On the superiority of damage averaging in the case of strict liability
AbstractThe literature argues that if injurers cannot anticipate the precise level of harm, courts might use expected harm as a magnitude of compensation instead of actual harm without distorting care incentives. This paper shows that the use of expected harm is in fact preferable if victims choose the value of the object placed at risk. If the court were to insist on compensating actual harm, this would result in victims choosing inefficient object values. In contrast, restricting compensation to expected harm yields the first-best outcome.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Law and Economics.
Volume (Year): 29 (2009)
Issue (Month): 2 (June)
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Web page: http://www.elsevier.com/locate/irle
Strict liability Incentives Unilateral care Endogenous harm Averaging;
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