Accident Law: An Excessive Standard May Be Efficient
13 Pages Posted: 25 Jan 2002
Date Written: December 2001
In a world with risk-neutral agents, liability rules will only induce efficient behavior if these rules impose the full (marginal) costs of an action on the parties. However, institutional restrictions or bilateral activity choices can prevent the full internalization of costs. A mechanism is proposed which guarantees an efficient outcome: monetary fines which are not related to the occurrence of an accident. Such a mechanism requires individuals to violate the standard of care in order to trigger fine payments. Hence, efficiency needs an excessive standard.
Keywords: Accident Law, Activity, Care, Efficiency, Fines, Standards of Care, Tort Law
JEL Classification: K13, K42
Suggested Citation: Suggested Citation