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Correlated Accidents

Author

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  • Luigi Alberto Franzoni

Abstract

This article investigates cases in which harms are statistically correlated. When parties are risk averse, correlation plays an important role in the choice between liability rules. Specifically, positively correlated harms favor a liability rule that spreads the risk over a multitude of parties, as in the negligence rule. Negatively correlated harms favor a liability rule that pools risks together, as in strict liability. The same applies when parties can purchase costly insurance (first party or third party).This policy recommendation is in line with current products liability law, which places design defects and warning failures under a de facto negligence regime.

Suggested Citation

  • Luigi Alberto Franzoni, 2016. "Correlated Accidents," American Law and Economics Review, American Law and Economics Association, vol. 18(2), pages 358-384.
    • Handle: RePEc:oup:amlawe:v:18:y:2016:i:2:p:358-384.
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    File URL: http://hdl.handle.net/10.1093/aler/ahw014
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    Cited by:

    1. Luigi Alberto Franzoni, 2024. "Efficient liability law when parties genuinely disagree," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 40(2), pages 416-433.
    2. Luigi Alberto Franzoni, 2019. "Legal Change in the Face of Risk-Averse Subjects: A Generalization of the Theory," American Law and Economics Review, American Law and Economics Association, vol. 21(2), pages 394-430.
    3. Schulte, Elisabeth & Friehe, Tim, 2025. "Disclosure depends on who listens: Revealing harm to consumers and competitors," VfS Annual Conference 2025 (Cologne): Revival of Industrial Policy 325372, Verein für Socialpolitik / German Economic Association.

    More about this item

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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