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Bilateral Accidents with Intrinsically Interdependent Costs of Precaution

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  • Dhammika Dharmapala
  • Sandra A. Hoffmann

Abstract

The standard economic model of bilateral precaution postulates that the care that is taken by injurers and victims affects only expected accident loss. This paper considers situations in which each party’s precaution also directly affects the other party’s cost of taking precaution. When this additional externality is introduced into a model of unilateral harm, none of the standard tort liability rule induce socially optimal behavior by both parties. Moreover, under a contributory negligence rule, the only equilibrium is in mixed strategies; this gives rise to the possibility of litigation in equilibrium. “Tortlike†liability rules that can induce socially optimal care by both parties are characterized. The model is then extended to consider the case of bilateral harm, in which all negligence-based tort rules lead to socially optimal care by both parties, as long as each can sue to recover its full accident losses.

Suggested Citation

  • Dhammika Dharmapala & Sandra A. Hoffmann, 2005. "Bilateral Accidents with Intrinsically Interdependent Costs of Precaution," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 239-272, January.
  • Handle: RePEc:ucp:jlstud:v:34:y:2005:p:239-272
    DOI: 10.1086/425598
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    References listed on IDEAS

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    Cited by:

    1. Dari-Mattiacci, Giuseppe & Langlais, Eric, 2012. "Social Wealth and Optimal Care," International Review of Law and Economics, Elsevier, vol. 32(2), pages 271-284.
    2. Friehe, Tim & Langlais, Eric, 2015. "On the political economy of public safety investments," International Review of Law and Economics, Elsevier, vol. 41(C), pages 7-16.
    3. RajendraP. Kundu, 2009. "Efficiency Of Liability Rules With Interdependent Costs Of Care," Pacific Economic Review, Wiley Blackwell, vol. 14(1), pages 71-88, February.
    4. Tim Friehe, 2008. "On judgment proofness in the case of bilateral harm," European Journal of Law and Economics, Springer, vol. 26(2), pages 175-185, October.
    5. Nuno Garoupa, 2009. "Least-Cost Avoidance: The Tragedy of Common Safety," Journal of Law, Economics, and Organization, Oxford University Press, vol. 25(1), pages 235-261, May.
    6. Singh, Ram, 2007. "‘Causation-consistent’ liability, economic efficiency and the law of torts," International Review of Law and Economics, Elsevier, vol. 27(2), pages 179-203.
    7. Ram Singh, 2006. "On the Existence and Efficiency of Equilibria under Liability Rules," Working papers 150, Centre for Development Economics, Delhi School of Economics.
    8. Luppi, Barbara & Parisi, Francesco & Pi, Daniel, 2016. "Double-edged torts," International Review of Law and Economics, Elsevier, vol. 46(C), pages 43-48.
    9. Emanuela Carbonara & Alice Guerra & Francesco Parisi, 2016. "Sharing Residual Liability: The Cheapest Cost Avoider Revisited," The Journal of Legal Studies, University of Chicago Press, vol. 45(1), pages 173-201.
    10. Friehe, Tim, 2009. "Sequential torts and bilateral harm," International Review of Law and Economics, Elsevier, vol. 29(2), pages 161-168, June.
    11. Giuseppe Dari-Mattiacci & Bruno Lovat & Francesco Parisi, 2014. "Loss-Sharing between Nonnegligent Parties," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 170(4), pages 571-598, December.
    12. Ram Singh, 2016. "‘Full’ Compensation Criteria in the Law of Torts: An Enquiry into the Doctrine of Causation," Working Papers id:11237, eSocialSciences.

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