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On the Assignment of Liability: The Uniform Case

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  • P. A. Diamond
  • J. A. Mirrlees

Abstract

It is feasible in some competitive equilibria with externalities to shift some externality costs among different agents in the economy. However, simply shifting costs will not, in general, result in efficient allocation decisions by all agents, since the magnitude of externality costs depends on the decisions of several agents. Comparing different resource allocations arising from two different patterns of cost bearing is thus a comparison of two inefficient equilibria. This paper explores several sets of assumptions which are sufficient to determine which allocation is more efficient. These assumptions help to identify the agent Calabresi has called the cheapest cost avoider.
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Suggested Citation

  • P. A. Diamond & J. A. Mirrlees, 1975. "On the Assignment of Liability: The Uniform Case," Working papers 152, Massachusetts Institute of Technology (MIT), Department of Economics.
    • Handle: RePEc:mit:worpap:152
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    Cited by:

    1. Jens Gudmundsson & Jens Leth Hougaard & Chiu Yu Ko, 2022. "Sharing sequentially triggered losses: Automatic conflict resolution through smart contracts," IFRO Working Paper 2020/05, University of Copenhagen, Department of Food and Resource Economics.
    2. Giuseppe Dari-Mattiacci & Gerrit De Geest, 2005. "The Filtering Effect of Sharing Rules," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 207-237, January.
    3. Nuno Garoupa, 2009. "Least-Cost Avoidance: The Tragedy of Common Safety," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 25(1), pages 235-261, May.
    4. Jens Gudmundsson & Jens Leth Hougaard & Chiu Yu Ko, 2020. "Sharing sequentially triggered losses," IFRO Working Paper 2020/05, University of Copenhagen, Department of Food and Resource Economics.
    5. C. Chu, 2003. "Precedent Externality, Network Effect, and the Possible Inefficiency of the Evolution of Laws," European Journal of Law and Economics, Springer, vol. 16(2), pages 187-198, September.
    6. Jens Gudmundsson & Jens Leth Hougaard & Jay Sethuraman, 2024. "Managing cascading disruptions through optimal liability assignment," Papers 2408.07361, arXiv.org.

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