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Accident Law: Efficiency May Require an Inefficient Standard

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  • Laszlo Goerke

Abstract

In a world with risk‐neutral agents in which accidents occur with a positive probability, liability rules will only induce efficient behaviour if these rules impose the full (marginal) costs of an action on the parties. However, institutional restrictions or bilateral activity choices can prevent the full internalization of costs. A mechanism is proposed which guarantees an efficient outcome: monetary fines which are not related to the occurrence of an accident. Such a mechanism requires individuals to violate the standard of care in order to trigger the fine payments. Hence, efficiency requires an excessive standard.

Suggested Citation

  • Laszlo Goerke, 2002. "Accident Law: Efficiency May Require an Inefficient Standard," German Economic Review, Verein für Socialpolitik, vol. 3(1), pages 43-51, February.
    • Handle: RePEc:bla:germec:v:3:y:2002:i:1:p:43-51
    DOI: 10.1111/1468-0475.00051
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    References listed on IDEAS

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    1. Hindley, Brian & Bishop, Bill, 1983. "Accident liability rules and externality," International Review of Law and Economics, Elsevier, vol. 3(1), pages 59-68, June.
    2. Arlen, Jennifer H., 1990. "Re-examining liability rules when injurers as well as victims suffer losses," International Review of Law and Economics, Elsevier, vol. 10(3), pages 233-239, December.
    3. Steven Shavell & A. Mitchell Polinsky, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March.
    4. Tullock, Gordon, 1981. "Negligence again," International Review of Law and Economics, Elsevier, vol. 1(1), pages 51-62, June.
    5. Jörg Finsinger & Mark V. Pauly, 1990. "The Double Liability Rule*," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 15(2), pages 159-169, September.
    6. Jerry Green, 1976. "On the Optimal Structure of Liability Laws," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 553-574, Autumn.
    7. Shavell, Steven, 1993. "The Optimal Structure of Law Enforcement," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 255-287, April.
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    Cited by:

    1. Ram Singh, 2006. "On the Existence and Efficiency of Equilibria under Liability Rules," Working papers 150, Centre for Development Economics, Delhi School of Economics.
    2. Allan M Feldman & Ram Singh, 2021. "Equilibria under Liability Rules: How the standard claims fall apart," Working papers 315, Centre for Development Economics, Delhi School of Economics.
    3. Feldman Allan & Singh Ram, 2021. "Equilibria Under Negligence Liability: How the Standard Claims Fall Apart," Review of Law & Economics, De Gruyter, vol. 17(1), pages 1-33, March.
    4. Laszlo Goerke, 2003. "Road Traffic and Efficient Fines," European Journal of Law and Economics, Springer, vol. 15(1), pages 65-84, January.

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