IDEAS home Printed from https://ideas.repec.org/a/eee/irlaec/v27y2007i2p154-169.html
   My bibliography  Save this article

Due-care standards in a market setting with legal error

Author

Listed:
  • Bhole, Bharat

Abstract

We consider a monopoly market setup with legal error, where social welfare is negatively related to a firm's expected liability costs. In this context, we investigate the optimal location of the due-care standard vis-à-vis any given desired care level. It is found that when both the due-care standard and the penalty multiplier are choice variables, setting the due-care equal to the desired care is unlikely to be optimal and conditions under which it should be made relatively lenient or stringent are obtained. Exogenous restrictions on the penalty multiplier may restrict the extent to which the due-care can be manipulated to improve welfare.

Suggested Citation

  • Bhole, Bharat, 2007. "Due-care standards in a market setting with legal error," International Review of Law and Economics, Elsevier, vol. 27(2), pages 154-169.
    • Handle: RePEc:eee:irlaec:v:27:y:2007:i:2:p:154-169
    DOI: 10.1016/j.irle.2007.06.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0144818807000506
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irle.2007.06.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Png, I. P. L., 1986. "Optimal subsidies and damages in the presence of judicial error," International Review of Law and Economics, Elsevier, vol. 6(1), pages 101-105, June.
    2. Steven Shavell, 1984. "A Model of the Optimal Use of Liability and Safety Regulation," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 271-280, Summer.
    3. Craswell, Richard & Calfee, John E, 1986. "Deterrence and Uncertain Legal Standards," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(2), pages 279-303, Fall.
    4. Schmitz, Patrick W., 2000. "On the joint use of liability and safety regulation," International Review of Law and Economics, Elsevier, vol. 20(3), pages 371-382, September.
    5. Polinsky, A Mitchell & Shavell, Steven, 1989. "Legal Error, Litigation, and the Incentive to Obey the Law," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 5(1), pages 99-108, Spring.
    6. Craswell, Richard, 1996. "Damage Multipliers in Market Relationships," The Journal of Legal Studies, University of Chicago Press, vol. 25(2), pages 463-492, June.
    7. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    8. Kaplow, Louis & Shavell, Steven, 1994. "Accuracy in the Determination of Liability," Journal of Law and Economics, University of Chicago Press, vol. 37(1), pages 1-15, April.
    9. Marcel Boyer & Tracy R. Lewis & Wei Lin Liu, 2000. "Setting standards for credible compliance and law enforcement," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 33(2), pages 319-340, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. BOYER, Marcel & PORRINI, Donatella, 2010. "Optimal Liability Sharing and Court Errors : An Exploratory Analysis," Cahiers de recherche 05-2010, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    2. Florian Baumann & Tim Friehe, 2015. "Optimal Damages Multipliers in Oligopolistic Markets," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(4), pages 622-640, December.
    3. Boyer, Marcel & Porrini, Donatella, 2011. "The impact of court errors on liability sharing and safety regulation for environmental/industrial accidents," International Review of Law and Economics, Elsevier, vol. 31(1), pages 21-29, March.
    4. Bhole, Bharat & Wagner, Jeffrey, 2008. "The joint use of regulation and strict liability with multidimensional care and uncertain conviction," International Review of Law and Economics, Elsevier, vol. 28(2), pages 123-132, June.
    5. Alfred Endres & Tim Friehe, 2014. "The reasonable person standard: trading off static and dynamic efficiency," European Journal of Law and Economics, Springer, vol. 37(2), pages 249-267, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kaplow, Louis & Shavell, Steven, 1996. "Accuracy in the Assessment of Damages," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 191-210, April.
    2. Anja Olbrich, 2008. "The optimal negligence standard in health care under supply-side cost sharing," International Journal of Health Economics and Management, Springer, vol. 8(2), pages 73-85, June.
    3. Gérard Mondello, 2013. "Ambiguous Beliefs on Damages and Civil Liability Theories"," Post-Print halshs-00929948, HAL.
    4. Demougin, Dominique & Fluet, Claude, 2006. "Preponderance of evidence," European Economic Review, Elsevier, vol. 50(4), pages 963-976, May.
    5. Matteo Rizzolli & Luca Stanca, 2012. "Judicial Errors and Crime Deterrence: Theory and Experimental Evidence," Journal of Law and Economics, University of Chicago Press, vol. 55(2), pages 311-338.
    6. Marcel Boyer & Donatella Porrini, 2010. "Optimal liability sharing and court errors: an exploratory analysis," Working Papers hal-00463913, HAL.
    7. Ram Singh, 2001. "Effects of Courts' Errors on Efficiency of Liability Rules: When Individuals are Imperfectly Informed," Working papers 97, Centre for Development Economics, Delhi School of Economics.
    8. Boyer, Marcel & Porrini, Donatella, 2011. "The impact of court errors on liability sharing and safety regulation for environmental/industrial accidents," International Review of Law and Economics, Elsevier, vol. 31(1), pages 21-29, March.
    9. Gérard Mondello, 2017. "Lenders and Risky Activities: Strict Liability or Negligence Rule?," GREDEG Working Papers 2017-13, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    10. Albert Choi & George Triantis, 2008. "Completing Contracts in the Shadow of Costly Verification," The Journal of Legal Studies, University of Chicago Press, vol. 37(2), pages 503-534, June.
    11. Polinsky, A. Mitchell & Shavell, Steven, 2007. "The Theory of Public Enforcement of Law," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 1, chapter 6, pages 403-454, Elsevier.
    12. Lando Henrik, 2009. "Prevention of Crime and the Optimal Standard of Proof in Criminal Law," Review of Law & Economics, De Gruyter, vol. 5(1), pages 33-52, January.
    13. Innes, Robert, 2004. "Enforcement costs, optimal sanctions, and the choice between ex-post liability and ex-ante regulation," International Review of Law and Economics, Elsevier, vol. 24(1), pages 29-48, March.
    14. Kaplow, Louis & Shavell, Steven, 1994. "Accuracy in the Determination of Liability," Journal of Law and Economics, University of Chicago Press, vol. 37(1), pages 1-15, April.
    15. Lang, Matthias, 2017. "Legal uncertainty as a welfare enhancing screen," European Economic Review, Elsevier, vol. 91(C), pages 274-289.
    16. Kaplow, Louis, 2017. "Optimal design of private litigation," Journal of Public Economics, Elsevier, vol. 155(C), pages 64-73.
    17. Dhammika Dharmapala & Sandra A. Hoffmann, 2005. "Bilateral Accidents with Intrinsically Interdependent Costs of Precaution," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 239-272, January.
    18. Ram Singh, 2001. "Efficient Liability Rules When Courts Make Errors in Estimation of the Harm : Complete Characterization," Working papers 99, Centre for Development Economics, Delhi School of Economics.
    19. Lando, Henrik & Mungan, Murat C., 2018. "The effect of type-1 error on deterrence," International Review of Law and Economics, Elsevier, vol. 53(C), pages 1-8.
    20. Bhole, Bharat & Wagner, Jeffrey, 2010. "Punitive damages and the recklessness requirement with uninformed injurers," International Review of Law and Economics, Elsevier, vol. 30(3), pages 253-264, September.

    More about this item

    Keywords

    Legal error; Negligence; Due-care standard; Penalty multiplier;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:irlaec:v:27:y:2007:i:2:p:154-169. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/irle .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.