Strict Liability, Settlement, and Moral Concern

Chulyoung Kim, S. David Kim and Sangyoon Nam
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S. David Kim: Ohio State University
Sangyoon Nam: Yonsei University

No 2018rwp-137, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: We investigate the consequences of introducing a settlement stage to the environment of Deffains and Fluet (2013) in which an injurer has moral concern about harming a victim. Focusing on the unique interior solution, we characterize the Perfect Bayesian Equilibrium that has a cutoff property: high-moral types are willing to settle whereas low-moral types reject the victim's settlement offer and proceed to trial. We show that the injurer's equilibrium level of precautionary effort increases as the injurer¡¯s moral type increases and becomes constant at the marginal moral-type who is indifferent between settlement and trial. We also discuss the settlement's effect in reducing the high types' precautionary effort and the cost shifting rule's effect on the equilibrium outcomes

Keywords: legal liability; settlement; moral concern; tort. (search for similar items in EconPapers)
JEL-codes: C72 D82 K41 (search for similar items in EconPapers)
Pages: 20pages
Date: 2018-10
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