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On the Existence and Efficiency of Equilibria Under Liability Rules

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  • Ram Singh

Abstract

While the focus of mainstream economic analysis of liability rules remains on negligence liability, recently some legal scholars have argued for the sharing of liability. In this paper, our first objective is contribute to the debate regarding the desirability of the sharing of liability for the accident loss. To this end, we study the implications of various approaches toward liability assignment for the existence and efficiency of equilibria. In particular, we analyze the proposal of Calabresi and Cooper (1996). 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 incentives for the parties to take the due care. Our second objective is to extend the efficiency analysis beyond Shavell (1980, 1987) and Miceli (1997), to search for the second-best liability rules. We show that each of the standard liability rules fails to be efficient even from a second-best perspective. Furthermore, we show that second-best efficiency requires loss sharing between non-negligent parties. As corollaries to our main results, we reexamine some of the existing claims regarding the existence and efficiency of equilibria under liability rules.

Suggested Citation

  • Ram Singh, 2006. "On the Existence and Efficiency of Equilibria Under Liability Rules," NBER Working Papers 12625, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12625
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    References listed on IDEAS

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    1. Steven Shavell, 2003. "Economic Analysis of Accident Law," NBER Working Papers 9694, National Bureau of Economic Research, Inc.
    2. Hindley, Brian & Bishop, Bill, 1983. "Accident liability rules and externality," International Review of Law and Economics, Elsevier, vol. 3(1), pages 59-68, June.
    3. 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.
    4. 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.
    5. 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.
    6. Emons,Winand, 1988. "Efficient liability rules for an economy," Discussion Paper Serie A 213, University of Bonn, Germany.
    7. 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.
    8. Francesco Parisi, 2004. "Comparative Causation," American Law and Economics Review, Oxford University Press, vol. 6(2), pages 345-368.
    9. 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.
    10. Laszlo Goerke, 2002. "Accident Law: Efficiency May Require an Inefficient Standard," German Economic Review, Verein für Socialpolitik, vol. 3(1), pages 43-51, February.
    11. 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.
    12. 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.
    13. 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.
    14. repec:kap:jeczfn:v:75:y:2002:i:2:d:10.1007_s007120200008 is not listed on IDEAS
    15. 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.
    16. 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.
    17. 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 427-447, June.
    18. 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.
    19. 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.
    20. Miceli, Thomas J., 1997. "Economics of the Law: Torts, Contracts, Property, Litigation," OUP Catalogue, Oxford University Press, number 9780195103908.
    21. 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.
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    Citations

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    Cited by:

    1. Parisi Francesco & Singh Ram, 2010. "The Efficiency of Comparative Causation," Review of Law & Economics, De Gruyter, vol. 6(2), pages 219-245, September.
    2. Feldman Allan M. & Singh Ram, 2011. "A Simple Guide to Comparative Vigilance," Asian Journal of Law and Economics, De Gruyter, vol. 2(3), pages 1-24, October.
    3. Allan M. Feldman & Ram Singh, 2009. "Comparative Vigilance," American Law and Economics Review, Oxford University Press, vol. 11(1), pages 134-161.
    4. 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.
    5. Allan M Feldman & Ram Singh, 2008. "Comparative Vigilance: a Simple Guide," Working Papers 2008-11, Brown University, Department of Economics.
    6. Allan M. Feldman & Ram Singh, 2009. "Comparative Vigilance," American Law and Economics Review, Oxford University Press, vol. 11(1), pages 134-161.
    7. FRANCESCO PARISI & Ram Singh, 2009. "Efficiency Of Equilibria Under Comparative Causation," Working papers 179, Centre for Development Economics, Delhi School of Economics.

    More about this item

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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