Abstract
One of the most important propositions in the economics of liability rules states that strict liability and the negligence rule are equivalent and first-best efficient if the standard of due care is set according to the Hand rule. This proposition hinges on the assumption that individuals are risk neutral. This paper considers this proposition with risk-averse individuals, and demonstrates that the proposition does not extend. In particular, the two liability rules are not equivalent, and the analysis compares the two liability rules in terms of utilitarian social welfare.
Acknowledgement
I am grateful to an anonymous referee for his/her helpful comments.
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©2016 by De Gruyter
Articles in the same Issue
- Frontmatter
- Litigation with a Variable Cost of Trial
- Ex ante versus Ex post Governance: A Behavioral Perspective
- Risk Aversion, the Hand Rule, and Comparison between Strict Liability and the Negligence Rule
- Takings and Tax Revenue: Fiscal Impacts of Eminent Domain
- When Should Governments Reveal Criminal Histories?
- Ideology and Strategy among Politicians: The Case of Judicial Independence
- Tax Return as a Political Statement
- What Makes Law to Change Behavior? An Experimental Study
Articles in the same Issue
- Frontmatter
- Litigation with a Variable Cost of Trial
- Ex ante versus Ex post Governance: A Behavioral Perspective
- Risk Aversion, the Hand Rule, and Comparison between Strict Liability and the Negligence Rule
- Takings and Tax Revenue: Fiscal Impacts of Eminent Domain
- When Should Governments Reveal Criminal Histories?
- Ideology and Strategy among Politicians: The Case of Judicial Independence
- Tax Return as a Political Statement
- What Makes Law to Change Behavior? An Experimental Study