On the Existence and Efficiency of Equilibria under Liability Rules
While focus of the mainstream analysis of liability rules has been on negligence based liability, some recent works have recommended sharing of liability between the parties involved in an accident. In this paper, we study the implications of various approaches to liability assignment for the existence and efficiency of equilibria under liability rules. Contrary to what is suggested in the literature, we show that the sharing of liability when parties are either both negligent or both non-negligent does not threaten the existence of equilibria. Moreover, it does not dilute the incentive for the parties to take the due care. Also, we extend the analysis to search for the second-best liability rules; since in view of Shavell (1987) no liability rule can achieve the first best outcome. We show that each of the standard liability rules fails to be efficient even from from a second best perspective. We show that second best efficiency requires loss sharing between non-negligent parties. As implications of our main results, we reexamine some of the existing claims regarding the existence and efficiency of equilibria under liability rules.
|Date of creation:||Sep 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (011) 27667005
Fax: (011) 27667159
Web page: http://www.cdedse.org/
More information through EDIRC
|Order Information:|| Web: http://www.cdedse.org/ Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Miceli, Thomas J., 1997. "Economics of the Law: Torts, Contracts, Property, Litigation," OUP Catalogue, Oxford University Press, number 9780195103908, July.
- Hindley, Brian & Bishop, Bill, 1983. "Accident liability rules and externality," International Review of Law and Economics, Elsevier, vol. 3(1), pages 59-68, June.
- Singh Ram, 2007. "Comparative Causation and Economic Efficiency: When Activity Levels are Constant," Review of Law & Economics, De Gruyter, vol. 3(2), pages 383-406, December.
- Oren Bar-Gill & Omri Ben-Shahar, 2003. "The Uneasy Case for Comparative Negligence," American Law and Economics Review, Oxford University Press, vol. 5(2), pages 433-469, August.
- Laszlo Goerke, 2002. "Accident Law: Efficiency May Require an Inefficient Standard," German Economic Review, Verein für Socialpolitik, vol. 3(1), pages 43-51, 02.
- Yu-Ping Liao & Michelle J. White, 2002. "No-Fault for Motor Vehicles: An Economic Analysis," American Law and Economics Review, Oxford University Press, vol. 4(2), pages 258-294.
- Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, vol. 70(2), pages 363-67, May.
- Winand Emons & Joel Sobel, 1991. "On the Effectiveness of Liability Rules when Agents are not Identical," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 375-390.
- David Kaye & Mikel Aickin, 1984. "A Comment on Causal Apportionment," The Journal of Legal Studies, University of Chicago Press, vol. 13(1), pages 191-208, January.
- Chung, T.Y., 1992.
"Efficiency of Comparative Negligence: A Game Theoretic Analysis,"
UWO Department of Economics Working Papers
9215, University of Western Ontario, Department of Economics.
- Chung, Tai-Yeong, 1993. "Efficiency of Comparative Negligence: A Game Theoretic Analysis," The Journal of Legal Studies, University of Chicago Press, vol. 22(2), pages 395-404, June.
- Emons,Winand, 1988. "Efficient liability rules for an economy," Discussion Paper Serie A 213, University of Bonn, Germany.
- Edlin, Aaron S., 1994.
"Efficient standards of due care: Should courts find more parties negligent under comparative negligence?,"
International Review of Law and Economics,
Elsevier, vol. 14(1), pages 21-34, March.
- Aaron S. Edlin., 1993. "Efficient Standards of Due Care: Should Courts Find More Parties Negligent Under Comparative Negligence?," Economics Working Papers 93-218, University of California at Berkeley.
- 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, 01.
- Dhammika Dharmapala & Sandra A. Hoffmann, 2002. "Bilateral Accidents with Intrinsically Interdependent Costs of Precaution," Working papers 2002-11, University of Connecticut, Department of Economics.
- Paul Burrows, 1999. "A Deferential Role for Efficiency Theory in Analysing Causation-Based Tort Law," European Journal of Law and Economics, Springer, vol. 8(1), pages 29-49, July.
- Francesco Parisi, 2004. "Comparative Causation," American Law and Economics Review, Oxford University Press, vol. 6(2), pages 345-368.
- Steven Shavell, 2003.
"Economic Analysis of Accident Law,"
NBER Working Papers
9483, National Bureau of Economic Research, Inc.
- Feldman, Allan M. & Frost, John M., 1998. "A simple model of efficient tort liability rules," International Review of Law and Economics, Elsevier, vol. 18(2), pages 201-215, June.
- Emons, Winand, 1990. "Efficient liability rules for an economy with non-identical individuals," Journal of Public Economics, Elsevier, vol. 42(1), pages 89-104, June.
- 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.
- Kahan, Marcel, 1989. "Causation and Incentives to Take Care under the Negligence Rule," The Journal of Legal Studies, University of Chicago Press, vol. 18(2), pages 427-47, June.
When requesting a correction, please mention this item's handle: RePEc:cde:cdewps:150. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sanjeev Sharma)
If references are entirely missing, you can add them using this form.