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On the Optimal Structure of Liability Laws

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  • Jerry Green

Abstract

We consider the control of two-party accidents through the use of liability rules that assign damages according to whether or not predetermined standards for care have been met. Particular emphasis is given to how the differential in the costs of accident avoidance activities affects the optimal legal rule and optimal care standards. It is shown that when the costs are close to uniform across individuals, an approximation to the first-best can be obtained. Moreover, alternative legal rules are equally efficient in achieving this situation. When the differential widens, legal rules will differ in their ability to reach the second-best. In contrast to previous models of liability law, it is shown that the courts must play an active adjudicatory role in the optimal solution.

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Bibliographic Info

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

Volume (Year): 7 (1976)
Issue (Month): 2 (Autumn)
Pages: 553-574

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Handle: RePEc:rje:bellje:v:7:y:1976:i:autumn:p:553-574

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Cited by:
  1. Edlin, Aaron S. & Karaca-Mandic, Pinar, 2005. "The Accident Externality from Driving," Department of Economics, Working Paper Series qt0hw1m6q2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Edlin, Aaron S. & Karaca-Mandic, Pinar, 2005. "The Accident Externality from Driving," Department of Economics, Working Paper Series qt2h23t6rt, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. G. Dari Mattiacci & G.G.A. de Geest, 2004. "The Filtering Effect of Sharing Rules," Working Papers 04-17, Utrecht School of Economics.
  4. Edward P. Lazear, 1986. "Incentive Contracts," NBER Working Papers 1917, National Bureau of Economic Research, Inc.
  5. Laszlo Goerke, 2001. "Accident Law: An Excessive Standard May Be Efficient," CESifo Working Paper Series 625, CESifo Group Munich.
  6. Edlin, Aaron S. & Karaca-Mandic, Pinar, 2007. "The Accident Externality from Driving," Berkeley Olin Program in Law & Economics, Working Paper Series qt6179d3nw, Berkeley Olin Program in Law & Economics.
  7. Edward P. Lazear, 1995. "Culture and Language," NBER Working Papers 5249, National Bureau of Economic Research, Inc.

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