Sharing residual liability: The cheapest cost avoider revisited

Emanuela Carbonara, Alice Guerra, Francesco Parisi

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

Economic models of tort law evaluate the efficiency of liability rules in terms of care and activity levels. A liability regime is optimal when it creates incentives to maximize the value of risky activities net of accident and precaution costs. The allocation of primary and residual liability allows policy makers to induce parties to undertake socially desirable care and activity levels. Traditionally, tort law systems have assigned residual liability either entirely on the tortfeasor or entirely on the victim. In this paper, we unpack the cheapest-cost-avoider principle to consider the virtues and limits of loss-sharing rules in generating optimal (second-best) incentives and allocations of risk. We find that loss sharing may be optimal in the presence of countervailing policy objectives, homogeneous risk avoiders, and subadditive risk, which potentially offers a valuable tool for policy makers and courts in awarding damages in a large number of real-world accident cases.

Original languageEnglish (US)
Pages (from-to)173-201
Number of pages29
JournalJournal of Legal Studies
Volume45
Issue number1
DOIs
StatePublished - Jan 2016

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