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On the Effectiveness of Liability Rules when Agents Are Not Identical

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  • Emons, Winand
  • Sobel, Joel

Abstract

This paper is about accidents involving two risk-neutral parties. Both parties engage in actions that are profitable but affect the magnitude of possible bilateral accidents. The authors analyze how the action choices can be decentralized by liability rules that assign the accident costs. If the authors allow for punitive damages, they can implement the first-best actions by a liability rule even if agents are not identical. Under this liability rule, some individuals may be in expectation better off in the event of an accident than in the event of no accident. The authors provide conditions under which this problem does not arise. Copyright 1991 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 58 (1991)
Issue (Month): 2 (April)
Pages: 375-90

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Handle: RePEc:bla:restud:v:58:y:1991:i:2:p:375-90

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Cited by:
  1. Bartsch, Elga, 1997. "Environmental liability, imperfect information, and multidimensional pollution control," International Review of Law and Economics, Elsevier, vol. 17(1), pages 139-146, March.
  2. Cooter, Robert D. & Emons, Winand, 2000. "Truth-Bonding and Other Truth-Revealing Mechanisms for Courts," Berkeley Olin Program in Law & Economics, Working Paper Series qt35j9s08h, Berkeley Olin Program in Law & Economics.
  3. Gonz�lez, Patrick, 2003. "Optimal Assignment of Liabilities," Cahiers de recherche 0305, GREEN.
  4. Ram Singh, 2004. "‘Full’ Compensation Criteria: An Enquiry into Relative Merits," European Journal of Law and Economics, Springer, vol. 18(2), pages 223-237, September.
  5. Chen, Yongmin & Hua, Xinyu, 2010. "Ex ante Investment, Ex post Remedy, and Product Liability," MPRA Paper 22031, University Library of Munich, Germany.
  6. Hoffmann, Sandra & Schwartz, Warren & Dharmapala, Dhammika, 2001. "A Neglected Interdependency in Liability Theory," Discussion Papers dp-01-13, Resources For the Future.
  7. Dhammika Dharmapala & Sandra A. Hoffmann, 2005. "Bilateral Accidents with Intrinsically Interdependent Costs of Precaution," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 239-272, 01.
  8. Ram Singh, 2006. "On the Existence and Efficiency of Equilibria Under Liability Rules," NBER Working Papers 12625, National Bureau of Economic Research, Inc.
  9. Giuseppe Dari-Mattiacci & Gerrit De Geest, 2005. "The Filtering Effect of Sharing Rules," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 207-237, 01.
  10. Winand Emons, 2005. "Perjury versus Truth Revelation: Quantity or Quality of Testimony," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(3), pages 392-, September.
  11. Baumann, Florian & Friehe, Tim, 2009. "On the superiority of damage averaging in the case of strict liability," International Review of Law and Economics, Elsevier, vol. 29(2), pages 138-142, June.
  12. Bartsch, Elga, 1996. "Enforcement of environmental liability in the case of uncertain causality and asymmetric information," Kiel Working Papers 755, Kiel Institute for the World Economy.
  13. Steven Shavell, 2005. "Liability for Accidents," NBER Working Papers 11781, National Bureau of Economic Research, Inc.
  14. Ram Singh, 2008. "Risk, Informational Asymmetry and Product Liability; An enquiry into conflicting objectives," Working papers 164, Centre for Development Economics, Delhi School of Economics.
  15. Robert Cooter & Winand Emons, 2003. "Truth-Revealing Mechanisms for Courts," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(2), pages 259-, June.
  16. Patrick González, 2004. "Nash Implementable Liability Rules for Judgement-Proof Injurers," CIRANO Working Papers 2004s-58, CIRANO.

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