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Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?

Charles Kolstad, Thomas S Ulen and Gary V Johnson

American Economic Review, 1990, vol. 80, issue 4, 888-901

Abstract: This paper concerns the regulation of hazardous economic activities. Economists have generally viewed ex ante regulations (safety standards, Pigouvian fees) that regulate an activity before an accident occurs as substitutes for ex post policies (exposure to tort liability) for correcting externalities. This paper shows that where there is uncertainty, there are inefficiencies associated with the exclusive use of negligence liability and that ex ante regulation can correct the inefficiencies. In such a case, it is efficient to set the safety standard below the level of precaution that would be called for if the standard were used alone. Copyright 1990 by American Economic Association.

Date: 1990
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Handle: RePEc:aea:aecrev:v:80:y:1990:i:4:p:888-901