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When Will Judgment Proof Injurers Take Too Much Precaution?

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  • Giuseppe Dari Mattiacci

    (Utrecht University)

  • Gerrit De Geest

    (Utrecht University)

Abstract

Judgment proof injurers can be expected to take less than optimal precaution, as they bear only a part of the accident loss. However, it has been showed that under certain conditions the judgment proof problem can lead to overprecaution. We argue that overprecaution can never occur in magnitude models (where more precaution only reduces the magnitude of the harm) as opposed to the probability models traditionally used in the literature (where more precaution only reduces the probability of the accident). We also analyze mixed models and discuss the policy implications of our analysis.

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Bibliographic Info

Paper provided by Berkeley Electronic Press in its series German Working Papers in Law and Economics with number 2002-1-1051.

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Handle: RePEc:bep:dewple:2002-1-1051

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Keywords: insolvency; judgment proof problem; liability; bankruptcy; overprecaution;

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References

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  1. Steven Shavell, 1983. "Liability for Harm Versus Regulation of Safety," NBER Working Papers 1218, National Bureau of Economic Research, Inc.
  2. Thomas J. Miceli & Kathleen Segerson, 2001. "A Note on Optimal Care by Wealth-Constrained Injurers," Working papers 2002-44, University of Connecticut, Department of Economics, revised May 2002.
  3. T. Randolph Beard, 1990. "Bankruptcy and Care Choice," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 626-634, Winter.
  4. Schmitz, Patrick W., 2000. "On the joint use of liability and safety regulation," International Review of Law and Economics, Elsevier, vol. 20(3), pages 371-382, September.
  5. 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.
  6. Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, vol. 6(1), pages 45-58, June.
  7. DIONNE, George & EECKHOUDT, Louis, . "Self-insurance, self-protection and increased risk aversion," CORE Discussion Papers RP -623, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Christian Gollier & Pierre-François Koehl & Jean-Charles Rochet, 1996. "Risk-Taking Behavior with Limited Liability and Risk Aversion," Center for Financial Institutions Working Papers 96-13, Wharton School Center for Financial Institutions, University of Pennsylvania.
  9. Boyd, James & Ingberman, Daniel E, 1994. "Noncompensatory Damages and Potential Insolvency," The Journal of Legal Studies, University of Chicago Press, vol. 23(2), pages 895-910, June.
  10. Richard MacMinn, 2002. "On the Judgment Proof Problem," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 27(2), pages 143-152, December.
  11. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug..
  12. Kahan, Marcel, 1989. "Causation and Incentives to Take Care under the Negligence Rule," The Journal of Legal Studies, University of Chicago Press, vol. 18(2), pages 427-47, June.
  13. Rose-Ackerman, Susan, 1991. "Regulation and the Law of Torts," American Economic Review, American Economic Association, vol. 81(2), pages 54-58, May.
  14. Steven Shavell, 2002. "Minimum Asset Requirements," NBER Working Papers 9335, National Bureau of Economic Research, Inc.
  15. Giuseppe Dari-Mattiacci & Gerrit De Geest, 2005. "Judgment Proofness under Four Different Precaution Technologies," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(1), pages 38-, March.
  16. Boyd, James & Ingberman, Daniel E., 1999. "Do punitive damages promote deterrence?1," International Review of Law and Economics, Elsevier, vol. 19(1), pages 47-68, March.
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Citations

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Cited by:
  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. Guiseppe Dari-Mattiacci, 2006. "Limiting Limited Liability," Tinbergen Institute Discussion Papers 06-070/1, Tinbergen Institute.
  3. Tim Friehe, 2008. "On judgment proofness in the case of bilateral harm," European Journal of Law and Economics, Springer, vol. 26(2), pages 175-185, October.
  4. G.G.A. de Geest & G. Dari Mattiacci, 2005. "Soft Regulators, though judges," Working Papers 05-06, Utrecht School of Economics.
  5. Gérard Mondello, 2012. "Strict Liability, Capped Strict Liability, and Care Effort under Asymmetric Information," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(2), pages 232-251, June.
  6. van 't Veld, Klaas & Hutchinson, Emma, 2009. "Excessive spending by firms to avoid accidents: Is it a concern in practice?," International Review of Law and Economics, Elsevier, vol. 29(4), pages 324-335, December.
  7. Giuseppe Dari-Mattiacci & Gerrit De Geest, 2005. "Judgment Proofness under Four Different Precaution Technologies," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(1), pages 38-, March.
  8. Sandrine SPAETER & Julien JACOB, 2014. "Large-scale risks and technological change: What about limited liability?," Working Papers of BETA 2014-10, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  9. repec:ebl:ecbull:v:11:y:2006:i:1:p:1-7 is not listed on IDEAS
  10. Tim Friehe, 2007. "A note on judgment proofness and risk aversion," European Journal of Law and Economics, Springer, vol. 24(2), pages 109-118, October.
  11. Nussim, Jacob & Tabbach, Avraham D., 2009. "A revised model of unilateral accidents," International Review of Law and Economics, Elsevier, vol. 29(2), pages 169-177, June.

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