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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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
Find related papers by JEL classification: D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability
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