Tortious Acts Affecting Markets
AbstractThe present paper examines an injurer causing a temporary blackout to a firm as the primary victim but also affecting customers and competitors of the firm. Reflecting existing legal practice, the paper investigates efficiency properties of the negligence rule granting recovery of private losses but to the primary victim only. The regime is shown to provide efficient incentives for precaution provided that the primary loss exceeds the social loss from accidents. The main contribution of the paper consists of an explicit analysis of markets affected by a temporary blackout of one firm. The analysis reveals that the private loss exceeds the social loss indeed if the market is less than fully competitive. Moreover, the net social loss remains positive, no matter which market structure prevails.
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Bibliographic InfoPaper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 106.
Date of creation: Apr 2006
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Find related papers by JEL classification:
- K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- D62 - Microeconomics - - Welfare Economics - - - Externalities
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- Steven Shavell, 2003.
"Economic Analysis of Accident Law,"
NBER Working Papers
9694, National Bureau of Economic Research, Inc.
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- Gilead, Israel, 1997. "Tort law and internalization: The gap between private loss and social cost," International Review of Law and Economics, Elsevier, vol. 17(4), pages 589-608, December.
- Schweizer, Urs, 2005. "Law and Economics of Obligations," International Review of Law and Economics, Elsevier, vol. 25(2), pages 209-228, June.
- N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
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