  They see a tendency for litigation to be used to achieve regulatory goals and objectives, even to force private companies to accept restrictions on their behavior that they would not otherwise accept.  The various contributors are concerned – indeed, given the vigor of their arguments, we can say that they appear deeply concerned – that the negative interaction effects of using litigation to achieve outcomes that really ought to be pursued through the regulatory process have been underestimated and underappreciated. 

 

The authors are generally concerned about inefficiency, because they share a belief in what the Foreword to the book calls “the importance of judging policies based on norms involving a comparison of benefits and costs of different policy alternatives so as to assess whether some policies make society better off” (p.vi).  Their concerns also extend, however, to a broader range of corruptions that they think occur when the proper relationship between litigation and regulation is disturbed, extending even to threats against vital processes of representative democracy.

 

This is a summary collage of the way Viscusi, writing with characteristic verve and clarity in the first, overview chapter of the book, specifies the policy issues he thinks should grab our attention:

 

            The recent lawsuits involving cigarettes, guns, and other products have created a new phenomenon.  Such litigation results in negotiated regulatory policies to settle the suit or serves as a financial lever to promote support for governmental policies.  The allocation of responsibilities for policy becomes blurred, as litigation becomes the mechanism forcing regulatory changes.  The policies that result from litigation almost invariably involve less public input and accountability than government regulation (p.1).

            The advent of litigation [in the mid-1990s] about products such as tobacco, guns, and lead paint went well beyond the historical interactions of regulation and litigation that have been of concern in the literature.  No longer was the issue one of litigation creating incentives that overlapped with those resulting from regulation.  Rather, litigation was being used as the financial lever to force companies to accept negotiated regulatory policies as part of the litigation.  Thus litigation led to regulation, but not regulation that went through the usual rule-making process as a result of careful analysis by government regulatory agencies subject to their legislative mandates.  Rather, the parties in the lawsuit negotiated regulatory changes as part of the package to end the litigation (p.3).

            These negotiated solutions have also gone beyond simply specifying regulatory changes.  In at least one instance [tobacco] the settlement has led to the imposition of what is effectively an excise tax on products (p.20).

 

So, what the contributors to this book, and the organizations that sponsored them, see coming down the road is the possibility that regulation through litigation will turn out to be a permanent rather than a temporary distortion of the political system.  Today, it is tobacco, guns, lead paint, and breast implants.  But, tomorrow it might be alcoholic beverages, fast food, cars, SUVs, the way managed care organizations deal with their patients (which is the subject, as noted, of chapter 6), and who knows what else. 

 

If the list of other products grows, and if litigation to force regulation is successful in a number of new cases, a variety of businesses and industries will be out of pocket by many hundreds of millions, indeed many billions, of dollars.  But what this book really targets are the political costs of regulation through litigation – diminished public participation in and input to rules and regulations, less political accountability in regulatory agencies, less emphasis on careful analysis by experts as a prelude to making regulatory policy, an undercutting of legislative mandates as the primary means for constraining regulatory discretion, and usurpation of the power of representative assemblies to levy taxes.

 

This book, then, is of the genre that “views with alarm” a set of “new” phenomena held to represent a serious threat to society and also pleads with its readers to be more alert and vigilant, lest serious economic and political “damages” result.  But are these phenomena new?  And, if they do represent a serious threat, how serious is it?

 

Since I teach environmental law, I am naturally inclined to observe on the first score that, far from being novel, regulation through litigation has been commonplace in environmental policy making for more than thirty years.  One of the first lessons students of environmental law have to learn, in fact, is that over the last three or four decades we have largely replaced a strategy of achieving pollution control through liability in tort in the United States with a strategy of pollution control through administrative rules and regulations. 

 

In the text I use, now in its fourth edition and one of the texts most widely used in and out of law schools, environmental common law and its relationship to regulation is the very first substantive topic addressed (Schoenbaum, Rosenberg and Doremus 2002, ch.2).  And the chapter includes, notably in the present context, an extract from the landmark piece by Shavell (1984) that I previously referenced.

