Framing the Compensation Inquiry

The tort system has become the object of a mounting chorus of complaints. Some critics argue the system is inadequate to the task of resolving particular types of cases; that in some situations it is too expensive; that compensation is not fairly distributed; that it inhibits the production of valued goods and services; and that justice is poorly served by its allocation of costs and benefits. Others see these problems as so pervasive that they espouse more sweeping reforms. Although the outcome of the debate is not yet apparent, this appears to be a crucial time in the evolution of liability compensation. It must, however, be remembered that liability compensation is but one thread in the fabric of compensation policy. The criticisms of the tort system and the reform proposals they have spawned are best examined and evaluated in the context of society's overall concern for compensating the injured and spreading risks. When seen in this broader framework, it is possible to develop a more coherent understanding of the purposes, options, limitations, and interrelationships of compensation programs in general, and of the tort system and alternatives to it, in particular. This paper offers a way to organize our thinking from a larger perspective by developing a conceptual framework for all publicly-mandated compensation systems or programs that can account for structure, coherence, and the wide variations in acceptable outcomes that we observe in these arrangements. It treats several general issues that relate to the design of all compensation programs. It characterizes the circumstances under which this society chooses to compensate those who are injured or who otherwise suffer loss, and describes the design requirements and design objectives shared by all compensation systems and how adjustments in design alter program outcomes. Next, it identifies the trade-offs between valued objectives that design choices inevitably impose on those crafting these systems and develops the three paradigms that provide essential rationales for making the difficult trade-offs. Finally, it characterizes and discusses the current instability in a number of compensation programs, attributing much of that instability to certain unresolved tensions that flow from the trade-off imperative.