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The Efficiency of (strict) Liability Rules revised in Risk and Ambiguity

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  • Nicolas Lampach
  • Sandrine Spaeter

Abstract

In this paper we revise the results about the efficiency of (strict) unlimited, then limited liability in inducing optimal investment in prevention by injurers. Risk and ambiguity are considered. We assume that the potential injurer whose activities cause a risk of environmental accident can reduce the probability of accident by investing in prevention. In the risky model, we recover that limited liability does not always induce low prevention. Contrary to the arguments enhanced by Beard (1990) and Lipowski-Posey (1993), outside lending, absent from our model, does not explain this result. In the ambiguous context, we implement the Non-Extreme Outcome (NEO) expected utility model (Chateauneuf et al., 2007) to represent the injurer’s beliefs and decisions. When ambiguity matters and prevention also affects the injurer’s subjective beliefs, none of the results with risk hold. In particular, the injurer can overinvest in prevention under both unlimited and limited liability.

Suggested Citation

  • Nicolas Lampach & Sandrine Spaeter, 2016. "The Efficiency of (strict) Liability Rules revised in Risk and Ambiguity," Working Papers of BETA 2016-29, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2016-29
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    File URL: http://beta.u-strasbg.fr/WP/2016/2016-29.pdf
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    References listed on IDEAS

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    Cited by:

    1. Gérard Mondello, 2017. "Un modèle d'accident unilatéral: incertitude non-radicale et estimations différenciées," GREDEG Working Papers 2017-12, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    2. Gérard Mondello, 2016. "The Negligence Rule Specificity under Radical Uncertainty," GREDEG Working Papers 2016-32, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    3. Nicolas Lampach & Kene Boun My & Sandrine Spaeter, 2016. "Risk, Ambiguity and Efficient Liability Rules: An experiment," Working Papers of BETA 2016-30, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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    More about this item

    Keywords

    Strict liability; Ambiguity; Optimal Care; Optimism; Subjective Beliefs.;
    All these keywords.

    JEL classification:

    • K0 - Law and Economics - - General
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D29 - Microeconomics - - Production and Organizations - - - Other

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