On the Choice of Liability Rules

Rajendra Kundu and Pal Debabrata ()
Additional contact information
Pal Debabrata: Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Delhi, 110067, India

The B.E. Journal of Theoretical Economics, 2021, vol. 21, issue 1, 1-18

Abstract: Legal assignment of liabilities for losses arising out of interactions involving negative externalities usually depend on which of the interacting parties are negligent and which are not. It has been established in the literature that, if negligence is defined as failure to take some cost-justified precaution then there is no liability rule which can always lead to an efficient outcome. The objective of this paper is to try and understand if it is still possible to make pairwise comparisons between rules on the basis of efficiency and to use such a method to explain/evaluate choices from a given set of rules. We focus on a set of five of the most widely analyzed rules (no liability, strict liability, negligence, negligence with the defense of contributory negligence and strict liability with the defense of contributory negligence), and use a binary relation according to which a rule in the set is considered to be at least as efficient as another if and only if the set of applications for which it is inefficient is a subset of the set of applications for which the other one is inefficient. We show that, with respect to the above mentioned relation, pairwise comparisons between rules in this set fail. The paper, thus, demonstrates that an efficiency based explanation for any choice from these five rules is not consistent with the notion of negligence defined as failure to take some cost-justified precaution.

Keywords: liability rule; simple liability rule; negligence; cost-justified untaken precaution; Nash equilibrium; efficiency (search for similar items in EconPapers)
JEL-codes: C72 D60 D62 K13 K40 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/bejte-2019-0160 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejtec:v:21:y:2021:i:1:p:1-18:n:6

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejte/html

DOI: 10.1515/bejte-2019-0160

Access Statistics for this article

The B.E. Journal of Theoretical Economics is currently edited by Burkhard C. Schipper

More articles in The B.E. Journal of Theoretical Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().