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Commodifying Liability

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Author Info
Robert Cooter (Boalt Hall, UC Berkeley)
Abstract

In recent years, ingenious entrepreneurs have invented new commodities by bundling contingent claims and marketing them. A liability right can be viewed as a contingent claim and analyzed like stock options or commodity futures. Since law prohibits markets for liability rights, no one knows how they would work. I assume no legal impediments to unbundling, packaging, and selling liability rights. I then predict how a competitive market would price liability rights. I use such an ideal market to critique the actual system of tort liability. Competition can solve many of the problems attributed by courts to contracts that reallocate tort liability.

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Paper provided by Berkeley Olin Program in Law & Economics in its series Berkeley Olin Program in Law & Economics, Working Paper Series with number 1136.

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Date of creation: 29 Sep 1997
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Handle: RePEc:cdl:oplwec:1136

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  1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January. [Downloadable!] (restricted)
  2. Cooter, Robert D., 1980. "How the law circumvents Starrett's nonconvexity," Journal of Economic Theory, Elsevier, vol. 22(3), pages 499-504, June. [Downloadable!] (restricted)
  3. Cook, Philip J & Graham, Daniel A, 1977. "The Demand for Insurance and Protection: The Case of Irreplaceable Commodities," The Quarterly Journal of Economics, MIT Press, vol. 91(1), pages 143-56, February. [Downloadable!] (restricted)
  4. Bernstein, Lisa, 1992. "Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry," Journal of Legal Studies, University of Chicago Press, vol. 21(1), pages 115-57, January.
  5. Rubinstein, A., 1992. "On the Interpretation of two Theoretical Models of Bargaining," Papers 7-92, Tel Aviv - the Sackler Institute of Economic Studies.
  6. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April. [Downloadable!] (restricted)
  7. A. Mitchell Polinsky & Yeon-Koo Che, 1991. "Decoupling Liability: Optimal Incentives for Care and Litigation," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 562-570, Winter. [Downloadable!] (restricted)
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  8. Niskanen, William A, 1975. "Bureaucrats and Politicians," Journal of Law & Economics, University of Chicago Press, vol. 18(3), pages 617-43, December.
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