Accident liability rules and externality

Hindley, Brian; Bishop, Bill

doi:10.1016/0144-8188(93)90046-8

Cited by 11 publications

(6 citation statements)

References 3 publications

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“…The parties will take suboptimal care because of the cost externality, even when each faces the full losses from accidents. This is sometimes referred to as 'Earl Thompson's liability rule' -see Hindley and Bishop (1983). 14 For analyses of the relationship between regulation and tort law, see, for instance, Shavell (1984a, b), Kolstad, Ulen and Johnson (1990) and Schmitz (2000).…”

Section: C2)mentioning

confidence: 99%

Bilateral Accidents with Intrinsically Interdependent Costs of Precaution

Dharmapala

Hoffmann

2003

SSRN Journal

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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 partys precaution affects not only expected accident loss, but also directly affects the other partys 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.1 The standard model has its origins in the analysis of Brown (1973). See also e.g. Ordover (1978) on litigation costs, Craswell and Calfee (1986) on uncertainty, and Shavell (1986) on wealth constraints. 2 The optimality result does not extend, in general, to the choice of activity level. This paper focuses on the choice of levels of care, and does not consider the issue of activity levels.

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Section: C2)mentioning

confidence: 99%

Bilateral Accidents with Intrinsically Interdependent Costs of Precaution

Dharmapala

Hoffmann

2003

SSRN Journal

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“…9 Cf. Hindley and Bishop (1983) and DeMeza (1986). 10 For an analysis of this issue in the context of firms and consumers see Polinsky (1980).…”

Section: Introductionmentioning

confidence: 99%

On the Existence and Efficiency of Equilibria Under Liability Rules

Singh¹

2006

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While the focus of mainstream economic analysis of liability rules remains on negligence liability, recently some legal scholars have argued for the sharing of liability. In this paper, our first objective is contribute to the debate regarding the desirability of the sharing of liability for the accident loss. To this end, we study the implications of various approaches toward liability assignment for the existence and efficiency of equilibria. In particular, we analyze the proposal of Calabresi and Cooper (1996). Contrary to what is suggested in the literature, we show that the sharing of liability when parties are either both negligent or both non-negligent does not threaten the existence of equilibria. Moreover, it does not dilute the incentives for the parties to take the due care. Our second objective is to extend the efficiency analysis beyond Shavell (1980Shavell ( , 1987 and Miceli (1997), to search for the second-best liability rules. We show that each of the standard liability rules fails to be efficient even from a second-best perspective. Furthermore, we show that second-best efficiency requires loss sharing between non-negligent parties. As corollaries to our main results, we reexamine some of the existing claims regarding the existence and efficiency of equilibria under liability rules.

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Section: C2)mentioning

confidence: 99%