The Efficiency of Comparative Causation

Abstract

Comparative causation is the only tort regime that allows parties to share an accident loss in equilibrium. The sharing of an accident loss between a nonnegligent injurer and his nonnegligent victim spreads activity level and R&D incentives between prospective tortfeasors and their victims. This is an effect that is never observed under the other negligence and strict liability based regimes. In spite of these interesting attributes, the existing literature left open the question as to whether loss sharing was able to maintain optimal care incentives for both parties. In this paper, we address this unresolved issue in the literature, considering the efficiency of loss-sharing under comparative causation. JEL classification: K13, K32.

Sharing Residual Liability: The Cheapest Cost Avoider Revisited

“…10 Parisi and Fon (2004) do not derive a general proof, and their model shows that loss sharing in the form of comparative causation under negligence is in most cases compatible with full incentives for optimal care. Parisi and Singh (2010) provide a more general proof of the compatibility of residual loss sharing under comparative causation with incentives to take optimal care. 11 In the latest contribution to the topic, Dari-Mattiacci, Lovat, and Parisi (2014) show that, under some sufficient 10.…”

“…Building on a generalization of these results, our paper tackles two novel interrelated questions. While Parisi and Fon (2004), Parisi and Singh (2010), and Dari-Mattiacci, Lovat, and Parisi (2014) establish the independence of the problem of residual liability, they do not investigate when and how loss-sharing rules ought to be employed. In this paper, we investigate which factors should guide the optimal allocation of residual liability and under which conditions residual loss sharing among faultless parties may be preferable to conventional all-or-nothing rules.…”

“…In case of risk-averse parties, loss sharing plays a mutual insurance role, placing a greater portion of the risk on the best risk bearer. Interestingly, as pointed out in more recent law and economics literature, sharing nonnegligent losses provides a form of risk spreading that avoids the dilution of incentives and the moral hazard problems caused by standard liability insurance (Parisi and Fon 2004;Parisi and Singh 2010;Dari-Mattiacci, Lovat, and Parisi 2014). Loss sharing can also yield second-best activity-level incentives when parties are risk neutral, as it encourages higher activity levels by more productive and less 8.…”

“…However, in equilibrium, prospective injurers and potential victims will both behave nonnegligently, and therefore a large number of the accidents that occur in reality will arise despite the due diligence of the individuals involved. 6 Thus, assuming that a tort regime is efficient with respect to precautionary care, we have the question of how society deals with such nonnegligent accidents takes on acute significance, and unsurprisingly a growing body of research is directed toward this topic (Calabresi 1996;Calabresi and Cooper 1996;Gilles 1992;Parisi and Fon 2004;Dari-Mattiacci and De Geest 2005;Parisi and Singh 2010;Garoupa and Ulen 2013;Dari-Mattiacci, Lovat, and Parisi 2014).…”

Multiple Causation, Apportionment, and the Shapley Value

“…See William M. Landes and Richard A. Posner (1980); Mario J. Franck S. Arnold (1980), (1986); Steven Shavell (1983); Lewis Kornhauser, and Richard L. Revesz (1989); Francesco Parisi and Ram Singh, (2010). 5 For a psychological approach on causation in law, see Jeffrey J.…”