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Efficient Liability Rules When Courts Make Errors in Estimation of the Harm : Complete Characterization

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Author Info
Ram Singh (Delhi School of Economics)

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Abstract

A liability rule determines whether and how much damage (liability) payments are to be made by the injurer(s) to the victim(s) of an accident. Damage awards are critical for the efficiency or otherwise of liability rules. One of the factors affecting damage awards and, as a consequence, efficiency characteristics of liability rules is the errors made by courts in estimation of the harm suffered by the victims. In this paper efficiency properties of liability rules when courts make errors in estimation of the harm are studied. Effects of courts' errors on parties' behaviour regarding the levels of care they take to prevent the accident are analyzed. A condition called negligent injurer's liability is introduced. When courts make upper-biased errors, condition negligent injurer's liability is shown to be necessary and sufficient condition for a liability rule to be efficient. The notion of simple liability rules is also introduced and discussed. Analysis is carried out in a quite broader framework. In particular, the standard assumption that costs of care and expected loss functions are such that total social costs of accident are minimized at a unique configuration of care levels is relaxed.

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Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 99.

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Length: 30 pages
Date of creation: Nov 2001
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Handle: RePEc:cde:cdewps:99

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Related research
Keywords: Court's errors; efficient damages; liability rules; simple liability rules; total social costs; efficient liability rules; negligent injurer's liability; Nash equilibrium.;

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Find related papers by JEL classification:
K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability

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  1. Rasmusen, Eric, 1995. "Predictable and unpredictable error in tort awards: The effect of plaintiff self-selection and signaling," International Review of Law and Economics, Elsevier, vol. 15(3), pages 323-345, September. [Downloadable!] (restricted)
  2. Louis Kaplow & Steven Shavell, 1994. "Accuracy in the Determination of Liability," NBER Working Papers 4203, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Louis Kaplow & Steven Shavell, 1996. "Accuracy in the Assessment of Damages," NBER Working Papers 4287, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Kaplow, Louis & Shavell, Steven, 1992. "Private versus Socially Optimal Provision of Ex Ante Legal Advice," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(2), pages 306-20, April.
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  5. Louis Kaplow, 1995. "A Model of the Optimal Complexity of Rules," NBER Working Papers 3958, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Craswell, Richard & Calfee, John E, 1986. "Deterrence and Uncertain Legal Standards," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 279-303, Fall.
  7. Polinsky, A Mitchell & Shavell, Steven, 1989. "Legal Error, Litigation, and the Incentive to Obey the Law," Journal of Law, Economics and Organization, Oxford University Press, vol. 5(1), pages 99-108, Spring.
  8. Kaplow, Louis, 1994. "The Value of Accuracy in Adjudication: An Economic Analysis," Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 307-401, January.
  9. Kaplow, Louis, 1995. "A Model of the Optimal Complexity of Legal Rules," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(1), pages 150-63, April.
  10. Miceli, Thomas J, 1990. "Optimal Prosecution of Defendants Whose Guilt Is Uncertain," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(1), pages 189-201, Spring.
  11. Steven Shavell, 2003. "Economic Analysis of Accident Law," NBER Working Papers 9694, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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