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Liability and the incentive to improve information about risk when injurers may be judgment-proof

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  • Requate, Till
  • Friehe, Tim
  • Sengupta, Aditi

Abstract

We analyze an injurer’s incentives to improve her information about accident risk. In contrast to the preceding literature, injurers can continuously improve their understanding of the expected harm their activity will impose on others. Regarding social incentives, the marginal benefit from improved risk information is increasing, possibly making either no or a perfect understanding of risk socially optimal. Turning to private incentives when the injurer’s asset constraint is non-binding, strict liability induces the first-best outcome, whereas the negligence rule induces excessive information acquisition. By contrast, when the injurer’s asset constraint is binding, under both liability rules, the injurer’s incentives to acquire information about risk is too small in many circumstances but can also be excessive in other circumstances.

Suggested Citation

  • Requate, Till & Friehe, Tim & Sengupta, Aditi, 2023. "Liability and the incentive to improve information about risk when injurers may be judgment-proof," International Review of Law and Economics, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:irlaec:v:76:y:2023:i:c:s0144818823000467
    DOI: 10.1016/j.irle.2023.106168
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    More about this item

    Keywords

    Information; Accident risk; Liability; Strict liability; Negligence;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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