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Liability Rules, Limited Information, and the Role of Precedent

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  • Robert Cooter
  • Lewis Kornhauser
  • David Lane
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    Abstract

    Recent studies of the role of law in distributing accident costs have led to the pessimistic conclusion that because judges lack the information to discover the efficient level of care, efficiency cannot be achieved by common law tort rules. We show that judges have enough information to revise the legal standard via the mechanism of precedent so that the standard adopted tends toward efficiency. This optimistic conclusion results from changing previous models so that the level of care taken by litigants affects the information available to the court, but does not directly influence the legal standard. We model a sequence of court decisions by differential equations and show that the unique, stable equilibrium is efficient.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal Bell Journal of Economics.

    Volume (Year): 10 (1979)
    Issue (Month): 1 (Spring)
    Pages: 366-373

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    Handle: RePEc:rje:bellje:v:10:y:1979:i:spring:p:366-373

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    Cited by:
    1. Dyar, Julie A. & Wagner, Jeffrey, 2003. "Uncertainty and species recovery program design," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 505-522, March.
    2. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2002. "Law and finance : why does legal origin matter?," Policy Research Working Paper Series 2904, The World Bank.
    3. Ott, Claus & Schafer, Hans-Bernd, 1997. "Negligence as untaken precaution, limited information, and efficient standard formation in the civil liability system," International Review of Law and Economics, Elsevier, vol. 17(1), pages 15-29, March.
    4. Hadfield, Gillian K., 2011. "The dynamic quality of law: The role of judicial incentives and legal human capital in the adaptation of law," Journal of Economic Behavior & Organization, Elsevier, vol. 79(1-2), pages 80-94, June.
    5. Anthony Niblett & Richard A. Posner & Andrei Shleifer, . "The Evolution of a Legal Rule," Working Paper 19510, Harvard University OpenScholar.
    6. Thorsten Beck & Asli Demirguc-Kunt & Ross Levine, 2004. "Law and Firms' Access to Finance," NBER Working Papers 10687, National Bureau of Economic Research, Inc.
    7. Scott Baker & Claudio Mezzetti, 2012. "A Theory of Rational Jurisprudence," Journal of Political Economy, University of Chicago Press, vol. 120(3), pages 513 - 551.
    8. Beck, T.H.L. & Levine, R., 2005. "Legal institutions and financial development," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3508406, Tilburg University.
    9. Nicola Gennaioli & Andrei Shleifer, 2007. "Overruling and the Instability of Law," NBER Working Papers 12913, National Bureau of Economic Research, Inc.

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