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A Unilateral Accident Model under Ambiguity

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  • Joshua C. Teitelbaum
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    Abstract

    Standard accident models are based on the expected utility framework and represent agents’ beliefs about accident risk with a probability distribution. Consequently, they do not allow for Knightian uncertainty, or ambiguity, with respect to accident risk and cannot accommodate optimism (ambiguity loving) or pessimism (ambiguity aversion). This paper presents a unilateral accident model under ambiguity. To incorporate ambiguity, I adopt the Choquet expected utility framework and represent the injurer’s beliefs with a neoadditive capacity. I show that neither strict liability nor negligence is generally efficient in the presence of ambiguity. In addition, I generally find that the injurer’s level of care decreases (increases) with ambiguity if he is optimistic (pessimistic) and decreases (increases) with his degree of optimism (pessimism). The results suggest that negligence is more robust to ambiguity and, therefore, may be superior to strict liability in unilateral accident cases. Finally, I design an efficient ambiguity-adjusted liability rule.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal The Journal of Legal Studies.

    Volume (Year): 36 (2007)
    Issue (Month): 2 (06)
    Pages: 431-477

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    Handle: RePEc:ucp:jlstud:v:36:y:2007:p:431-477

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    Web page: http://www.journals.uchicago.edu/JLS/

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    Cited by:
    1. Langlais, Eric, 2009. "les criminels aiment-ils le risque ?
      [Are criminals risk-seeking individulas ?]
      ," MPRA Paper 14892, University Library of Munich, Germany.
    2. Eichberger, Jürgen & Grant, Simon & Lefort, Jean-Philippe, 2008. "Neo-additive capacities and updating," Sonderforschungsbereich 504 Publications 08-31, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
    3. Nathalie Chappe & Raphaël Giraud, 2013. "Confidence, Optimism and Litigation: A Litigation Model under Ambiguity," Working Papers 2013-05, CRESE.
    4. Gérard Mondello, 2012. "The Equivalence of Strict Liability and Negligence Rule: A "Trompe l'oeil" Perspective," GREDEG Working Papers 2012-03, Groupe de REcherche en Droit, Économie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    5. Mondello, Gérard, 2012. "La responsabilité environnementale des prêteurs : difficultés juridiques et ensemble des possibles," L'Actualité Economique, Société Canadienne de Science Economique, vol. 88(2), pages 257-278, Juin.
    6. Kaluszka, Marek & Krzeszowiec, Michał, 2012. "Pricing insurance contracts under Cumulative Prospect Theory," Insurance: Mathematics and Economics, Elsevier, vol. 50(1), pages 159-166.
    7. Bhole, Bharat & Wagner, Jeffrey, 2010. "Punitive damages and the recklessness requirement with uninformed injurers," International Review of Law and Economics, Elsevier, vol. 30(3), pages 253-264, September.
    8. Gérard Mondello, 2013. "Ambiguous Beliefs on Damages and Civil Liability Theories"," Post-Print halshs-00929948, HAL.
    9. Eichberger, Jürgen & Grant, Simon & Lefort, Jean-Philippe, 2012. "Generalized neo-additive capacities and updating," Economics Papers from University Paris Dauphine 123456789/7332, Paris Dauphine University.
    10. Langlais, Eric, 2010. "Safety and the Allocation of Costs in Large Accidents," MPRA Paper 25710, University Library of Munich, Germany.

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