Loss-sharing between Nonnegligent Parties
Shavell (1980) established that all existing tort regimes fail to incentivize optimal activity levels. The bearer of residual loss adopts a socially optimal activity level, however the non-bearer of residual loss will adopt an excessive level of activity. In this paper, we explore alternative liability rules, which distribute the cost of accidents between non-negligent parties, effectively rendering both parties (injurer and victim) partial residual bearers of loss. We introduce a bilateral accident model with care and activity levels, assuming risk neutrality. We determine conditions where loss-sharing for nonnegligent torts may be a desirable alternative for policymakers, and analyze the social cost of accidents under such shared-liability regimes. We also extend our analysis to account for role-uncertainty of the parties, as well as real-world implications for tort law.
|Date of creation:||2014|
|Date of revision:|
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- 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.
- Parisi Francesco & Singh Ram, 2010.
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"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.
- Dhammika Dharmapala & Sandra A. Hoffmann, 2002.
"Bilateral Accidents with Intrinsically Interdependent Costs of Precaution,"
2002-11, University of Connecticut, Department of Economics.
- 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.
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