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Decomposition of Accident Loss and Efficiency of Liability Rules

Author

Listed:
  • Jain Satish K.
  • Kundu Rajendra P.

    (School of Social Sciences, Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi 110067, India)

Abstract

The main purpose of this paper is to show that the set of efficient rules which apportion liability between the victim and the tortfeasor is much larger than is generally believed to be the case. A larger set of efficient rules in general would have the implication of a less sharp conflict between economic efficiency on the one hand and non-efficiency normative criteria on the other. The condition of negligence liability which characterizes efficiency in the context of liability rules has an all-or-none character. Negligence liability requires that if one party is negligent and the other is not then the liability for the entire accident loss must fall on the negligent party. Thus within the framework of standard liability rules efficiency requirements preclude any non-efficiency considerations in situations where one party is negligent and the other is not. In this paper it is shown that accident loss can be decomposed into two parts such that while the apportionment of one part between the parties has bearing on efficiency, the apportionment of the other part has no efficiency implications. The part of accident loss which plays no role in providing appropriate incentives to the parties for taking due care can therefore be apportioned on non-efficiency considerations without in any way compromising the social goal of efficiency. For a systematic analysis of the requirements for efficiency, in this paper a notion more general than that of a liability rule, namely that of a decomposed liability rule, is introduced. A complete characterization of efficient decomposed liability rules is provided in the paper. The most important implication of the theorems of this paper is that by decomposing accident loss into two parts, the scope for non-efficiency considerations can be significantly broadened without sacrificing economic efficiency.

Suggested Citation

  • Jain Satish K. & Kundu Rajendra P., 2015. "Decomposition of Accident Loss and Efficiency of Liability Rules," Review of Law & Economics, De Gruyter, vol. 11(3), pages 453-480, November.
    • Handle: RePEc:bpj:rlecon:v:11:y:2015:i:3:p:453-480:n:4
    DOI: 10.1515/rle-2013-0046
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    References listed on IDEAS

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    1. Parisi Francesco & Singh Ram, 2010. "The Efficiency of Comparative Causation," Review of Law & Economics, De Gruyter, vol. 6(2), pages 219-245, September.
    2. Jain, Satish K. & Kundu, Rajendra P., 2006. "Characterization of efficient simple liability rules with multiple tortfeasors," International Review of Law and Economics, Elsevier, vol. 26(3), pages 410-427, September.
    3. Orr, Daniel, 1991. "The Superiority of Comparative Negligence: Another Vote," The Journal of Legal Studies, University of Chicago Press, vol. 20(1), pages 119-129, January.
    4. Dari-Mattiacci Giuseppe & Hendriks Eva S., 2013. "Relative Fault and Efficient Negligence: Comparative Negligence Explained," Review of Law & Economics, De Gruyter, vol. 9(1), pages 1-40, June.
    5. Chung, Tai-Yeong, 1993. "Efficiency of Comparative Negligence: A Game Theoretic Analysis," The Journal of Legal Studies, University of Chicago Press, vol. 22(2), pages 395-404, June.
    6. Singh Ram, 2007. "Comparative Causation and Economic Efficiency: When Activity Levels are Constant," Review of Law & Economics, De Gruyter, vol. 3(2), pages 383-406, December.
    7. Satish K. Jain & Ram Singh, 2002. "Efficient Liability Rules: Complete Characterization," Journal of Economics, Springer, vol. 75(2), pages 105-124, March.
    8. Oren Bar-Gill & Omri Ben-Shahar, 2003. "The Uneasy Case for Comparative Negligence," American Law and Economics Review, American Law and Economics Association, vol. 5(2), pages 433-469, August.
    9. Emanuela Carbonara & Alice Guerra & Francesco Parisi, 2016. "Sharing Residual Liability: The Cheapest Cost Avoider Revisited," The Journal of Legal Studies, University of Chicago Press, vol. 45(1), pages 173-201.
    10. Miceli, Thomas J., 1997. "Economics of the Law: Torts, Contracts, Property, Litigation," OUP Catalogue, Oxford University Press, number 9780195103908.
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    Cited by:

    1. Papiya Ghosh & Rajendra P. Kunda, 2021. "Decomposition of accident loss and decoupled liability assignment: A class of negligencerules," Working Papers 2157, Indian Institute of Foreign Trade.
    2. Kundu, Rajendra P. & Kaur, Harshil, 2022. "Efficient simple liability assignment rules: A complete characterization," Mathematical Social Sciences, Elsevier, vol. 116(C), pages 22-31.
    3. Papiya Ghosh & Rajendra P. Kundu, 2023. "Decomposition of accident loss and decoupled liability assignment: A class of negligence rules," Indian Economic Review, Springer, vol. 58(1), pages 119-140, June.

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