The Double Liability Rule&ast

Jörg Finsinger and Mark V. Pauly
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Jörg Finsinger: University of Hohenheim, Stuttgart
Mark V. Pauly: University of Pennsylvania

The Geneva Risk and Insurance Review, 1990, vol. 15, issue 2, 159-169

Abstract: Conventional liability rules do not lead to a first best allocation. Optimal bilateral risk control can be achieved by not compensating any losses and, in addition, charging each party a fine equal to the loss suffered by the other party. In this way, each party internalizes the full accident loss. This paper investigates the properties of this “double liability†rule under risk neutrality and risk aversion of the parties. Finally the use of this rule in the context of multiple-party accidents is discussed. The Geneva Papers on Risk and Insurance Theory (1990) 15, 159–169. doi:10.1007/BF01489707

Date: 1990
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