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On the superiority of damage averaging in the case of strict liability

  • Baumann, Florian
  • Friehe, Tim

The literature argues that if injurers cannot anticipate the precise level of harm, courts might use expected harm as a magnitude of compensation instead of actual harm without distorting care incentives. This paper shows that the use of expected harm is in fact preferable if victims choose the value of the object placed at risk. If the court were to insist on compensating actual harm, this would result in victims choosing inefficient object values. In contrast, restricting compensation to expected harm yields the first-best outcome.

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File URL: http://www.sciencedirect.com/science/article/B6V7M-4TPPF25-1/2/124ef97677279c8b8137387053aa4138
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Article provided by Elsevier in its journal International Review of Law and Economics.

Volume (Year): 29 (2009)
Issue (Month): 2 (June)
Pages: 138-142

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Handle: RePEc:eee:irlaec:v:29:y:2009:i:2:p:138-142
Contact details of provider: Web page: http://www.elsevier.com/locate/irle

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  1. Guiseppe Dari Mattiaci & G.G.A. de Geest, 2003. "Judgement Proofness under Four Different Precaution Technologies," Working Papers 03-16, Utrecht School of Economics.
  2. Emons,Winand & Sobel,Joel, 1988. "On the effectiveness of liability rules when agents are not identical," Discussion Paper Serie A 212, University of Bonn, Germany.
  3. Louis Kaplow & Steven Shavell, 1993. "Accuracy in the Assessment of Damages," NBER Working Papers 4287, National Bureau of Economic Research, Inc.
  4. Che, Yeon-Koo, 1996. "Equilibrium formation of class action suits," Journal of Public Economics, Elsevier, vol. 62(3), pages 339-361, November.
  5. Shavell, Steven, 2007. "Liability for Accidents," Handbook of Law and Economics, Elsevier.
  6. Marceau, Nicolas & Mongrain, Steeve, 2003. "Damage averaging and the formation of class action suits," International Review of Law and Economics, Elsevier, vol. 23(1), pages 63-74, March.
  7. Thomas J. Miceli, 2006. "On Negligence Rules and Self-Selection," Working papers 2006-26, University of Connecticut, Department of Economics.
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