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Symposium on the Economics of Liability


  • Carl Shapiro


Has the U.S. liability system run amok? Many commentators feel it has, as do many executives who feel that the liability "tax" discourages innovation and ultimately fails to promote safety. On the other hand, economists have ceaselessly pointed out that when one party is made liable for injury caused to another, an externality has been internalized. This symposium is intended to clarify just what economists know about the U.S. liability system: its worth as well as its flaws. The resulting picture is not a pretty one. Often liability is imposed on injurers as a means of compensating and insuring victims, despite the fact that such compensation and insurance could be accomplished much more effectively using direct accident insurance. Liability is an expensive means of providing compensation, since the legal liability system involves large transaction costs, mainly in the form of litigation expenses. Overall, America's institutions for assigning liability are poorly designed to promote economic efficiency.

Suggested Citation

  • Carl Shapiro, 1991. "Symposium on the Economics of Liability," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 3-10, Summer.
  • Handle: RePEc:aea:jecper:v:5:y:1991:i:3:p:3-10 Note: DOI: 10.1257/jep.5.3.3

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    Cited by:

    1. Matter, Ulrich & Stutzer, Alois, 2014. "The Role of Lawyer-Legislators in Shaping the Law: Evidence from Voting Behavior on Tort Reforms," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100452, Verein für Socialpolitik / German Economic Association.
    2. Bachmeier, Lance & Gaughan, Patrick & Swanson, Norman R., 2004. "The volume of federal litigation and the macroeconomy," International Review of Law and Economics, Elsevier, vol. 24(2), pages 191-207, June.
    3. Ulrich Matter & Alois Stutzer, 2013. "Do Lawyer-Legislators Protect Their Business? Evidence from Voting Behavior on Tort Reforms," Working papers 2013/09, Faculty of Business and Economics - University of Basel.
    4. Price V. Fishback & Shawn Everett Kantor, 1994. "Insurance Rationing and the Origins of Workers' Compensation," NBER Working Papers 4943, National Bureau of Economic Research, Inc.
    5. Sjur Didrik Flåm & Elmar G. Wolfstetter, 2015. "Liability Insurance and Choice of Cars: A Large Game Approach," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(6), pages 943-963, December.

    More about this item

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies


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