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Liability Rules, Limited Information, and the Role of Precedent

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  • Robert Cooter
  • Lewis Kornhauser
  • David Lane

Abstract

Recent studies of the role of law in distributing accident costs have led to the pessimistic conclusion that because judges lack the information to discover the efficient level of care, efficiency cannot be achieved by common law tort rules. We show that judges have enough information to revise the legal standard via the mechanism of precedent so that the standard adopted tends toward efficiency. This optimistic conclusion results from changing previous models so that the level of care taken by litigants affects the information available to the court, but does not directly influence the legal standard. We model a sequence of court decisions by differential equations and show that the unique, stable equilibrium is efficient.

Suggested Citation

  • Robert Cooter & Lewis Kornhauser & David Lane, 1979. "Liability Rules, Limited Information, and the Role of Precedent," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 366-373, Spring.
    • Handle: RePEc:rje:bellje:v:10:y:1979:i:spring:p:366-373
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    Cited by:

    1. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law and finance: why does legal origin matter?," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 653-675, December.
    2. Benito Arruñada, 2020. "Prospects of Blockchain in Contract and Property," Springer Books, in: Amnon Lehavi & Ronit Levine-Schnur (ed.), Disruptive Technology, Legal Innovation, and the Future of Real Estate, edition 1, pages 35-55, Springer.
    3. Giacomo A. M. Ponzetto & Patricio A. Fernandez, 2008. "Case Law versus Statute Law: An Evolutionary Comparison," The Journal of Legal Studies, University of Chicago Press, vol. 37(2), pages 379-430, June.
    4. Anthony Niblett & Richard A. Posner & Andrei Shleifer, 2010. "The Evolution of a Legal Rule," The Journal of Legal Studies, University of Chicago Press, vol. 39(2), pages 325-358.
    5. Gennaioli, Nicola & Shleifer, Andrei, 2007. "Overruling and the instability of law," Journal of Comparative Economics, Elsevier, vol. 35(2), pages 309-328, June.
    6. Thorsten Beck & Asli Demirguc-Kunt, 2005. "Law and Firms' Access to Finance," American Law and Economics Review, American Law and Economics Association, vol. 7(1), pages 211-252.
    7. Thorsten Beck & Ross Levine, 2008. "Legal Institutions and Financial Development," Springer Books, in: Claude Ménard & Mary M. Shirley (ed.), Handbook of New Institutional Economics, chapter 11, pages 251-278, Springer.
    8. Dyar, Julie A. & Wagner, Jeffrey, 2003. "Uncertainty and species recovery program design," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 505-522, March.
    9. Robert Cooter & Ariel Porat, 2007. "Total Liability for Excessive Harm," The Journal of Legal Studies, University of Chicago Press, vol. 36(1), pages 63-80, January.
    10. Grajzl, Peter & Murrell, Peter, 2016. "A Darwinian theory of institutional evolution two centuries before Darwin?," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 346-372.
    11. Hadfield, Gillian K., 2011. "The dynamic quality of law: The role of judicial incentives and legal human capital in the adaptation of law," Journal of Economic Behavior & Organization, Elsevier, vol. 79(1-2), pages 80-94, June.
    12. Anthony Niblett, 2013. "Case-by-Case Adjudication and the Path of the Law," The Journal of Legal Studies, University of Chicago Press, vol. 42(2), pages 303-330.
    13. Scott Baker & Claudio Mezzetti, 2012. "A Theory of Rational Jurisprudence," Journal of Political Economy, University of Chicago Press, vol. 120(3), pages 513-551.
    14. Russell Smyth & Vinod Mishra, 2009. "The Publication Decisions of Judges on the County Court of Victoria," The Economic Record, The Economic Society of Australia, vol. 85(271), pages 462-471, December.
    15. Patricio A. Fernandez & Giacomo A. M. Ponzetto, 2012. "Stare Decisis: Rhetoric and Substance," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 28(2), pages 313-336.
    16. Srivastava Astha & Srivastava Ankur, 2021. "Economic Analysis of Accident Law: A New Liability Rule that Induces Socially Optimal Behaviour in Case of Limited Information," Review of Law & Economics, De Gruyter, vol. 17(1), pages 119-131, March.
    17. Ott, Claus & Schafer, Hans-Bernd, 1997. "Negligence as untaken precaution, limited information, and efficient standard formation in the civil liability system," International Review of Law and Economics, Elsevier, vol. 17(1), pages 15-29, March.
    18. Thomas J. Miceli, 2009. "Legal Change: Selective Litigation, Judicial Bias, and Precedent," The Journal of Legal Studies, University of Chicago Press, vol. 38(1), pages 157-168, January.
    19. Anthony Niblett, 2017. "On the efficiency of the common law: an application to the recovery of rewards," European Journal of Law and Economics, Springer, vol. 43(3), pages 393-417, June.

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