Should states be liable towards individuals for failure to provide justice, good roads or timely administrative decisions? In this paper, we show that state liability can serve three different purposes, none of which implies that the state should be liable in tort, unless other specific conditions are met. One purpose is to provide incentives for state agencies and private individuals to act efficiently. Here, the effectiveness of liability depends on the channeling of incentives down the chain of command to the acting state employee. The second purpose of state liability is to remove incentives for private parties, when these incentives are distorted, as when compensating for wrongful conviction. The third aim of state liability is to allow a higher level of the administration to monitor the behavior of a lower level. In this case, the judicial system and private parties are means towards the end of generating information about wrongful behavior by public bodies and agencies. Within this framework, we discuss substantive and procedural aspects of state liability in torts. We provide an economic argument for court specialization in administrative law and explain why the different solutions around the world could be appropriate under local determinants.