Judgment Proofness under Four Different Precaution Technologies

Dari‐Mattiacci, Giuseppe; Geest, Gerrit De

doi:10.2139/ssrn.480441

Cited by 13 publications

(22 citation statements)

References 18 publications

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“…Dari-Mattiacci and De Geest (2005) show that the traditional form of negligence is superior to strict liability also with precaution technologies different from that considered by Summers (1983) and Shavell (1986), but do not analyze cause in fact as we do in this study. 10 This version of the negligence rule was first described by Brown (1973) and successively endorsed in the mainstream law and economics literature.…”

Section: Introductioncontrasting

confidence: 58%

“…41 The threshold level of the injurer's assets is t = h(x*) + x* / p. Note that the injurer may take no precaution at all even when his assets are large enough to pay compensatory damage if he takes optimal precaution; that is, when t > h (x*.) 42 See Dari-Mattiacci and De Geest (2005) for a formal proof of this claim. model: the injurer takes either x = 0, for low levels of t, or x*, for higher levels of t. 43…”

Section: The One-pocket Magnitude Modelmentioning

confidence: 99%

“…Law and economics literature on 7 Boyd and Ingberman (1994) first made this distinction in relation to judgment proofness; Dari-Mattiacci and De Geest (2005) further elaborated on it. 8 Monetary precaution expenditures, for example, reduce the injurer's assets that are available for victims' compensation, while non-monetary precautions do not have the same effect.…”

Section: Introductionmentioning

confidence: 99%

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Disappearing Defendants v. Judgment Proof Injurers: Upgrading the Theory of Tort Law Failures

Dari‐Mattiacci

Mangan

2005

SSRN Journal

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Do injurers' insolvency and victims' reluctance to sue affect accident prevention in the same way? Are these circumstances less of a problem under the negligence rule than under strict liability? We argue, contrary to the literature, that the answer is, in most cases, negative and make three main points. First, the judgment proof problem and the disappearing defendant problem are shown to have different effects on injurers' behavior and hence yield dissimilar levels of social welfare. Second, when these two problems occur simultaneously they may have offsetting effects. Third, the negligence rule is superior to strict liability only under some conditions, which are not always satisfied when cause in fact is considered. In this case, we find that social welfare under negligence may actually be less than, the same as, or greater than under strict liability. ABSTRACTDo injurers' insolvency and victims' reluctance to sue affect accident prevention in the same way? Are these circumstances less of a problem under the negligence rule than under strict liability? We argue, contrary to the literature, that the answer is, in most cases, negative and make three main points. First, the judgment proof problem and the disappearing defendant problem are shown to have different effects on injurers' behavior and hence yield dissimilar levels of social welfare. Second, when these two problems occur simultaneously they may have offsetting effects. Third, the negligence rule is superior to strict liability only under some conditions, which are not always satisfied when cause in fact is considered. In this case, we find that social welfare under negligence may actually be less than, the same as, or greater than under strict l iability. Our model encompasses different precaution technologies as well as monetary vs. non-monetary precautions.

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Section: Introductioncontrasting

confidence: 58%

Section: The One-pocket Magnitude Modelmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Disappearing Defendants v. Judgment Proof Injurers: Upgrading the Theory of Tort Law Failures

Dari‐Mattiacci

Mangan

2005

SSRN Journal

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“…Note, however, that not all comonotonic allocations are e¢ cient but only those comonotonic allocations that satisfy Borch's conditions. 8 Those conditions yield that an e¢ cient allocation of risk is reached when, in each state, the aggregate social wealth is shared so that the injurer's marginal utility of wealth equals the victim's marginal utility of wealth.…”

Section: Propositionmentioning

confidence: 99%

Social Wealth and Optimal Care

Dari‐Mattiacci

Langlais

2012

International Review of Law and Economics

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Many accidents result in losses that cannot be perfectly compensated by a monetary payment. Moreover, often injurers control the magnitude rather than the probability of accidents. We study the characteristics of optimal levels of care and distribution of risk under these circumstances and show that care depends on the aggregate wealth of society but does not depend on wealth distribution. We then examine whether ordinary liability rules, regulation, insurance, taxes and subsidies can be used to implement the …rst-best outcome. Finally, our results are discussed in the light of fairness considerations (second best).JEL codes: K13

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“…10 Bebchuk and Fried did not anticipate the negative effect of subordination on 9 See also Summers (1983 …”

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confidence: 99%

Strategic Judgment Proofing

Che

Spier

2008

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A liquidity-constrained entrepreneur needs to raise capital to finance a business activity that may cause injuries to third parties -the tort victims. Taking the level of borrowing as fixed, the entrepreneur finances the activity with senior (secured) debt in order to shield assets from the tort victims in bankruptcy. Interestingly, senior debt serves the interests of society more broadly: it creates better incentives for the entrepreneur to take precautions than either junior debt or outside equity. Unfortunately, the entrepreneur will raise a socially excessive amount of senior debt. Giving tort victims priority over senior debtholders in bankruptcy prevents over-leveraging but leads to suboptimal incentives. Lender liability exacerbates the incentive problem even further. A Limited Seniority Rule, where the firm may issue senior debt up to an exogenous limit after which any further borrowing is treated as junior to the tort claim, dominates these alternatives. Shareholder liability, mandatory liability insurance and punitive damages are also discussed.

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Judgment Proofness under Four Different Precaution Technologies

Cited by 13 publications

References 18 publications

Disappearing Defendants v. Judgment Proof Injurers: Upgrading the Theory of Tort Law Failures

Disappearing Defendants v. Judgment Proof Injurers: Upgrading the Theory of Tort Law Failures

Social Wealth and Optimal Care

Strategic Judgment Proofing

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