Accident Law: Efficiency May Require an Inefficient Standard

Posted: 24 Apr 2002

See all articles by Laszlo Goerke

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Abstract

In a world with risk-neutral agents in which accidents occur with a positive probability, liability rules will only induce efficient behaviour 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 the fine payments. Hence, efficiency requires an excessive standard.

Suggested Citation

Goerke, Laszlo, Accident Law: Efficiency May Require an Inefficient Standard. Available at SSRN: https://ssrn.com/abstract=308983

Laszlo Goerke (Contact Author)

University of Trier - Institute of Labour Law and Industrial Relations in the European Union ( email )

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IZA Institute of Labor Economics

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