When will judgment proof injurers take too much precaution?

Dari‐Mattiacci, Giuseppe; Geest, Gerrit De

doi:10.1016/j.irle.2006.11.005

Cited by 25 publications

(16 citation statements)

References 20 publications

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“…However, as formalized in Proposition 2, in general a firm may choose precaution below or even in excess of the solvent benchmark in our model. Dari-Mattiacci and Geest (2006) observe that in a one-period model (i.e., with no survival motive) precaution below the solvent benchmark results when insolvency is possible because the judgment-proof effect always dominates the subsidy to precaution effect. 12 However, in our model precaution may exceed z sol when the liability-induced insolvency benefit is sufficiently strong relative to the profit-induced insolvency cost.…”

Section: Proposition 1 As a Firm's Asset Level A Becomes Large And mentioning

confidence: 87%

“…Supra-optimal care results when this effect dominates the incentive for reduced care from the judgment-proof effect. Dari-Mattiacci and Geest (2006) showed that supra-optimal care only arises with respect to precautions that affect the probability of an accident, not precautions that affect the magnitude of accident. 5 Larson (1996) models a decision by a firm regarding how much of a risky activity to engage in when the activity increases both expected profit and the probability of an accident.…”

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confidence: 99%

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Abatement, Care, and Compliance by Firms in Financial Distress

Evans

Gilpatric

2015

Environ Resource Econ

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We examine precautionary behavior, specifically compliance with environmental regulations, pollution abatement, and care spending, by firms facing two sources of insolvency risk. If poor profit or a liability triggers insolvency, then the firm forgoes a profitable future. The behavioral implications of this survival motive vary across firms. Firms for whom the principal insolvency risk is liability-related now choose precaution above the level chosen by the solvent firm. For firms whose primary insolvency risk is profit-related, the survival motive reinforces incentives for care below the solvent benchmark arising from the familiar judgment-proof effect. We also characterize how insolvency risks affect incentives to conceal adverse events linked to these choices, such as an accident or a regulatory violation. An understanding of these incentives is particularly important during recessionary periods when firms struggle to survive the downturn.

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Section: Proposition 1 As a Firm's Asset Level A Becomes Large And mentioning

confidence: 87%

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confidence: 99%

Abatement, Care, and Compliance by Firms in Financial Distress

Evans

Gilpatric

2015

Environ Resource Econ

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“…21 The judgment proof problem has also provided one of the economic justifications for vicarious liability; see footnote 13. 22 This terminology has been introduced by Dari-Mattiacci and De Geest (2003). The two-pocket model refers to situations in which the injurer behaves as if he had two budgets: one to pay for precaution costs and the other to pay for damages.…”

Section: The Sources Of the Problemsmentioning

confidence: 99%

“…43 See Dari-Mattiacci and De Geest (2003) for a formal treatment of this claim. 44 In fact, x t solves p'(x t ) (t -x t ) -p (x t ) + 1 = 0.…”

Section: Probability Modelsmentioning

confidence: 99%

“…Beard (1990) first proved that judgment proof injurers behave differently in these two situations and showed that if precaution expenditures do reduce the injurer's exposure to liability, judgment proofness may result in too much rather than too little precaution. See also Micheli and Segerson (2003) and Dari-Mattiacci and De Geest (2003) on this topic. this topic unanimously answers in the positive.…”

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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Remedying Illegal Actions of Judgment Proof Injurers Via Contracts, Fines and Sanctions

Watabe

2013

Manage Decis Econ

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This paper studies the impact of the judgment proof problem on the design of incentives to prevent illegal behavior when the principal delegates a risky production activity to the agent in the presence of moral hazard and adverse selection. The agent can reduce costs by engaging in an illegal action that generates liability. When insolvency is endogenously determined, the principal neither provides incentives to the agent to induce a fully legal action nor designs a contract that makes either party insolvent. The social optimum can be achieved by a fine or non‐monetary sanction. If the fine cannot correct inefficiency, non‐monetary sanction achieves the social optimum by the fully legal action. Copyright © 2013 John Wiley & Sons, Ltd.

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When will judgment proof injurers take too much precaution?

Abstract: In the discussion papers series the Koopmans Institute publishes results of ongoing research for early dissemination of research results, and to enhance discussion with colleagues.

Cited by 25 publications

References 20 publications

Abatement, Care, and Compliance by Firms in Financial Distress

Abatement, Care, and Compliance by Firms in Financial Distress

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

Remedying Illegal Actions of Judgment Proof Injurers Via Contracts, Fines and Sanctions

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