Liability Regimes, Reputation Loss, and Defensive Medicine

This article examines the extent to which two civil1 liability regimes—negligence and strict liability—generate and distribute reputation losses to physicians.2 As the discussion below demonstrates, reputation loss in the professional context can be manifested by (and leads to) negative concrete responses by peers, loss of business due to patient avoidance, increase in liability insurance premiums, and dignitary and psychological losses. The article examines how the fact that the two liability regimes create reputation loss to different extents and distribute them differently affects physicians' incentives to engage in defensive medicine and to settle claims. This will hopefully give policymakers another factor to consider when deciding whether, and how, to reform the liability regime for medical errors; it might also direct empirical research on the data required to decide which regime to adopt. As the discussion demonstrates, such data are currently missing. A few clarifications are in order. My argument is normative: policymakers should choose a regime that brings about desirable results. The article compares the two regimes only with respect to their potential to create reputation loss. Obviously, the ultimate choice of regime should take into account other efficiency and distributive effects of the two regimes.3