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Contractor selection problem under extended liability

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  • Ichinose, Daisuke

Abstract

This paper solves the problem of a principal firm's choice of contracting agents under extended liability, where agents have the possibility of causing an accident and also are at risk of becoming insolvent. The analysis shows that the negligence rule for contracting agents enhances the price competitiveness of the agent who takes proper precautions and thus that the liability rule consisting of the negligence rule on contracting agents that extends liability to the principal firm is superior to other types of liability rules.

Suggested Citation

  • Ichinose, Daisuke, 2011. "Contractor selection problem under extended liability," International Review of Law and Economics, Elsevier, vol. 31(1), pages 48-57, March.
  • Handle: RePEc:eee:irlaec:v:31:y:2011:i:1:p:48-57
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    References listed on IDEAS

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    7. Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, vol. 70(2), pages 363-367, May.
    8. Kraakman, Reiner H, 1986. "Gatekeepers: The Anatomy of a Third-Party Enforcement Strategy," Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(1), pages 53-104, Spring.
    9. Tracy R. Lewis & David E. M. Sappington, 2001. "How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk: Comment," American Economic Review, American Economic Association, vol. 91(3), pages 724-730, June.
    10. Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, vol. 6(1), pages 45-58, June.
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