Two Advantages of the Negligence Rule Over Strict Liability when the Parties are Risk Averse
-
Henrik Lando
Abstract
When parties are risk-averse and therefore take out insurance, the efficiency of a tort rule depends on how well the insurance contracts govern incentives, risk allocation and transaction costs under the rule. This article presents two overlooked or discarded advantages of the rule of negligence over strict liability, which appear when insurance contracts are incomplete due to ex-ante transaction or ex-post verification costs. One advantage arises because of a legal impediment under strict liability: insurers cannot exempt coverage for all acts of simple negligence. Instead, the insurer must, at a cost, precisely specify each act for which coverage is excluded. Such specification can be prohibitively costly when there are many acts and many contingencies. These transaction costs, or the inefficient risk allocation associated with a deductible, are avoided under the negligence rule, where under idealized conditions the injurer can simply take due care and need not take out insurance. The other advantage of the negligence rule is that it provides incentives for the victim to bring forward information about the injurer’s acts. The victim has little incentive to convey such information under strict liability, whereas the victim’s insurer may elicit it, e. g. by not covering the victim’s loss fully.
References
Al-Najjar, Nabil I., Luca Anderlini, and Leonardo Felli. 2006. “Undescribable Events,” 73 (4)The Review of Economic Studies 849–868.10.1111/j.1467-937X.2006.00399.xSuche in Google Scholar
Battigalli, Pierpaolo, and Giovanni Maggi. 2002. “Rigidity, Discretion, and the Costs of Writing Contracts,” 92 (4)American Economic Review 798–817.10.1257/00028280260344470Suche in Google Scholar
Demougin, Dominique, and Claude Fluet. 1999. “A Further Justification for the Negligence Rule,” 19 (1)International Review of Law and Economics 33–45.10.1016/S0144-8188(98)00031-3Suche in Google Scholar
Dye, Ronald A. 1985. “Costly Contract Contingencies,” 26 (1)International Economic Review 233–250. (Feb., 1985).10.2307/2526538Suche in Google Scholar
Feess, Eberhard, and Ansgar Wohlschlegel. 2006. “Liability and Information Transmission: The Advantage of Negligence Based Rules,” 92 (1)Economics Letters 63–67.10.1016/j.econlet.2006.01.023Suche in Google Scholar
Holmstrom, Bengt. 1979. “Moral Hazard and Observability,” 10 (1)The Bell Journal of Economics 74–91. (Spring, 1979).10.2307/3003320Suche in Google Scholar
Kaplow, Louis. 1992. “Rules Versus Standards: An Economic Analysis,” 42 Duke Law Journal 557–629.10.2307/1372840Suche in Google Scholar
Newman, Harry A., and David W. Wright. 1992. “Negligence Versus Strict Liability in a Principal—Agent Model,” 44 (4)Journal of Economics and Business 265–281.10.1016/S0148-6195(05)80002-5Suche in Google Scholar
Schäfer, Hans-Bernd, and Frank Müller-Langer. 2009. Strict liability versus negligence. Number 1991. Edward Elgar Cheltenham,10.4337/9781848447301.00008Suche in Google Scholar
Shavell, Steven. 1982. “On Liability and Insurance,” 13 (1)The Bell Journal of Economics 120–132. (Spring, 1982).10.2307/3003434Suche in Google Scholar
Shavell, Steven. 1987. Economic Analysis of Accident Law. Cambridge: Harvard University Press.10.4159/9780674043510Suche in Google Scholar
Shavell, Steven. 2006. “On the Writing and the Interpretation of Contracts,” 22 (2)The Journal of Law, Economics, and Organization 289–314.Suche in Google Scholar
Sher, Noam. 2006. “New Differences between Negligence and Strict Liability and Their Implications on Medical Malpractice Reform,” 16 S. Cal. Interdisc. LJ 335.Suche in Google Scholar
© 2020 Walter de Gruyter GmbH, Berlin/Boston
Artikel in diesem Heft
- Articles
- Two Advantages of the Negligence Rule Over Strict Liability when the Parties are Risk Averse
- Is a ‘Bad Individual’ more Condemnable than Several ‘Bad Individuals’? Examining the Scope-severity Paradox
- Leniency Programs and Cartel Organization of Multiproduct Firms
- Fairness Vs. Economic Efficiency: Lessons from an Interdisciplinary Analysis of Talmudic Bankruptcy Law
- Individual or Enterprise Liability? The Roles of Sanctions and Liability Under Contractible and Non-contractible Safety Efforts
- US State Tort Liability Reform and Entrepreneurship
Artikel in diesem Heft
- Articles
- Two Advantages of the Negligence Rule Over Strict Liability when the Parties are Risk Averse
- Is a ‘Bad Individual’ more Condemnable than Several ‘Bad Individuals’? Examining the Scope-severity Paradox
- Leniency Programs and Cartel Organization of Multiproduct Firms
- Fairness Vs. Economic Efficiency: Lessons from an Interdisciplinary Analysis of Talmudic Bankruptcy Law
- Individual or Enterprise Liability? The Roles of Sanctions and Liability Under Contractible and Non-contractible Safety Efforts
- US State Tort Liability Reform and Entrepreneurship
