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Risk Aversion, the Hand Rule, and Comparison between Strict Liability and the Negligence Rule

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  • Lee Kangoh

    (Department of Economics, San Diego State University, 5500 Campanile Drive, San Diego, CA 92182–4485, USA)

Abstract

One of the most important propositions in the economics of liability rules states that strict liability and the negligence rule are equivalent and first-best efficient if the standard of due care is set according to the Hand rule. This proposition hinges on the assumption that individuals are risk neutral. This paper considers this proposition with risk-averse individuals, and demonstrates that the proposition does not extend. In particular, the two liability rules are not equivalent, and the analysis compares the two liability rules in terms of utilitarian social welfare.

Suggested Citation

  • Lee Kangoh, 2016. "Risk Aversion, the Hand Rule, and Comparison between Strict Liability and the Negligence Rule," Review of Law & Economics, De Gruyter, vol. 12(2), pages 261-274, July.
    • Handle: RePEc:bpj:rlecon:v:12:y:2016:i:2:p:261-274:n:6
    DOI: 10.1515/rle-2015-0016
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    References listed on IDEAS

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    1. A. Mitchell Polinsky & Steven Shavell (ed.), 2007. "Handbook of Law and Economics," Handbook of Law and Economics, Elsevier, edition 1, volume 2, number 2.
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    5. Shavell, Steven, 2007. "Liability for Accidents," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 1, chapter 2, pages 139-182, Elsevier.
    6. Miceli, Thomas J & Segerson, Kathleen, 1995. "Defining Efficient Care: The Role of Income Distribution," The Journal of Legal Studies, University of Chicago Press, vol. 24(1), pages 189-208, January.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    risk aversion; Hand rule; strict liability; negligence rule; social welfare;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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