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A Further Justification for the Negligence Rule

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  • Dominique Demougin

    ()
    (Otto-von-Guericke Universität)

  • Claude Fluet

    ()
    (Economics Department, UQAM)

Abstract

We use a principal-agent framework to reexamine the implications of the negligence and strict liability rules when the tort-feasor is an agency. We assume a unilateral care situation and consider both the cases of moral hazard and of adverse selection. In both instances the negligence rule is shown to Pareto dominate the strict liability rule when the activity level is exogenously given. We find a simple condition which guarantees that the result extends to an endogenous activity level. We also examine the case where this condition is not satisfied.

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Bibliographic Info

Paper provided by Université du Québec à Montréal, Département des sciences économiques in its series Cahiers de recherche du Département des sciences économiques, UQAM with number 9801.

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Length: 16
Date of creation: Nov 1998
Date of revision:
Publication status: published in International Review of Law and Economics; 19(1), March 1999, pages 33-45.
Handle: RePEc:cre:uqamwp:9801

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Related research

Keywords: Negligence rule; Tort Law; Moral Hazard; Adverse Selection;

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Cited by:
  1. Feess, E. & Hege, U., 2000. "Safety Monitoring, Capital Structure, and "Financial Responsibility"," Discussion Paper 2000-33, Tilburg University, Center for Economic Research.
  2. Gérard Mondello, 2012. "The Equivalence of Strict Liability and Negligence Rule: A « Trompe l'œil » Perspective," Working Papers 2012.08, Fondazione Eni Enrico Mattei.
  3. Schweizer, Urs, 2011. "Vicarious Liability and the Intensity Principle," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 364, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Bisso, Juan Carlos & Choi, Albert H., 2008. "Optimal agency contracts: The effect of vicarious liability and judicial error," International Review of Law and Economics, Elsevier, vol. 28(3), pages 166-174, September.
  5. Zivin, Joshua Graff & Just, Richard E. & Zilberman, David, 2005. "Risk Aversion, Liability Rules, and Safety," International Review of Law and Economics, Elsevier, vol. 25(4), pages 604-623, December.
  6. Henry van Egteren & R. Smith & Dean McAfee, 2004. "Harmonization of Environmental Regulations When Firms are Judgment Proof," European Journal of Law and Economics, Springer, vol. 17(2), pages 139-164, March.

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