where "B" is the cost (burden) of taking precautions, and "P" is the probability of loss ("L"). "L" is the gravity of loss. The product of P x L must be a greater amount than B to create a duty of due care for the defendant.
Rationale
The calculus of negligence is based on the Coase theorem. The tort system acts as if, before the injury or damage, a contract had been made between the parties under the assumption that a rational, cost-minimizing individual will not spend money on taking precautions if those precautions are more expensive than the costs of the harm that they prevent. In other words, rather than spending money on safety, the individual will simply allow harm to occur and pay for the costs of that harm, because that will be more cost-efficient than taking precautions. This represents cases where B is greater than PL.
If the harm could be avoided for "less" than the cost of the harm (B is less than PL), then the individual "should" take the precautions, rather than allowing the harm to occur. If precautions were not taken, we find that a legal duty of care has been breached, and we impose liability on the individual to pay for the harm.
This approach, in theory, leads to an optimal allocation of resources; where harm can be cheaply avoided, the legal system requires precautions. Where precautions are prohibitively expensive, it does not. In marginal-cost terms, we require individuals to invest one unit of precautions up until the point that those precautions prevent exactly one unit of harm, and no less.
Use in practice
In the U.S., juries, with guidance from the court, decide what particular acts or omissions constitute negligence, so a reference to the standard of ordinary care removes the need to discuss this moot "rule". Juries are not told this "rule" but essentially use their common sense to decide what an ordinarily careful person would have done under the circumstances. The "calculus of negligence" has less practical value for the lay researcher seeking to understand how the courts actually determine negligence cases in the United States than the jury instructions used by the courts in the individual states.
Australia
In Australia, the legislature introduced, as a part of the Civil Liability Act s31(1) and (2) "the social utility of the activity that creates the risk of harm". In "Santow J in Haris v Bulldogs Rugby League Club Limited, ["Santow J in Haris v Bulldogs Rugby League Club Limited", [2006] NSWCA 53] the court discusses social utility - which a football club owes duty of care to spectators struck by fireworks. It referred to the legislation, the newly enacted s32 (2)(d), stating that "statistics suggested that attending football matches serves a useful social purpose for a considerable number of people". [Id at 60.]
References
