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On the Existence and Efficiency of Equilibria Under Liability Rules

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  • Ram Singh

Abstract

While the focus of mainstream economic analysis of liability rules remains on negligence liability, recently some legal scholars have argued for the sharing of liability. In this paper, our first objective is contribute to the debate regarding the desirability of the sharing of liability for the accident loss. To this end, we study the implications of various approaches toward liability assignment for the existence and efficiency of equilibria. In particular, we analyze the proposal of Calabresi and Cooper (1996). 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 incentives for the parties to take the due care. Our second objective is to extend the efficiency analysis beyond Shavell (1980, 1987) and Miceli (1997), to search for the second-best liability rules. We show that each of the standard liability rules fails to be efficient even from a second-best perspective. Furthermore, we show that second-best efficiency requires loss sharing between non-negligent parties. As corollaries to 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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12625.

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Date of creation: Oct 2006
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Handle: RePEc:nbr:nberwo:12625

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  1. Emons, Winand & Sobel, Joel, 1991. "On the Effectiveness of Liability Rules when Agents Are Not Identical," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 375-90, April.
  2. Kahan, Marcel, 1989. "Causation and Incentives to Take Care under the Negligence Rule," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 18(2), pages 427-47, June.
  3. David Kaye & Mikel Aickin, 1984. "A Comment on Causal Apportionment," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 13(1), pages 191-208, January.
  4. Steven Shavell, 2003. "Economic Analysis of Accident Law," NBER Working Papers, National Bureau of Economic Research, Inc 9694, National Bureau of Economic Research, Inc.
  5. Chung, T.Y., 1992. "Efficiency of Comparative Negligence: A Game Theoretic Analysis," UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics 9215, University of Western Ontario, Department of Economics.
  6. Arlen, Jennifer H., 1990. "Re-examining liability rules when injurers as well as victims suffer losses," International Review of Law and Economics, Elsevier, Elsevier, vol. 10(3), pages 233-239, December.
  7. Feldman, Allan M. & Frost, John M., 1998. "A simple model of efficient tort liability rules," International Review of Law and Economics, Elsevier, Elsevier, vol. 18(2), pages 201-215, June.
  8. Laszlo Goerke, 2002. "Accident Law: Efficiency May Require an Inefficient Standard," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 3(1), pages 43-51, 02.
  9. Dhammika Dharmapala & Sandra A. Hoffmann, 2002. "Bilateral Accidents with Intrinsically Interdependent Costs of Precaution," Working papers, University of Connecticut, Department of Economics 2002-11, University of Connecticut, Department of Economics.
  10. Paul Burrows, 1999. "A Deferential Role for Efficiency Theory in Analysing Causation-Based Tort Law," European Journal of Law and Economics, Springer, Springer, vol. 8(1), pages 29-49, July.
  11. Hindley, Brian & Bishop, Bill, 1983. "Accident liability rules and externality," International Review of Law and Economics, Elsevier, Elsevier, vol. 3(1), pages 59-68, June.
  12. Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, American Economic Association, vol. 70(2), pages 363-67, May.
  13. Oren Bar-Gill & Omri Ben-Shahar, 2003. "The Uneasy Case for Comparative Negligence," American Law and Economics Review, Oxford University Press, Oxford University Press, vol. 5(2), pages 433-469, August.
  14. Emons, Winand, 1990. "Efficient liability rules for an economy with non-identical individuals," Journal of Public Economics, Elsevier, Elsevier, vol. 42(1), pages 89-104, June.
  15. Emons,Winand, 1988. "Efficient liability rules for an economy," Discussion Paper Serie A, University of Bonn, Germany 213, University of Bonn, Germany.
  16. Yu-Ping Liao & Michelle J. White, 2002. "No-Fault for Motor Vehicles: An Economic Analysis," American Law and Economics Review, Oxford University Press, Oxford University Press, vol. 4(2), pages 258-294.
  17. Francesco Parisi, 2004. "Comparative Causation," American Law and Economics Review, Oxford University Press, Oxford University Press, vol. 6(2), pages 345-368.
  18. Aaron S. Edlin., 1993. "Efficient Standards of Due Care: Should Courts Find More Parties Negligent Under Comparative Negligence?," Economics Working Papers, University of California at Berkeley 93-218, University of California at Berkeley.
  19. Miceli, Thomas J., 1997. "Economics of the Law: Torts, Contracts, Property, Litigation," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195103908, October.
  20. Singh Ram, 2007. "Comparative Causation and Economic Efficiency: When Activity Levels are Constant," Review of Law & Economics, De Gruyter, De Gruyter, vol. 3(2), pages 383-406, December.
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Cited by:
  1. Allan M. Feldman & Ram Singh, 2009. "Comparative Vigilance," American Law and Economics Review, Oxford University Press, Oxford University Press, vol. 11(1), pages 134-161.
  2. Parisi Francesco & Singh Ram, 2010. "The Efficiency of Comparative Causation," Review of Law & Economics, De Gruyter, De Gruyter, vol. 6(2), pages 219-245, September.
  3. FRANCESCO PARISI & Ram Singh, 2009. "Efficiency Of Equilibria Under Comparative Causation," Working papers, Centre for Development Economics, Delhi School of Economics 179, Centre for Development Economics, Delhi School of Economics.
  4. Allan M Feldman & Ram Singh, 2008. "Comparative Vigilance: a Simple Guide," Working Papers, Brown University, Department of Economics 2008-11, Brown University, Department of Economics.

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