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Risk Aversion, the Hand Rule, and Comparison between Strict Liability and the Negligence Rule

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  • Lee Kangoh

    () (Department of Economics, San Diego State University, 5500 Campanile Drive, San Diego, CA 92182–4485, USA)

Abstract

One of the most important propositions in the economics of liability rules states that strict liability and the negligence rule are equivalent and first-best efficient if the standard of due care is set according to the Hand rule. This proposition hinges on the assumption that individuals are risk neutral. This paper considers this proposition with risk-averse individuals, and demonstrates that the proposition does not extend. In particular, the two liability rules are not equivalent, and the analysis compares the two liability rules in terms of utilitarian social welfare.

Suggested Citation

  • Lee Kangoh, 2016. "Risk Aversion, the Hand Rule, and Comparison between Strict Liability and the Negligence Rule," Review of Law & Economics, De Gruyter, vol. 12(2), pages 261-274, July.
  • Handle: RePEc:bpj:rlecon:v:12:y:2016:i:2:p:261-274:n:6
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    References listed on IDEAS

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    1. Privileggi, Fabio & Marchese, Carla & Cassone, Alberto, 2001. "Agent's liability versus principal's liability when attitudes toward risk differ," International Review of Law and Economics, Elsevier, vol. 21(2), pages 181-195, June.
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