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Loss-sharing between Nonnegligent Parties

Author

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  • Giuseppe Dari-Mattiacci
  • Bruno Lovat
  • Francesco Parisi

Abstract

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.

Suggested Citation

  • Giuseppe Dari-Mattiacci & Bruno Lovat & Francesco Parisi, 2014. "Loss-sharing between Nonnegligent Parties," Working Papers of BETA 2014-06, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  • Handle: RePEc:ulp:sbbeta:2014-06
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    References listed on IDEAS

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    1. Robert D. Cooter, 1991. "Economic Theories of Legal Liability," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 11-30, Summer.
    2. Kim, Jeonghyun & Feldman, Allan M., 2006. "Victim or injurer, small car or SUV: Tort liability rules under role-type uncertainty," International Review of Law and Economics, Elsevier, vol. 26(4), pages 455-477, December.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. Parisi Francesco & Singh Ram, 2010. "The Efficiency of Comparative Causation," Review of Law & Economics, De Gruyter, vol. 6(2), pages 219-245, September.
    8. 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.
    9. Dari-Mattiacci Giuseppe, 2006. "On the Optimal Scope of Negligence," Review of Law & Economics, De Gruyter, vol. 1(3), pages 331-364, January.
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    Cited by:

    1. Luppi, Barbara & Parisi, Francesco & Pi, Daniel, 2016. "Double-edged torts," International Review of Law and Economics, Elsevier, vol. 46(C), pages 43-48.
    2. 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.

    More about this item

    Keywords

    tort; loss-sharing; negligence; strict liability; comparative fault; role-uncertainty.;

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law

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