During the past decade medical malpractice litigation has created problems and concern within the medical and legal professions, the malpractice insurance industry, and for healthcare patients. The purpose of this dissertation was to analyze and evaluate the ability of the negligence standard of civil liability to facilitate efficient resource allocation between physicians and their patients. The analysis also attempted to determine whether or not the negligence rule of liability is an effective means of ensuring that cost-justified levels of precaution will be undertaken and that the efficient levels of iatrogenic injuries will result. The negligence standard is not the appropriate liability assignment for activities involving direct contact between buyers (patients) and sellers (physicians). Transaction and negotiation costs are not so high as to engender significant negative externalities and to result in inefficient resource allocation. Tort liability is a problematic and costly system of victim compensation. The study concluded that most personal injuries arising from medical treatment should be allocated contractually between physicians and patients. Assigning more liability for adverse outcomes to patients would not likely reduce the quality of health care while allowing the parties involved to assume voluntarily the appropriate level of risks. / Ph. D.