 

The total set of phenomena we might deem relevant to assessing whether regulation through litigation is economically undesirable or poses a threat to basic political values is, therefore, very much larger and very much older than the authors of this book would have us believe.  And it is not, I might add, confined to issues of product liability or pollution control.  Some of the most fascinating and consequential uses of litigation to achieve, in some instances, and to undo, in others, major shifts in regulatory policy have occurred in recent decades, for example, in the management of forest and wildlife resources.  Any reader of this book will have to think critically, then, about case selection and wonder just exactly what it is about lawsuits over tobacco, guns, and breast implants that make them representative of things we have not seen before, except for the size of the stakes involved.

 

Students of environmental law certainly must and do also learn a number of other things about the relationships between litigation and regulation, lessons that bear on how serious it is to blur the distinction between the two – or, to put it conversely, whether failing to keep them properly separate is a serious mistake.  They learn, for example, that the shift, on balance, from litigation to regulation in recent decades has been and remains controversial.  The controversy usually focuses on whether our aggregate preference for regulation over litigation in recent decades has imposed a sensible and tolerable level and distribution of the costs of cleaning up pollution in America.  This is the same efficiency concern that informs the book under review.

 

But another lesson to be derived from studying the interaction of regulation and litigation in environmental policy making is that all participants see advantages in having both strategies available to them.  Moreover, both sides in environmental policy disputes – both those who generally prefer, shall we say, tougher rules and those who prefer more flexibility – have mixed and matched their uses of these strategies as and when they saw fit. 

 

A narrow focus on the net efficiency of using one strategy or the other misses these non-economic interaction effects.  It tends to suggest, as is done most forcefully in this book by Viscusi in his chapter on tobacco, that economic arguments and evidence can create, and perhaps have already created, a substantial constituency for closing off or restricting one or the other of the institutional means used to fight policy battles.  But there is, I think, no constituency, even among tobacco companies, for substantially precluding the use of litigation to shape tobacco policy, even in the face of Viscusi’s convincing demonstration that “tobacco pays its way.”  Everyone wants options, and they want to keep their options open.

 

It seems to me, then, that if any given set of political interests fail to advance their agenda or lose on key decisions in the regulatory process, they like the option of going to court.  And if they lose in court, they like the freedom to pursue their goals in another institutional forum.  The alternative forum might be a regulatory agency, and it is that limited interplay or interaction between courts and agencies that is the focus of this book. 

 

But a larger and more important truth about institutional interactions in American law and politics that this book neglects is that legislatures and chief executives are part of the picture, too.  Litigants in the tobacco cases, for example, would not have gone to court if they had sensed real opportunities to achieve what they wanted in the legislative process, perhaps with strong political support from chief executives.  And if proponents of tough gun control thought they could achieve a clear legislative victory while a sympathetic chief executive was in office, they would not be pursuing litigation or putting pressure on the regulators of product safety.

 

So, in the real world and despite a political theory about the separation of powers that is embodied in the Constitution properly to “coordinate” – as the authors of this book would put it – the roles of the major institutions of American government, we do not keep them properly separate.  While it may be true that over some period of time an increase in the use of litigation to force changes in regulatory policy may have adverse effects for some interests, it may also be true that a different time series sampling of institutional interaction events would show that what tobacco companies, for example, have recently lost on the swings of litigation they will recover on the roundabouts of the regulatory process or in legislatures or by making contributions to gubernatorial and presidential election campaigns. 

 

REFERENCES:

Shavell, Steven.  1984.  “Liability for Harm versus Regulation of Safety.”  13 JOURNAL OF LEGAL STUDIES 357-74.

 

Schoenbaum, Thomas J., Ronald H. Rosenberg and Holly D. Doremus.  2002.  ENVIRONMENTAL POLICY LAW: PROBLEMS, CASES, AND READINGS. 4th ed.  New York: Foundation Press.

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Copyright 2003 by the author, Geoffrey Wandesforde-Smith.