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On the Existence and Efficiency of Equilibria under Liability Rules

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Author Info
Ram Singh (Delhi School of Economics)

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Abstract

While focus of the mainstream analysis of liability rules has been on negligence based liability, some recent works have recommended sharing of liability between the parties involved in an accident. In this paper, we study the implications of various approaches to liability assignment for the existence and efficiency of equilibria under liability rules. Contrary to what is suggested in the literature, we show that the sharing of liability when parties are either both negligent or both non-negligent does not threaten the existence of equilibria. Moreover, it does not dilute the incentive for the parties to take the due care. Also, we extend the analysis to search for the second-best liability rules; since in view of Shavell (1987) no liability rule can achieve the first best outcome. We show that each of the standard liability rules fails to be efficient even from from a second best perspective. We show that second best efficiency requires loss sharing between non-negligent parties. As implications of our main results, we reexamine some of the existing claims regarding the existence and efficiency of equilibria under liability rules.

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Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 150.

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Length: 37 pages
Date of creation: Sep 2006
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Handle: RePEc:cde:cdewps:150

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Hindley, Brian & Bishop, Bill, 1983. "Accident liability rules and externality," International Review of Law and Economics, Elsevier, vol. 3(1), pages 59-68, June. [Downloadable!] (restricted)
  2. de Meza, David, 1986. "The efficiency of liability law," International Review of Law and Economics, Elsevier, vol. 6(1), pages 107-113, June. [Downloadable!] (restricted)
  3. Emons, Winand, 1990. "Efficient liability rules for an economy with non-identical individuals," Journal of Public Economics, Elsevier, vol. 42(1), pages 89-104, June. [Downloadable!] (restricted)
  4. Chung, Tai-Yeong, 1993. "Efficiency of Comparative Negligence: A Game Theoretic Analysis," Journal of Legal Studies, University of Chicago Press, vol. 22(2), pages 395-404, June.
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  5. Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, vol. 70(2), pages 363-67, May. [Downloadable!] (restricted)
  6. Kahan, Marcel, 1989. "Causation and Incentives to Take Care under the Negligence Rule," Journal of Legal Studies, University of Chicago Press, vol. 18(2), pages 427-47, June.
  7. Dhammika Dharmapala & Sandra A. Hoffmann, 2002. "Bilateral Accidents with Intrinsically Interdependent Costs of Precaution," Working papers 2002-11, University of Connecticut, Department of Economics. [Downloadable!]
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  8. Edlin, Aaron S., 1994. "Efficient standards of due care: Should courts find more parties negligent under comparative negligence?," International Review of Law and Economics, Elsevier, vol. 14(1), pages 21-34, March. [Downloadable!] (restricted)
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  9. Marks, Stephen, 1994. "Discontinuities, Causation, and Grady's Uncertainty Theorem," Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 287-301, January.
  10. Emons, Winand & Sobel, Joel, 1991. "On the Effectiveness of Liability Rules when Agents Are Not Identical," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 375-90, April. [Downloadable!] (restricted)
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  11. Emons,Winand, 1988. "Efficient liability rules for an economy," Discussion Paper Serie A 213, University of Bonn, Germany.
  12. Steven Shavell, 2003. "Economic Analysis of Accident Law," NBER Working Papers 9694, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. repec:bep:rlecon:3:2007:2:8 is not listed on IDEAS
  14. Francesco Parisi, 2004. "Comparative Causation," American Law and Economics Review, Oxford University Press, vol. 6(2), pages 345-368.
  15. Yu-Ping Liao & Michelle J. White, 2002. "No-Fault for Motor Vehicles: An Economic Analysis," American Law and Economics Review, Oxford University Press, vol. 4(2), pages 258-294.
  16. Paul Burrows, 1999. "A Deferential Role for Efficiency Theory in Analysing Causation-Based Tort Law," European Journal of Law and Economics, Springer, vol. 8(1), pages 29-49, July. [Downloadable!] (restricted)
  17. Laszlo Goerke, 2002. "Accident Law: Efficiency May Require an Inefficient Standard," German Economic Review, Blackwell Publishing, vol. 3(1), pages 43-51, 02. [Downloadable!] (restricted)
  18. Oren Bar-Gill & Omri Ben-Shahar, 2003. "The Uneasy Case for Comparative Negligence," American Law and Economics Review, Oxford University Press, vol. 5(2), pages 433-469, August.
  19. Feldman, Allan M. & Frost, John M., 1998. "A simple model of efficient tort liability rules," International Review of Law and Economics, Elsevier, vol. 18(2), pages 201-215, June. [Downloadable!] (restricted)
  20. Arlen, Jennifer H., 1990. "Re-examining liability rules when injurers as well as victims suffer losses," International Review of Law and Economics, Elsevier, vol. 10(3), pages 233-239, December. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Allan M Feldman & Ram Singh, 2008. "Comparative Vigilance," Working Papers 2008-9, Brown University, Department of Economics. [Downloadable!]
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  2. Allan M Feldman & Ram Singh, 2008. "Comparative Vigilance: a Simple Guide," Working Papers 2008-11, Brown University, Department of Economics. [Downloadable!]
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