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On the Existence and Efficiency of Equilibria Under Liability Rules

  • Ram Singh

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12625.

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Date of creation: Oct 2006
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Handle: RePEc:nbr:nberwo:12625
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  1. 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.
  2. Steven Shavell, 2003. "Economic Analysis of Accident Law," NBER Working Papers 9483, National Bureau of Economic Research, Inc.
  3. 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.
  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. Emons, Winand & Sobel, Joel, 1991. "On the Effectiveness of Liability Rules when Agents Are Not Identical," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 375-90, April.
  6. 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.
  7. 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.
  8. 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.
  9. Francesco Parisi, 2004. "Comparative Causation," American Law and Economics Review, Oxford University Press, vol. 6(2), pages 345-368.
  10. Emons,Winand, 1988. "Efficient liability rules for an economy," Discussion Paper Serie A 213, University of Bonn, Germany.
  11. 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.
  12. 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.
  13. Laszlo Goerke, 2002. "Accident Law: Efficiency May Require an Inefficient Standard," German Economic Review, Verein für Socialpolitik, vol. 3(1), pages 43-51, 02.
  14. Hindley, Brian & Bishop, Bill, 1983. "Accident liability rules and externality," International Review of Law and Economics, Elsevier, vol. 3(1), pages 59-68, June.
  15. 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.
  16. 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.
  17. 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.
  18. 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.
  19. 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.
  20. Miceli, Thomas J., 1997. "Economics of the Law: Torts, Contracts, Property, Litigation," OUP Catalogue, Oxford University Press, number 9780195103908, March.
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