A Tort for Risk and Endogenous Bankruptcy
Conventional tort law bars victims of exposure to a toxic substance from filing suit until they actually develop symptoms of illness. Practically speaking, this rule often bars recovery due to bankruptcy and causal uncertainty. One solution is to allow victims to file at exposure for expected damages (a tort for risk). The trade-off is that such a rule may trigger a race to file among exposure victims, thereby itself inducing bankruptcy. This paper characterizes the conditions under which such a race will occur in equilibrium and examines the implications for social welfare.
|Date of creation:||Sep 2004|
|Note:||We acknowledge the very useful comments of David Martimort and an anonymous referee.|
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