AbstractThe purpose of professional liability is viewed as the deterrence of negligence. Conditions necessary for the malpractice system to provide appropriate incentives for injury prevention are described. The operation of the system is compared to this theoretical ideal. Evidence is presented on the number of claims relative to injuries; the disposition of claims through the courts; the effects of tort reforms: the efficiency of insurance mechanisms; and causes and solutions of the 1975 malpractice insurance crisis. The overall efficiency of the system is evaluated and proposals for reform are discussed.