Bilateral Accidents with Intrinsically Interdependent Costs of Precaution
The standard economic model of bilateral precaution postulates an interdependency between the care taken by injurers and victims that operates through the effects of each on the expected accident loss. This paper considers situations in which each party's precaution affects not only expected accident loss, but also directly affects the other party's cost of taking precaution. Generalizing the economic model of tort law in this way allows for a more complete analysis of when standard tort rules can and cannot induce optimal precaution. When this additional externality is introduced into a model of unilateral harm (where all accident losses are borne by the victim), none of the standard tort liability rules induces 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. A 'tort-like' liability rule that induces socially optimal behavior by both parties is then characterized; this involves a payment by victims to non-negligent injurers whenever an accident occurs. The model is then extended to consider the case of bilateral harm (where both parties suffer accident losses). It is shown that, as long as both parties can sue to recover their accident losses, all negligence-based tort rules lead to socially optimal behavior by both parties.
|Date of creation:||Sep 2002|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (860) 486-4889
Fax: (860) 486-4463
Web page: http://www.econ.uconn.edu/
More information through EDIRC
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.:
- Schmitz, Patrick W., 2000.
"On the Joint Use of Liability and Safety Regulation,"
12536, University Library of Munich, Germany.
- Schmitz, Patrick W., 2000. "On the joint use of liability and safety regulation," International Review of Law and Economics, Elsevier, vol. 20(3), pages 371-382, September.
- Hindley, Brian & Bishop, Bill, 1983. "Accident liability rules and externality," International Review of Law and Economics, Elsevier, vol. 3(1), pages 59-68, June.
- Steven Shavell, 1983. "Liability for Harm Versus Regulation of Safety," NBER Working Papers 1218, National Bureau of Economic Research, Inc.
- Steven Shavell, 2003.
"Economic Analysis of Accident Law,"
NBER Working Papers
9483, National Bureau of Economic Research, Inc.
- 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.
- Leong, Avon K., 1989. "Liability rules when injurers as well as victims suffer losses," International Review of Law and Economics, Elsevier, vol. 9(1), pages 105-111, June.
- Rea, Samuel Jr., 1987. "The economics of comparative negligence," International Review of Law and Economics, Elsevier, vol. 7(2), pages 149-162, December.
- Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, vol. 6(1), pages 45-58, June.
- A. Mitchell Polinsky & Yeon-Koo Che, 1991.
"Decoupling Liability: Optimal Incentives for Care and Litigation,"
NBER Working Papers
3634, National Bureau of Economic Research, Inc.
- A. Mitchell Polinsky & Yeon-Koo Che, 1991. "Decoupling Liability: Optimal Incentives for Care and Litigation," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 562-570, Winter.
- Craswell, Richard & Calfee, John E, 1986. "Deterrence and Uncertain Legal Standards," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 279-303, Fall.
- 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.
- Emons,Winand & Sobel,Joel, 1988. "On the effectiveness of liability rules when agents are not identical," Discussion Paper Serie A 212, University of Bonn, Germany.
- Hoffmann, Sandra & Schwartz, Warren & Dharmapala, Dhammika, 2001. "A Neglected Interdependency in Liability Theory," Discussion Papers dp-01-13, Resources For the Future.
- White, Michelle J, 2004. "The "Arms Race" on American Roads: The Effect of Sport Utility Vehicles and Pickup Trucks on Traffic Safety," Journal of Law and Economics, University of Chicago Press, vol. 47(2), pages 333-55, October.
- Arlen, Jennifer H, 1992. "Liability for Physical Injury When Injurers as Well as Victims Suffer Losses," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(2), pages 411-26, April.
- Kolstad, Charles D & Ulen, Thomas S & Johnson, Gary V, 1990. "Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?," American Economic Review, American Economic Association, vol. 80(4), pages 888-901, September.
- Steven Shavell, 1984. "A Model of the Optimal Use of Liability and Safety Regulation," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 271-280, Summer.
- 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:uct:uconnp:2002-11. 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: (Francis Ahking)
If references are entirely missing, you can add them using this form.