Asymmetrical Information - Megan McArdle

01.24.13

Are Driverless Cars Really in Our Near Future?

The technology is great. The legal environment, maybe not so much.

Kevin Drum and Felix Salmon think so.  I'm not so sure.  

When driverless cars were first mooted about in the wonkosphere, I was skeptical.  "Regulators will never let it happen," I said gloomily.  

But regulators surprised me!  Google was allowed to operate its cars.  States began considering rules to allow them on the roads.  I was happy, happy, happy to be wrong.  

Now I'm gloomy again.

Why? Not because of the technology. And not because of the regulation.  But because of the liability.  Self-driving cars represent a massive one--one that I'm not sure companies will take on.  

Imagine a not-implausible situation: you are driving down a brisk road at 30 mph with a car heading towards you in the other lane at approximately the same speed. A large ball rolls out into the street, too close for you to brake.  You, the human, knows that the ball is likely to be followed, in seconds, by a small child; you slam on the brakes (perhaps giving yourself whiplash) or swerve, at considerable risk of hitting the other car.  

What should a self-driving car do?  More to the point, if you hit the kid, or the other car, who gets sued?

The lawyer could go after you, with your piddling $250,000 liability policy and approximately 83 cents worth of equity in your home.  Or he could go after the automaker, which has billions in cash, and the ultimate responsibility for whatever decision the car made.  What do you think is going to happen?  

While the number of lawsuits might fall, the expected value of lawsuits would rise dramatically.  If you sue some payroll clerk who lives in a little bungalow, maybe the jury will award you $10 million, but that's not what you're going to collect.  You're going to collect any assets she has that can't be shielded from bankruptcy, which, in the case of the majority of people in the United States, is basically nothing.  This is why most lawsuits settle for equal to or less than the value of your liability insurance; most people are simply not worth suing.  

On the other hand, a $10 million judgement against Ford gets you $10 million.  So you're definitely more likely to sue; you're arguably more likely to win (companies get less sympathy than people); and even if you get exactly the same judgement that you could have gotten against a human defendant, the value of what you actually collect will be much higher.  

So liability is a big problem for any company that wants to manufacture driverless cars.  Perhaps an insurmountable problem.

With approximately 1 squintillion worth of equity, Google can afford to take the risk of putting a couple dozen of these cars on the road.  But I'm not sure whether Ford can afford to put millions of them out there.  Even if the accident rate declines dramatically--as I expect it would--there will still be some accidents.  And unlike now, I expect that almost every one of those accidents would end up as a liability of the manufacturer, rather than the driver.  

Liability awards today are mostly limited by the fact that most drivers do not have a lot of money, and it is not worth pursuing them too hard.  That restraint will not apply in the case of large auto manufacturers, all of which could easily be sued into insolvency, as Dow Corning was over silicone breast implants.

The obvious way to deal with this is to deny that it's a driverless car, and require that the owners sit attentively in the driver's seat at all times.  But at that point, a lot of the really transformative benefits disappear.

If driverless cars happen, I expect they'll be pioneered in Europe, and only grudgingly be adopted here--and only with changes to the liability law, when enough angry Americans complain to their congressmen that they're still sitting behind a steering wheel like goddamn barbarians or something.  But that's probably a very long way off.  

Though of course I would be happy, happy, happy to be wrong again.  


This post has been updated to clarify the point about manufacturer liability.