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Strict Liability, Settlement, and Moral Concern

Author

Listed:
  • Chulyoung Kim

    (Yonsei University)

  • S. David Kim

    (Ohio State University)

  • Sangyoon Nam

    (Yonsei University)

Abstract

We investigate the consequences of introducing a settlement stage to the environment of Deffains and Fluet (2013) in which an injurer has moral concern about harming a victim. Focusing on the unique interior solution, we characterize the Perfect Bayesian Equilibrium that has a cutoff property: high-moral types are willing to settle whereas low-moral types reject the victim's settlement offer and proceed to trial. We show that the injurer's equilibrium level of precautionary effort increases as the injurer¡¯s moral type increases and becomes constant at the marginal moral-type who is indifferent between settlement and trial. We also discuss the settlement's effect in reducing the high types' precautionary effort and the cost shifting rule's effect on the equilibrium outcomes

Suggested Citation

  • Chulyoung Kim & S. David Kim & Sangyoon Nam, 2018. "Strict Liability, Settlement, and Moral Concern," Working papers 2018rwp-137, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2018rwp-137
    as

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    References listed on IDEAS

    as
    1. Posner, Richard A. & Rasmusen, Eric B., 1999. "Creating and enforcing norms, with special reference to sanctions1," International Review of Law and Economics, Elsevier, vol. 19(3), pages 369-382, September.
    2. Bruno Deffains & Claude Fluet, 2013. "Legal Liability when Individuals Have Moral Concerns," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(4), pages 930-955, August.
    3. Posner, R.A. & Rasmusen, E., 1998. "Creating and Enforcing Norms, with Special Reference to Sanctions," Papers 98-005, Indiana - Center for Econometric Model Research.
    4. Shavell, Steven, 2007. "Liability for Accidents," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 1, chapter 2, pages 139-182, Elsevier.
    5. Uri Gneezy & Aldo Rustichini, 2000. "Pay Enough or Don't Pay at All," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 791-810.
    6. Polinsky, A Mitchell, 1980. "Strict Liability vs. Negligence in a Market Setting," American Economic Review, American Economic Association, vol. 70(2), pages 363-367, May.
    7. Posner, Richard A, 1997. "Social Norms and the Law: An Economic Approach," American Economic Review, American Economic Association, vol. 87(2), pages 365-369, May.
    8. Theodore Eisenberg & Charlotte Lanvers, 2009. "What is the Settlement Rate and Why Should We Care?," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 6(1), pages 111-146, March.
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    More about this item

    Keywords

    legal liability; settlement; moral concern; tort.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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