Liability is generally a much better approach than specific regulation. Lawsuits happen after the fact and concern actual harm suffered by actual people. Damag

Liability is generally a much better approach than specific regulation. Lawsuits happen after the fact and concern actual harm suffered by actual people. Damages are assigned based on this actual harm. That means that in liability system the price of bad behavior is approximately the harm it causes, which is exactly what you want. Liability doesn't require everyone to actually go to court, because almost all lawsuits or threats thereof are settled based on expectations shaped by previous cases that did go to court. Further, class action lawsuits allow large numbers of harmed people to be represented in a single action at no cost to themselves. Regulation, on the other hand, is an ex ante affair. It involves some central planning authority, whether Congress or some administrative agency, trying to create rules that they believe will prevent future problems. The regulator will always get it wrong to some extent, often to a very large extent. Rules can be too specific, stifling innovations that would allow actors to achieve the same or better results with different methods. They can be too strict or too loose. The rule making process is also necessarily slow, so regulations tend to come too late and linger too long after technology has moved on. Finally, regulations are ultimately political, driven by what will translate into votes, not necessarily efficiency. If they represent a right-wing constituency, that will mean looser regulation; if a left-wing constituency, tighter regulation. What's interesting about liability is that companies will buy insurance for it. The insurance companies will demand compliance with certain rules in order to be covered--essentially private regulations. But unlike government regulation, there are multiple competing insurance companies. The resulting market for insurance means that the market searches for the optimal balance between harm prevention and profitability. Insurance companies have a strong incentive to devise the rules that provide the optimum level of security for lowest cost possible.