One of those knotty problems faced by libertarian theorists is the harmful effects on markets of "irrational" awards to the winners of negligence lawsuits.  A recent news story in Arizona highlights the problem.  Doctors in small town Bisbee have recently refused to deliver babies in the local hospital after their annual malpractice insurance premiums jumped from $7000 to $36000.  The result was that Bisbee women have to be driven an additional 35 miles to the hospital in Sierra Vista to give birth.  

Free market advocates might say that the market has properly allocated resources and it's just not efficient to offer birthing service in Bisbee.  But this is unsatisfactory because what good are markets if they don't provide needed services?  Or they might argue that birthing can take place at home with midwives, so there's no need to travel to the hospital.  But this just shifts the liability problem along the professional ladder, since the midwives are subject to the same potential lawsuit and insurance constraints as doctors.  Some might argue that government meddling in the health care industry has created the problem.  But issues of negligence, personal liability, insurance and birthing care are all aspects of markets. 

The problem seems to be that emotional juries, when faced with cases of dead or damaged newborns, award tremendous sums to the bereaved parents.  Before malpractice insurance was common, doctors lost their livelihoods over these cases, so using good free market practices they bought insurance.  Now the juries go after the deep-pockets insurance companies, who are forced in turn to raise their premiums.  It's a spiraling cycle which harms both doctors and patients, and will most likely lead to socialized medicine or "tort reform" out of Washington, which will only serve politically favored groups. 

What's a libertarian to do? 

Not to fear, for the culprit is again the state.  By mandating a tax-supported system of courts, the state has impeded the creation of competing private alternatives, thereby skewing markets through a one-size-fits-all solution.  In a modern state-less society (or one in which the government doesn't run civil law courts), a woman who felt wronged by medical negligence would instruct her protection service provider to seek redress from the doctor's insurance company.  Depending on the type of service contracted for by each party and the policies of the two providers, the matter might be settled through negotiation, third party arbitration or a full jury trial at a venue acceptable to both parties. 

Doctors who bought more "generous" insurance contracts, including those which allowed jury trials, would pay higher premiums and would therefore charge their customers more.  In selecting their doctors, patients would have to balance price against service, knowing that part of the service is the level of insurance carried by the doctor.  Most likely, a negligence charge against a less expensive doctor would never go to trial.  So Bisbee women who want local birthing services will have to pay enough to keep a local doctor or midwife gainfully employed. 

But what if the patient went to the doctor's insurer personally and demanded satisfaction?  If the company was uncooperative and threats to damage the insurer's reputation fell on deaf ears, the patient would have little recourse, for in a stateless society there would be no police or other higher authority to which to appeal.  That's why responsible people would contract for personal protection.  These companies would provide many of the services commonly thought of as governmental functions, including policing, insurance, fire and rescue, and access to the (private) court system for both civil and criminal matters.  But unlike today's compulsory system, customers would have a choice of what level of service they desired and could afford. 

The protection companies only keep customers if they provide real service, so if the insurance company refuses to negotiate, and isn’t easily intimidated, violence may result.  But in general violence isn’t profitable, so negotiation and arbitration would soon be adopted, which is how national governments usually settle their differences. 

"But what if people refuse to contract for such services?" one might ask.  Well, people might smoke too many cigarettes or do other irrational things, but the modern world shows the failure of legislating good behavior. 

"Wouldn't poor people, who couldn't afford such services, be preyed upon?"  Poor people would pay less and get less protection, but they also have less property to be protected.  Instead of buying a "personal protection" package, they might pool their resources by contracting for neighborhood protection services.  For example, a condominium or rental contract might include a fee for fire, police and legal protection.  As part of the decision to move in, customers would determine if the price and level of service was acceptable. 

"Wouldn't all these little protection companies be like criminal gangs, always at war with each other, and if one of them got big wouldn't it just become as bad as the government?"  Violence can only be profitable if the gain from war exceeds the cost,  so incentives would be for protection providers to maintain an adequate self-defense capability, but not to attack their well-defended competitors.  Providers who engaged in unprofitable violence would quickly go out of business.  If the Microsoft of protection providers tried to knock over the competition one by one and morph into The State, we can expect that the smaller providers to form alliances to raise big guy's costs prohibitively.  And if there was the occasional war among protection professionals, it's still preferable to our world's civil wars, which kill tens of thousands of innocent bystanders. 

“But people are just violent, irrational animals whose baser impulses are only kept in check by constant fear of prosecution,” is the retort of really far-gone statists.  Sorry, there’s nothing I can do for you.  Have you considered seeking professional help? 

The real solution to Bisbee's problem is a private, voluntary system of courts.  But until then we can expect ever-worsening medical and other services, along with bigger government.