Safety regulation vs. liability with heterogeneous probabilities of suit
This article deals with the regulation of activities that entail risk by means of regulatory standard and liability. The original assumption is that the probability that parties might escape liability is variable among the population. The use of each instrument separately is first considered. Under liability, the optimal damages are calculated. From this, it is shown that regulation is superior to liability if harm is not too variable within the population and if the probability of suit is sufficiently variable within the population, and conversely. The use of both instruments at the same time is then analyzed. The optimal combination of a safety standard and a liability schedule is derived. From this, it is proved that a joint use of regulation and liability is always optimal and that the instruments should be designed in a less stringent manner when used jointly.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Schmitz, Patrick W., 2000.
"On the joint use of liability and safety regulation,"
International Review of Law and Economics,
Elsevier, vol. 20(3), pages 371-382, September.
- Schmitz, Patrick W., 2000. "On the Joint Use of Liability and Safety Regulation," MPRA Paper 12536, University Library of Munich, Germany.
- Kaplow, Louis & Shavell, Steven, 2002.
"Economic analysis of law,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 25, pages 1661-1784
- Robert D. Cooter, 1991. "Economic Theories of Legal Liability," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 11-30, Summer.
- Sébastien ROUILLON (GREThA), 2008. "Variable Probabilities of Suit and Liability Rules," Cahiers du GREThA 2008-15, Groupe de Recherche en Economie Théorique et Appliquée.
When requesting a correction, please mention this item's handle: RePEc:eee:irlaec:v:28:y:2008:i:2:p:133-139. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.