Bankruptcy and Care Choice

Thomas Beard

RAND Journal of Economics, 1990, vol. 21, issue 4, 626-634

Abstract: This article considers the care choice of a potentially bankrupt injurer when care is pecuniary and the legal system is characterized by strict liability. I show, contrary to previous results, that such an injurer may take too little or too much care, and that neither injurer care nor victim welfare is necessarily increasing in injurer wealth when injurers behave optimally. Analysis of an "expected cost function" demonstrates that injurer expected costs are a concave and increasing function of injurer assets, a result suggesting applications to the study of vertical relationships and markets for agents.

Date: 1990
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