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A Unilateral Accident Model under Ambiguity

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  • Joshua C. Teitelbaum

Abstract

Standard accident models are based on the expected utility framework and represent agents’ beliefs about accident risk with a probability distribution. Consequently, they do not allow for Knightian uncertainty, or ambiguity, with respect to accident risk and cannot accommodate optimism (ambiguity loving) or pessimism (ambiguity aversion). This paper presents a unilateral accident model under ambiguity. To incorporate ambiguity, I adopt the Choquet expected utility framework and represent the injurer’s beliefs with a neoadditive capacity. I show that neither strict liability nor negligence is generally efficient in the presence of ambiguity. In addition, I generally find that the injurer’s level of care decreases (increases) with ambiguity if he is optimistic (pessimistic) and decreases (increases) with his degree of optimism (pessimism). The results suggest that negligence is more robust to ambiguity and, therefore, may be superior to strict liability in unilateral accident cases. Finally, I design an efficient ambiguity-adjusted liability rule.

Suggested Citation

  • Joshua C. Teitelbaum, 2007. "A Unilateral Accident Model under Ambiguity," The Journal of Legal Studies, University of Chicago Press, vol. 36(2), pages 431-477, June.
    • Handle: RePEc:ucp:jlstud:v:36:y:2007:p:431-477
    DOI: 10.1086/511895
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    References listed on IDEAS

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    1. Arlen, Jennifer H., 1990. "Re-examining liability rules when injurers as well as victims suffer losses," International Review of Law and Economics, Elsevier, vol. 10(3), pages 233-239, December.
    2. Oren Bar-Gill, 2006. "The Evolution and Persistence of Optimism in Litigation," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 22(2), pages 490-507, October.
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