Tort Liability for Software Developers: a Law & Economics Perspective

This article explores the economic rationale for applying product liability law to computer software. As demonstrated below, a well-designed liability regime must place liability upon all parties who economically control the risks of accidents. Accordingly, this article finds that strict liability may be appropriate for certain types of “intrinsic” software, but not for other types of software that require the customer to be actively involved in the selection, operation, and maintenance thereof. We show that for this type of “extrinsic” software, a strict liability rule is unlikely to be economically optimal and, therefore, choosing a generic liability regime applicable to all forms of software is ill-advised. Instead, a more nuanced approach is required to achieve a desirable policy outcome. * Senior Fellow, Phoenix Center for Advanced Legal & Economic Public Policy Studies and Professor of Economics, Auburn University. † Chief Economist, Phoenix Center for Advanced Legal & Economic Public Policy Studies. ↕ Resident Scholar, Phoenix Center for Advanced Legal & Economic Public Policy Studies. ‡ President, Phoenix Center for Advanced Legal & Economic Public Policy Studies. The views expressed in this article are the authors’ alone and do not represent the views of the Phoenix Center, its Adjunct Fellows, or any of its individual Editorial Advisory Board members. A version of this article originally appeared as PHOENIX CENTER POLICY PAPER. No. 27.