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Safety regulation vs. liability with heterogeneous probabilities of suit

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  • Rouillon, Sebastien

Abstract

This article deals with the regulation of activities that entail risk by means of regulatory standard and liability. The original assumption is that the probability that parties might escape liability is variable among the population. The use of each instrument separately is first considered. Under liability, the optimal damages are calculated. From this, it is shown that regulation is superior to liability if harm is not too variable within the population and if the probability of suit is sufficiently variable within the population, and conversely. The use of both instruments at the same time is then analyzed. The optimal combination of a safety standard and a liability schedule is derived. From this, it is proved that a joint use of regulation and liability is always optimal and that the instruments should be designed in a less stringent manner when used jointly.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Law and Economics.

Volume (Year): 28 (2008)
Issue (Month): 2 (June)
Pages: 133-139

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Handle: RePEc:eee:irlaec:v:28:y:2008:i:2:p:133-139

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Web page: http://www.elsevier.com/locate/irle

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References

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  1. Schmitz, Patrick W., 2000. "On the joint use of liability and safety regulation," International Review of Law and Economics, Elsevier, vol. 20(3), pages 371-382, September.
  2. Louis Kaplow & Steven Shavell, 1999. "Economic Analysis of Law," NBER Working Papers 6960, National Bureau of Economic Research, Inc.
  3. Sébastien ROUILLON (GREThA), 2008. "Variable Probabilities of Suit and Liability Rules," Cahiers du GREThA 2008-15, Groupe de Recherche en Economie Théorique et Appliquée.
  4. Robert D. Cooter, 1991. "Economic Theories of Legal Liability," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 11-30, Summer.
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Cited by:
  1. Reinshagen, Felix, 2011. "Standards and Incentives in Safety Regulation," Munich Dissertations in Economics 13430, University of Munich, Department of Economics.
  2. Tim Friehe & Eric Langlais, 2014. "On the Political Economy of Public Safety Investments," EconomiX Working Papers 2014-8, University of Paris West - Nanterre la Défense, EconomiX.
  3. Grajzl, Peter & Baniak, Andrzej, 2009. "Industry self-regulation, subversion of public institutions, and social control of torts," International Review of Law and Economics, Elsevier, vol. 29(4), pages 360-374, December.

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