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Decomposition of accident loss and decoupled liability assignment: A class of negligence rules

Author

Listed:
  • Papiya Ghosh

    (IIFT)

  • Rajendra P. Kundu

    (JNU)

Abstract

This paper is a contribution to the literature on efficient assignment of liabilities for accidental losses arising out of two party interactions involving negative externalities. The objective is to examine the requirements that efficiency imposes on rules for the assignment of liabilities for such losses. We study efficiency properties of a very general class of rules which (i) decompose the loss into two components (specified loss and excess loss); (ii) assigns the entire excess loss to the injurer if she is negligent and to the victim otherwise; and assigns fixed proportions (not necessarily adding up to 1) of the specified loss to the two parties with the possibility of eventually resulting in an assignment of liabilities which can in principle be decoupled. In contrast to existing results, we demonstrate that assignment of the specified loss is also important for efficiency and complete decoupling is not inconsistent with efficiency.

Suggested Citation

  • Papiya Ghosh & Rajendra P. Kundu, 2023. "Decomposition of accident loss and decoupled liability assignment: A class of negligence rules," Indian Economic Review, Springer, vol. 58(1), pages 119-140, June.
    • Handle: RePEc:spr:inecre:v:58:y:2023:i:1:d:10.1007_s41775-022-00144-x
    DOI: 10.1007/s41775-022-00144-x
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    References listed on IDEAS

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    1. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    2. Harshil Kaur & Rajendra P. Kundu, 2020. "Efficient Liability Assignment: Is Coupling a Necessity?," Economics Bulletin, AccessEcon, vol. 40(3), pages 2388-2394.
    3. A. Mitchell Polinsky & Yeon-Koo Che, 1991. "Decoupling Liability: Optimal Incentives for Care and Litigation," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 562-570, Winter.
    4. Peter A. Diamond, 1974. "Accident Law and Resource Allocation," Bell Journal of Economics, The RAND Corporation, vol. 5(2), pages 366-405, Autumn.
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    6. Satish Kumar Jain, 2015. "Economic Analysis of Liability Rules," Springer Books, Springer, edition 127, number 978-81-322-2029-9, April.
    7. Satish Jain, 2006. "Efficiency of liability rules: A reconsideration," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 15(3), pages 359-373.
    8. Kundu, Rajendra P. & Kaur, Harshil, 2022. "Efficient simple liability assignment rules: A complete characterization," Mathematical Social Sciences, Elsevier, vol. 116(C), pages 22-31.
    9. Jain Satish K., 2012. "Decoupled Liability and Efficiency: An Impossibility Theorem," Review of Law & Economics, De Gruyter, vol. 8(3), pages 697-718, December.
    10. Jain Satish K. & Kundu Rajendra P., 2015. "Decomposition of Accident Loss and Efficiency of Liability Rules," Review of Law & Economics, De Gruyter, vol. 11(3), pages 453-480, November.
    11. Satish K. Jain & Ram Singh, 2002. "Efficient Liability Rules: Complete Characterization," Journal of Economics, Springer, vol. 75(2), pages 105-124, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Liability rule; Negligence; Decomposition of loss; Decoupled liability; Efficiency;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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