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Liability insurance under the negligence rule

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Author Info
Marie-Cécile Fagart
Claude Fluet

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Abstract

We incorporate the concept of evidentiary standard to the analysis of the negligence rule under liability insurance and court errors. When the postaccident evidence is privately contractible and not too noisy, efficiency is achieved by both strict liability and a negligence rule with appropriate due care and evidentiary standards. When the evidence is not directly contractible, trial outcomes represent useful contractible information for the risk-incentives tradeoff in the liability insurance policy. Strict liability is then inefficient and dominated by the negligence rule. The negligence rule can itself be improved upon by decoupling damages from the harm suffered by the victim. Copyright (c) 2009, RAND..

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1756-2171.2009.00074.x
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Publisher Info
Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 40 (2009)
Issue (Month): 3 ()
Pages: 486-508
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Handle: RePEc:bla:randje:v:40:y:2009:i:3:p:486-508

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kolstad, Charles D & Ulen, Thomas S & Johnson, Gary V, 1990. "Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?," American Economic Review, American Economic Association, vol. 80(4), pages 888-901, September. [Downloadable!] (restricted)
  2. Kessler, Daniel & McClellan, Mark, 1996. "Do Doctors Practice Defensive Medicine?," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 353-90, May. [Downloadable!] (restricted)
  3. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-32, December. [Downloadable!] (restricted)
  4. Rogerson, William P, 1985. "The First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 53(6), pages 1357-67, November. [Downloadable!] (restricted)
  5. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January. [Downloadable!] (restricted)
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  6. Schweizer, Urs, 2005. "Law and Economics of Obligations," International Review of Law and Economics, Elsevier, vol. 25(2), pages 209-228, June. [Downloadable!] (restricted)
  7. Steven Shavell, 1982. "On Liability and Insurance," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 120-132, Spring. [Downloadable!] (restricted)
  8. Kim, Son Ku, 1995. "Efficiency of an Information System in an Agency Model," Econometrica, Econometric Society, vol. 63(1), pages 89-102, January. [Downloadable!] (restricted)
  9. Claude Fluet, 2006. "Liability Rules under Evidentiary Uncertainty," Cahiers de recherche 0606, CIRPEE. [Downloadable!]
  10. Hart, Oliver & Moore, John, 1999. "Foundations of Incomplete Contracts," Review of Economic Studies, Blackwell Publishing, vol. 66(1), pages 115-38, January. [Downloadable!] (restricted)
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  11. Edlin, Aaron S., 1994. "Efficient standards of due care: Should courts find more parties negligent under comparative negligence?," International Review of Law and Economics, Elsevier, vol. 14(1), pages 21-34, March. [Downloadable!] (restricted)
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  12. Dominique Demougin & Claude Fluet, 1998. "Ranking of Information Systems in Agency Models: An Integral Condition," Cahiers de recherche CREFE / CREFE Working Papers 70, CREFE, Université du Québec à Montréal. [Downloadable!]
  13. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring. [Downloadable!] (restricted)
  14. Steven Shavell, 2003. "Economic Analysis of Accident Law," NBER Working Papers 9694, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Bharat Sarath, 1991. "Uncertain Litigation and Liability Insurance," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 218-231, Summer. [Downloadable!] (restricted)
  16. Daniel P. Kessler & Mark McClellan, 1996. "Do Doctors Practice Defensive Medicine?," NBER Working Papers 5466, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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