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A Tort for Risk and Endogenous Bankruptcy

Author

Listed:
  • Thomas J. Miceli

    (University of Connecticut)

  • Kathleen Segerson

    (University of Connecticut)

Abstract

Conventional tort law bars victims of exposure to a toxic substance from filing suit until they actually develop symptoms of illness. Practically speaking, this rule often bars recovery due to bankruptcy and causal uncertainty. One solution is to allow victims to file at exposure for expected damages (a tort for risk). The trade-off is that such a rule may trigger a race to file among exposure victims, thereby itself inducing bankruptcy. This paper characterizes the conditions under which such a race will occur in equilibrium and examines the implications for social welfare.

Suggested Citation

  • Thomas J. Miceli & Kathleen Segerson, 2004. "A Tort for Risk and Endogenous Bankruptcy," Working papers 2004-24, University of Connecticut, Department of Economics.
    • Handle: RePEc:uct:uconnp:2004-24
    Note: We acknowledge the very useful comments of David Martimort and an anonymous referee.
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    File URL: https://media.economics.uconn.edu/working/2004-24.pdf
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    References listed on IDEAS

    as
    1. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    2. Miceli, Thomas J. & Segerson, Kathleen, 2003. "A note on optimal care by wealth-constrained injurers," International Review of Law and Economics, Elsevier, vol. 23(3), pages 273-284, September.
    3. Rose-Ackerman, Susan, 1989. "Dikes, Dams, and Vicious Hogs: Entitlement and Efficiency in Tort Law," The Journal of Legal Studies, University of Chicago Press, vol. 18(1), pages 25-50, January.
    4. Fischer, Michael J, 1996. "Union Carbide's Bhopal Incident: A Retrospective," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 257-269, May.
    5. Kathryn E. Spier, 2002. "Settlement with Multiple Plaintiffs: The Role of Insolvency," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(2), pages 295-323, October.
    6. Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, vol. 6(1), pages 45-58, June.
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    Cited by:

    1. Thomas J. Miceli & Kathleen Segerson, 2005. "Do Exposure Suits Produce a "Race to File"? An Economic Analysis of a Tort for Risk," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 613-627, Autumn.

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    More about this item

    Keywords

    Environmental accidents; mass torts; bankruptcy;
    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
    • Q27 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Issues in International Trade

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