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Accident Law: Efficiency May Require an Inefficient Standard

Author

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  • Goerke Laszlo

    (University of Konstanz,Konstanz, Germany)

Abstract

In a world with risk-neutral agents in which accidents occur with a positive probability, liability rules will only induce efficient behaviour if these rules impose the full (marginal) costs of an action on the parties. However, institutional restrictions or bilateral activity choices can prevent the full internalization of costs. A mechanism is proposed which guarantees an efficient outcome: monetary fines which are not related to the occurrence of an accident. Such a mechanism requires individuals to violate the standard of care in order to trigger the fine payments. Hence, efficiency requires an excessive standard.

Suggested Citation

  • Goerke Laszlo, 2002. "Accident Law: Efficiency May Require an Inefficient Standard," German Economic Review, De Gruyter, vol. 3(1), pages 43-51, February.
    • Handle: RePEc:bpj:germec:v:3:y:2002:i:1:p:43-51
    DOI: 10.1111/1468-0475.00051
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    Cited by:

    1. Feldman Allan & Singh Ram, 2021. "Equilibria Under Negligence Liability: How the Standard Claims Fall Apart," Review of Law & Economics, De Gruyter, vol. 17(1), pages 1-33, March.
    2. Allan M Feldman & Ram Singh, 2021. "Equilibria under Liability Rules: How the standard claims fall apart," Working papers 315, Centre for Development Economics, Delhi School of Economics.
    3. Ram Singh, 2006. "On the Existence and Efficiency of Equilibria under Liability Rules," Working papers 150, Centre for Development Economics, Delhi School of Economics.
    4. Laszlo Goerke, 2003. "Road Traffic and Efficient Fines," European Journal of Law and Economics, Springer, vol. 15(1), pages 65-84, January.

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