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Least-Cost Avoidance: The Tragedy of Common Safety

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  • Nuno Garoupa

Abstract

This article shows that the least-cost avoider approach in tort is not necessarily the optimal way to attain least-cost avoidance when accidents can be avoided by either of two parties. When parties do not observe each other's costs of care at the time of the accident and are unable to determine which party is the least-cost avoider, they fail to anticipate the outcome of the adjudication. Under these circumstances, accident avoidance becomes a commons problem because care by each individual party reduces the prospect of liability for both parties. As a result, parties suboptimally invest in care. We show that regulation removes this problem and is superior to tort liability both when parties act simultaneously and when they act sequentially. We further examine how different liability rules perform in this respect. (JEL K13, K32) The Author 2007. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Journal of Law, Economics, & Organization.

Volume (Year): 25 (2009)
Issue (Month): 1 (May)
Pages: 235-261

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Handle: RePEc:oup:jleorg:v:25:y:2009:i:1:p:235-261

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  1. Juan José Ganuza & Fernando Gómez, 2003. "Optimal negligence rule under limited liability," Economics Working Papers 759, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2004.
  2. A. Mitchell Polinsky & Yeon-Koo Che, 1991. "Decoupling Liability: Optimal Incentives for Care and Litigation," NBER Working Papers 3634, National Bureau of Economic Research, Inc.
  3. Alon Harel & Assaf Jacob, 2001. "An Economic Rationale for the Legal Treatment of Omissions in Tort Law," Discussion Paper Series dp281, The Center for the Study of Rationality, Hebrew University, Jerusalem.
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  6. Ben-Shahar, Omri, 1998. "Should Products Liability Be Based on Hindsight?," Journal of Law, Economics and Organization, Oxford University Press, vol. 14(2), pages 325-57, October.
  7. H. Scott Gordon, 1954. "The Economic Theory of a Common-Property Resource: The Fishery," Journal of Political Economy, University of Chicago Press, vol. 62, pages 124.
  8. Chung, T.Y., 1992. "Efficiency of Comparative Negligence: A Game Theoretic Analysis," UWO Department of Economics Working Papers 9215, University of Western Ontario, Department of Economics.
  9. Peter A. Diamond & James A. Mirrlees, 1975. "On the Assignment of Liability: The Uniform Case," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 487-516, Autumn.
  10. G. Dari Mattiacci & G.G.A. de Geest, 2004. "The Filtering Effect of Sharing Rules," Working Papers 04-17, Utrecht School of Economics.
  11. Craswell, Richard & Calfee, John E, 1986. "Deterrence and Uncertain Legal Standards," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 279-303, Fall.
  12. Burrows, Paul, 1999. "Combining regulation and legal liability for the control of external costs," International Review of Law and Economics, Elsevier, vol. 19(2), pages 227-244, June.
  13. 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.
  14. Schmitz, Patrick W., 2000. "On the Joint Use of Liability and Safety Regulation," MPRA Paper 12536, University Library of Munich, Germany.
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Cited by:
  1. Dieter Schmidtchen & Christian Koboldt & Jenny Monheim & Birgit Will & Georg Haas, . "The Internalisation of External Costs in Transport: From the Polluter Pays to the Cheapest Cost Avoider Principle," German Working Papers in Law and Economics 2008-1-1214, Berkeley Electronic Press.
  2. Jacobi, Osnat & Weiss, Avi, 2013. "Allocation of fault in contract law," International Review of Law and Economics, Elsevier, vol. 36(C), pages 1-11.
  3. D’Antoni, Massimo & Tabbach, Avraham D., 2014. "Inadequate compensation and multiple equilibria," International Review of Law and Economics, Elsevier, vol. 38(C), pages 33-47.

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