In this paper we analyse two ways in which liability can be reduced: caps (the "judgment proof problem"), and proportional reductions (the "disappearing defendant problem"). We show that these two problems have different incentive effects and hence yield dissimilar levels of social welfare. Moreover, when they occur simultaneously they may have offsetting effects. We also show that the negligence rule with cause-in-fact may yield lower (rather than higher) levels of social welfare than strict liability. Finally, we analyse the optimal setting of the negligence standard. Our model encompasses different precaution technologies as well as monetary "v". non-monetary precautions. Copyright (c) The London School of Economics and Political Science 2008.
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Article provided by London School of Economics and Political Science in its journal Economica.
Volume (Year): 75 (2008) Issue (Month): 300 (November) Pages: 749-765 Download reference. The following formats are available: HTML
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